Current report no. 11/2018

Signing of the transaction documentation related to the investment ofthe Closed-end Investment Funds managed by Polski Fundusz Rozwoju S.A.(Polish Development Fund) in the company carrying out the 910 MW powergenerating unit construction project in Jaworzno

In reference to the current report no. 25/2017 of June 1, 2017, currentreport no. 43/2017 of December 29, 2017 and current report no. 4/2018 ofFebruary 28, 2018, related to the continuation of activities aimed atcooperation in the implementation of the 910 MW power generation unitconstruction project in Jaworzno ("Unit"), the Management Board ofTAURON Polska Energia S.A. ("Issuer") informs that on March 28, 2018 theIssuer, Nowe Jaworzno Grupa Tauron sp. z o.o. ("Special PurposeVehicle") and Fundusz Inwestycji Infrastrukturalnych - KapitałowyFundusz Inwestycyjny Zamknięty Aktywów Niepublicznych (InfrastructureInvestments Fund - Non-public Assets Closed-end Equity Investment Fund)and Fundusz Inwestycji Infrastrukturalnych - Dłużny Fundusz InwestycyjnyZamknięty Aktywów Niepublicznych (Infrastructure Investments Fund -Non-public Assets Closed-end Debt (Fixed Income) Investment Fund)(collectively the "Funds"), a part of whose investment portfolio ismanaged by Polski Fundusz Rozwoju S.A. (Polish Development Fund), signedthe transaction documentation defining the terms of the Funds' equityinvestment in the Special Purpose Vehicle.

The transaction documentation includes the Investment Agreement and theShareholders Agreement, along with appendices thereto, including thedrafts of a multi-year Electricity Sale Agreement and a multi-year CoalSale Agreement that are to be concluded by the Issuer and the SpecialPurpose Vehicle.

Investment Agreement defines the terms and conditions of the Funds'equity investment in the Special Purpose Vehicle. This investmentassumes the Funds joining the Special Purpose Vehicle and theirparticipation in the subsequent recapitalizations of the Special PurposeVehicle, by taking up the newly created shares in exchange for financialcontributions up to the total maximum amount of PLN 880 mln, i.e. PLN440 mln by each of the Funds. The Funds' stake in the Special PurposeVehicle's share capital, as of the day the Unit is commissioned, shouldreach approx. 14%, while the Issuer's stake shall in no case drop below50% + 1 share. The Issuer will be obligated to ensure the SpecialPurpose Vehicle's recapitalization to the extent required to completethe Unit's construction project after the Funds have achieved the equityexposure in the amount equal to the above mentioned maximum level.

Investment Agreement makes joining the Special Purpose Vehicle by theFunds contingent on the fulfillment of specific suspending conditions.The suspending conditions include obtaining a consent of the Presidentof the Office of Competition and Consumer Protection for theconcentration, issuing by the Head of the National RevenueAdministration (NRA) of the decision on approving the terms of theElectricity Sale Agreement as an advance pricing agreement ("APADecision"), concluding by the Issuer and the Special Purpose Vehicle ofthe specified agreements, including the Electricity Sale Agreement andthe Coal Sale Agreement, as well as completing (or ensuring completing)by the Issuer of the specified activities by the Special PurposeVehicle's corporate bodies (authorities). The suspending conditions areto be fulfilled within 4 months from the day of concluding theInvestment Agreement, excluding the condition related to obtaining theAPA Decision which is to be fulfilled within 7 months.

Investment Agreement defines situations that represent a material breachof the Investment Agreement by the Issuer or by the Funds. An occurrenceof a material breach of the Investment Agreement prior to the Fundsjoining the Special Purpose Vehicle may lead to the need to payliquidated damages in the amount corresponding to the value of theFunds' investments, and, after the Funds have joined the Special PurposeVehicle, it may lead to the conclusion of an agreement on the sale ofthe stake in the Special Purpose Vehicle by the Funds in favor of theIssuer on the terms defined in the Investment Agreement.

Shareholders Agreement defines the principles of corporate governance inthe Special Purpose Vehicle. This agreement grants the Funds, amongothers, a personal entitlement to appoint, suspend in their duties anddismiss one member of the Management Board and one member of theSupervisory Board of the Special Purpose Vehicle. It also defines acatalogue of matters for the completion of which by the Special PurposeVehicle a unanimous resolution of the Management Board, the SupervisoryBoard or the General Meeting of Shareholders of the Special PurposeVehicle will be required. Shareholders Agreement will come into force onthe day the Funds join the Special Purpose Vehicle.

Joining the Special Purpose Vehicle by the Funds will trigger theso-called Lock-up Period (lasting, as a principle, 7 years from thatdate), during which the Shareholders of the Special Purpose Vehicle willnot be allowed to sell shares in the Special Purpose Vehicle without aconsent of the other Shareholders (except for cases explicitly indicatedin the Shareholders Agreement). After the Lock-up Period has elapsed theIssuer will have the right to buy all the shares in the Special PurposeVehicle held by the Funds for a price determined in accordance with theprovisions of the Shareholders Agreement.

The drafts of the Electricity Sale Agreement and the Coal Sale Agreementassume implementing the business model of the Special Purpose Vehicle'sfunctioning agreed upon in the Investment Agreement, assuming that:

- Special Purpose Vehicle will, as a principle, be selling its entirevolume of electricity generated by the Unit to the Issuer, excluding thevolume of electricity covered by the so-called power exchange obligationand the volume covered by the liabilities of the Special Purpose Vehicletowards Polskie Sieci Elektroenergetyczne S.A. (power transmissionsystem operator),

- Issuer will have the ability to operationally control and deploy theUnit's net generation capacity, including the ability to influence(control) the volume of electricity generated in the long and short term,

- electricity price will be set at a level that will enable the SpecialPurpose Vehicle to reach the assumed return on assets, taking intoaccount the tax regulations related to transfer pricing,

- under the Coal Sale Agreement the Issuer will provide long termsupplies of hard coal, as the Unit's primary fuel, for the SpecialPurpose Vehicle, including for the needs of generating electricitycovered by the power exchange obligation and maintaining mandatory fuelinventory levels.

The above agreements constitute long term sale agreements and they willbe in force from the day they are concluded until the end of the year inwhich the 30-year period running from the beginning of the normalcommercial operation of the Unit ends, and their early termination maytake place on the conditions specified therein.Legal basis:Art.17 clause 1 MAR - inside information