Grupa Azoty S.A.

Related Party Transaction • Jun 1, 2020

Current Report no. 24/2020, dated 31.05.2020

The execution of transaction documentation concerning the terms andconditions of equity investment and financing of the Polimery Policeproject with Grupa Lotos S.A., Hyundai Engineering Co., Ltd and KoreaOverseas Infrastructure & Urban Development Corporation

Legal grounds: Article 17 (1) of the MAR – confidential information

With reference to current reports no. 24/2019 of 26 April 2019, no.58/2019 of 31 October 2019, no. 73/2019 of 22 November 2019, no. 74/2019of 6 December 2019, no. 77/2019 of 13 December 2019, no. 80/2019 of 23December 2019 and no. 23/2020 of 31 May 2020, the Management Board ofGrupa Azoty S.A. (hereinafter: the “Issuer”) would like to inform youthat, on 31 May 2020, the Issuer, the Issuer’s subsidiary – Grupa AzotyZakłady Chemiczne “Police” S.A. (hereinafter: the “Subsidiary”, andjointly with the Issuer - the “Original Sponsors”) and the OriginalSponsors’ subsidiary – Grupa Azoty Polyolefins S.A. (hereinafter:“Polyolefins”) concluded agreements with Grupa Lotos S.A. (“GrupaLotos”), Hyundai Engineering Co., Ltd (hereinafter: “Hyundai”) and KoreaOverseas Infrastructure & Urban Development Corporation (hereinafter:“KIND”, jointly with Grupa Lotos and Hyundai - the “Co-Sponsors”, andjointly with the Original Sponsors and Polyolefins - the “Parties”),concerning the terms and conditions of equity investment andsubordinated debt financing (“Transaction Documentation”) in connectionwith Polyolefins developing an investment project known as “PolimeryPolice” (hereinafter: the “Project”).

The following agreements were executed as part of the TransactionDocumentation: (i) an investment agreement between the OriginalSponsors, Polyolefins and Grupa Lotos; (ii) a loan agreement betweenPolyolefins and Grupa Lotos; (iii) an investment agreement between theOriginal Sponsors, Polyolefins, Hyundai and KIND; (iv) a loan agreementbetween Polyolefins and KIND; (v) a loan agreement between the Issuerand Polyolefins; (vi) a loan agreement between the Subsidiary andPolyolefins and (vii) a shareholders’ agreement between all the Parties.

Based on the Transaction Documentation, Grupa Lotos undertook to investin the Project the total amount of PLN 500,000,000 (hereinafter:“Lotos’s Investment”) by: (a) contributing cash in the total amount ofPLN 300,000,000 to cover the increased share capital of Polyolefins andtake up new shares in Polyolefins, and (b) providing a subordinated loanto Polyolefins in the amount of PLN 200,000,000. Also, Hyundai undertookto invest a total of USD 73,000,000 in the Project (hereinafter:“Hyundai’s Investment”) by contributing cash to cover the increasedshare capital of Polyolefins and take up new shares in Polyolefins, andKIND undertook to invest a total of USD 57,000,000 in the Project(hereinafter: “KIND’s Investment”, and jointly with Lotos’s Investmentand Hyundai's Investment - “Co-Sponsors’ Investment”) by (i)contributing cash in the amount of USD 5,000,000 to cover the increasedshare capital of Polyolefins and take up new shares in Polyolefins, and(ii) providing a subordinated loan to Polyolefins in the amount of USD52,000,000.

By the date of this report, the Original Sponsors have contributed theamount of PLN 523,760,114.55 into Polyolefins as an equity contributionto cover the shares they take up in Polyolefins, namely, the Issuer hascontributed PLN 219,649,330 and the Subsidiary has contributed PLN304,110,784.55. Based on the Transaction Documentation, the OriginalSponsors additionally undertook to: (i) contribute additional equity toPolyolefins up to the maximum amount of PLN 297,046,245.70 (the Issuer’sundertaking); (ii) contribute additional equity to Polyolefins up to themaximum amount of PLN 278,545,884.65 (the Subsidiary’s undertaking); and(ii) provide loans in the total amount of PLN 732,901,520.00, includingPLN 344,463,738.00 from the Issuer and PLN 388,437,782.00 from theSubsidiary (the “Original Sponsors’ Investment”).

The performance of the Co-Sponsors’ undertakings under the Co-Sponsors’Investment (“Closing”) is conditional upon the fulfilment of theconditions precedent agreed in the Transaction Documentation, including,without limitation: the Initial Sponsors contributing funds to cover theInitial Sponsors’ Investment, the execution of the senior facilityagreement with a syndicate of banks (“Debt Financing Agreement”) and thefulfilment of certain conditions precedent stipulated in the DebtFinancing Agreement.

