Prospekt Emisyjny Grupy LOTOS S.A

Prospectus

Grupa LOTOS Spółka Akcyjna of Gdańsk ul. Elbląska 135, 80-718 Gdańsk

On the basis of this Prospectus, the Company will seek admission of 16,173,362 Series C ordinary bearer shares to trading on the Main Market of the Warsaw Stock Exchange.

(This is a translation of the document originally issued in Polish)

Offeror

IPOPEMA Securities S.A.

This Prospectus was approved by the Financial Supervision Authority on 8th December 2010

Table of contents

I SUMMARY ...... 4 II RISK FACTORS ...... 12 1 RISK FACTORS ASSOCIATED WITH THE ENVIRONMENT IN WHICH THE ISSUER AND ITS GROUP OPERATE ...... 12 2 RISK FACTORS ASSOCIATED WITH THE BUSINESS OF THE ISSUER AND ITS GROUP ...... 14 3 RISKS RELATED TO THE UPSTREAM OPERATIONS OF THE ISSUER AND ITS GROUP ...... 19 4 RISKS RELATED TO IMPLEMENTATION OF THE 10+ PROGRAMME BY THE ISSUER ...... 25 5 ENVIRONMENTAL RISKS ...... 26 6 RISKS RELATED TO THE ISSUER’S AND ITS SUBSIDIARIES’ PROPERTY, PLANT AND EQUIPMENT ...... 28 7 RISKS RELATED TO THE SHARES AND TRADE IN THE SHARES ...... 29 III REGISTRATION DOCUMENT ...... 33 1 RESPONSIBLE PERSONS ...... 33 2 AUDITORS ...... 36 3 FINANCIAL HIGHLIGHTS ...... 38 4 RISK FACTORS ...... 39 5 INFORMATION ON THE ISSUER ...... 40 6 THE ISSUER’S BUSINESS ...... 53 7 ORGANISATIONAL STRUCTURE ...... 97 8 PROPERTY, PLANT AND EQUIPMENT ...... 99 9 OPERATIONAL AND FINANCIAL REVIEW ...... 127 10 CAPITAL RESOURCES ...... 141 11 RESEARCH AND DEVELOPMENT, PATENTS AND LICENCES ...... 145 12 TREND INFORMATION ...... 156 13 PROFIT FORECASTS OR ESTIMATES ...... 157 14 ADMINISTRATIVE, MANAGEMENT, AND SUPERVISORY BODIES AND SENIOR MANAGEMENT . 158 15 REMUNERATION AND OTHER BENEFITS IN RELATION TO THE LAST FULL FINANCIAL YEAR FOR MEMBERS OF THE ADMINISTRATIVE, MANAGEMENT, AND SUPERVISORY BODIES AND THE SENIOR MANAGEMENT ...... 167 16 PRACTICES OF THE ADMINISTRATIVE, MANAGEMENT, AND SUPERVISORY BODIES ...... 169 17 EMPLOYMENT ...... 175 18 MAJOR SHAREHOLDERS ...... 181 19 RELATED PARTY TRANSACTIONS ...... 183 20 FINANCIAL INFORMATION CONCERNING THE ISSUER’S ASSETS AND EQUITY AND LIABILITIES, FINANCIAL POSITION AND PROFITS AND LOSSES ...... 194 21 ADDITIONAL INFORMATION ...... 204 22 MATERIAL AGREEMENTS OTHER THAN AGREEMENTS ENTERED INTO IN THE ORDINARY COURSE OF BUSINESS ...... 219 23 THIRD PARTY INFORMATION AND STATEMENT BY EXPERTS AND DECLARATION OF ANY INTEREST ...... 224 2

24 DOCUMENTS ON DISPLAY ...... 224 25 INFORMATION ON HOLDINGS ...... 224 IV SECURITIES NOTE ...... 225 1 RESPONSIBLE PERSONS ...... 225 2 RICK FACTORS ...... 225 3 BASIC INFORMATION ...... 225 4 INFORMATION CONCERNING THE SECURITIES TO BE ADMITTED TO TRADING ...... 228 5 INFORMATION ON THE TERMS OF THE OFFERING ...... 256 6 ADMISSION TO TRADING AND DEALING ARRANGEMENTS ...... 256 7 SELLING SECURITIES HOLDERS ...... 257 8 COSTS OF THE ISSUE ...... 257 9 DILUTION ...... 257 10 ADDITIONAL INFORMATION ...... 258 V ANNEXES ...... 259 1 ARTICLES OF ASSOCIATION ...... 259 2 DEFINITIONS AND ACRONYMS ...... 270 3 EXCERPT FROM THE NATIONAL COURT REGISTER (KRS) ...... 280

I SUMMARY

The information set out in this Summary is an introduction to the Prospectus only and should be read in conjunction with more detailed information contained in the remainder hereof. Prospective investors are advised to carefully read the entire Prospectus, in particular information on the risks associated with the investment in the shares, covered by Chapter II Risk Factors. Any decision to invest in the securities should always be based on consideration of the entire Prospectus by the investor. Should an investor bring a claim before a court regarding the information contained in the Prospectus, such investor shall bear the cost of translating the Prospectus before the court proceedings are initiated. Persons who have prepared this Summary (or its translation) shall be liable for losses only to the extent that this Summary is misleading, inaccurate or inconsistent with the other parts of the Prospectus.