According to the provisions of the Transaction Documentation, the targetshareholding structure of Polyolefins will be as follows: the OriginalSponsors will hold a total of 64.93% of the shares, including the Issuerholding directly 30.52% and the Subsidiary holding 34.41%; Grupa Lotoswill hold 17.3% of the shares; Hyundai will hold 16.63% of the sharesand KIND will hold 1.14% of the shares. These percentages will representboth the share in the Company’s share capital and the total number ofvotes in Polyolefins’ General Meeting.

The Parties agreed that the lock-up period in which Hyundai and KINDcannot sell shares in Polyolefins (with certain exceptions) willcontinue until the lapse of 3 years from the Project completion date,and in the case of Lotos – until the full repayment of the debt underthe Debt Financing Agreement, but no longer than until 15 December 2035.The Parties also agreed a procedure for the sale by the Co-Sponsors ofshares in Polyolefins after the expiry of the agreed lock-up periods.

Under the Transaction Documentation, the Original Sponsors may conduct apublic offering after the expiry of the lock-up period. Also, theParties agreed on a put option for Hyundai and KIND to sell to theOriginal Sponsors, and a call option for the Original Sponsors to buyfrom Hyundai, in each case in relation to Polyolefins shares with atotal value (calculated on the basis of the price originally paid byHyundai and KIND for such shares) not exceeding USD 70,000,000, for thesame amount expressed in USD, in the case of the put option –additionally reduced by all dividends paid to Hyundai and KIND. TheParties agreed that the options will expire on 31 December 2035, at thelatest.

In the shareholders’ agreement, the Parties agreed the rules ofcorporate governance in Polyolefins. Under the shareholders’ agreement,the Management Board of Polyolefins will consist of 1 to 5 memberselected by the Supervisory Board for a co-extensive 3-year term ofoffice. The person nominated by the Original Sponsor holding the greaternumber of shares should be appointed by the Supervisory Board asPresident of the Management Board of Polyolefins. The PolyolefinsSupervisory Board will consist of 5 to 7 members elected for aco-extensive 3-year term of office. Members of the Supervisory Boardwill be appointed as follows: the Original Sponsor holding the greaternumber of shares has the right to appoint 2 to 3 members of theSupervisory Board, including the Vice-Chairman of the Supervisory Board,and the Original Sponsor holding the smaller number of shares has theright to appoint 1 to 2 members of the Supervisory Board, including theChairman of the Supervisory Board. As long as Grupa Lotos holds at least3% of the shares in Polyolefins, Grupa Lotos will have the right toappoint one member of the Supervisory Board. As long as Hyundai and KINDjointly hold at least 3% of the shares in Polyolefins, Hyundai and KINDwill have the right to jointly appoint one member of the SupervisoryBoard. Also, the Parties have agreed a list of reserved mattersrequiring the consent of the Supervisory Board, including those thatrequire the affirmative votes of the members appointed by theCo-Sponsors. The shareholders’ agreement also defines the list ofmatters reserved for the decision of the General Meeting requiring aqualified majority of 83% of the affirmative votes at the GeneralMeeting. The list of reserved matters does not differ from the marketstandards adopted for transactions of this kind. The Parties have alsoagreed the rules of voting on the individual matters.

The Transaction Documentation provides for liquidated damages forbreaching the essential contractual provisions, including bothliquidated damages due from the Initial Sponsors and those reserved forthe Initial Sponsors or Polyolefins, typical for this type oftransaction. The amount of liquidated damages depends on thesignificance of a given breach. Individual agreements concluded as partof the Transaction Documentation establish the maximum liability formost of the obligations of the Original Sponsors and Polyolefins towardsthe Co-Sponsors, typical for this type of transactions.

Based on the Transaction Documentation, until the Closing date, GrupaLotos, Hyundai and KIND have the right to withdraw from the Transactionif an event or circumstances occur that have or may have a materialadverse impact on, inter alia, the Project or the financial condition ofPolyolefins and make it impossible to implement the Project on theagreed terms.

The Issuer will provide information about the subsequent stages ofequity financing of the Project, including the Closing, in separatecurrent reports.

Legal grounds: Article 17 section 1 of the Regulation of the EuropeanParliament and of the Council (EU) No. 596/2014 of 16 April 2014 onmarket abuse (market abuse regulation) and repealing Directive 2003/6/ECof the European Parliament and of the Council and Commission Directives2003/124/EC, 2003/125/EC and 2004/72/EC (Official Journal of theEuropean Union of 12 June 2014, No. L 173/1 as amended).