Introduction to Trading of Series C Shares Acquired in a Private Placement

No share issue or public offering of the Company shares will be carried out based on this Prospectus. This Prospectus has been prepared in connection with the intent to seek admission and introduction to trading on the regulated market of the Warsaw Stock Exchange of 16,173,362 Series C shares in the increased share capital of Grupa LOTOS, subscribed for by the State Treasury. The share capital increase was effected through a private placement with the State Treasury of 16,173,362 shares with a par value of PLN 1 per share and issue price of PLN 22.07 per share, pursuant to a relevant resolution adopted by the Annual General Shareholders Meeting on June 30th 2009. Series C Shares are ordinary bearer shares.

Pursuant to Resolution No. 35 of June 30th 2009, the Issuer‟s Annual General Shareholders Meeting authorised the Company, represented by the Management Board, to execute an agreement with the Polish NDS for the registration of Series C Shares at the deposit operated by the Polish NDS.

To this end, after this Prospectus is approved, the Issuer will promptly apply to the Polish NDS for registering Series C Shares in the NDS system, and then to the Warsaw Stock Exchange for introducing Series C Shares to trading in accordance with Par. 19 of the WSE Rules.

The Grupa LOTOS shares placed in the Polish NDS‟ deposit have been assigned ISIN codes PLLOTOS00025 and PLLOTOS00033.

All 16,173,362 Series C Shares in Grupa LOTOS were subscribed for by the State Treasury, represented by the Minister of the State Treasury, against a non-cash contribution. The primary objective behind the issue of Series C Shares in Grupa LOTOS was to acquire full control over companies of the LOTOS Group. Prior to the transaction, Grupa LOTOS held 69.00% of shares in LOTOS Petrobaltic, 80.04% of shares in LOTOS Czechowice and 80.01% of shares in LOTOS Jasło. Following the share capital increase and the contribution

4 in kind of shares in those three companies, the Issuer holds, respectively, 99.32% of shares in LOTOS Petrobaltic, 85.04% of shares in LOTOS Czechowice and 85.01% of shares in LOTOS Jasło.

The increase in the Issuer‟s share capital effected through the issue of Series C Shares was registered on July 17th 2009. The table below shows the Issuer‟s shareholder structure after the registration of Series C Shares:

Table 1 Shareholder Structure of Grupa LOTOS

Shareholder No. of shares/ % of share No. of votes at GM capital / % the total vote held State Treasury1 69,076,392 53.19% ING OFE (Open-Ended Pension Fund)2 6,524,479 5.02% Other shareholders 54,272,491 41.79% Total 129,873,362 100.00% Source: the Issuer.

The LOTOS Group

Grupa LOTOS is a joint-stock company (spółka akcyjna), whose shares have been listed on the regulated market of the Warsaw Stock Exchange since 2005. The Company shares are included in the following WSE indices: WIG-20 (blue chip index), WIG-Paliwa (index of fuel sector companies) and RESPECT Index (index of socially responsible companies).

The LOTOS Group is an oil concern whose business consists in the production and processing of crude oil, as well as wholesale and retail sale of high-quality petroleum products. The Group supplies unleaded gasoline, diesel oil and aviation fuel, and is the leading producer and seller of motor oils, bitumens and paraffins in Poland. Service stations under the LOTOS brand operate in all parts of Poland. Through its subsidiary companies, LOTOS Petrobaltic and LOTOS EPN, the Group is present in the Baltic Sea and the Norwegian Continental Shelf, where it conducts exploration and production operations relating to crude oil.

The ultimate strategic objective of the LOTOS Group is to create shareholder value through optimal leveraging of the existing potential and implementing development projects in the key areas of its operations.

1 In accordance with the shareholder’s statement delivered to the Issuer on January 29th 2010. As at the prospectus date, the Issuer did not receive any other statement from the shareholder to the effect that the above stated shareholder’s holding of the Company shares changed. 2 In accordance with the shareholder’s statement delivered to the Issuer on November 23rd 2009. At the General Shareholders Meeting held on June 28th 2010, ING Otwarty Fundusz Emerytalny (Open-Ended Pension Fund) registered 8,500,000 shares in the Company, representing 6.54% of Grupa LOTOS’ share capital. As at the prospectus date, the Issuer did not receive any other statement from the shareholder to the effect that the above stated shareholder’s holding of the Company shares changed. 5

In connection with the requirement for listed companies to apply International Financial Reporting Standard 8 Operating Segments for annual periods beginning after January 1st 2009, the Issuer has changed the presentation of its operations with respect to operating segments with effect from 2009. For management purposes, the Group is divided into business units which correspond to industry segments.

The Group‟s operating activities comprise two main reportable operating segments:

 upstream segment – comprising activities related to the acquisition of crude oil and natural gas reserves, and crude oil and natural gas production,

 downstream segment – comprising the production and processing of refined petroleum products and their wholesale and retail sale, as well as auxiliary, transport and service activities.

Grupa LOTOS S.A. is part of the downstream segment. The upstream segment comprises the entire group of LOTOS Petrobaltic, the Issuer‟s subsidiary company.

Financial Performance

The financial information on the LOTOS Group for the years 2007–2009 presented below has been compiled on the basis of the audited consolidated financial statements for the financial years 2007, 2008 and 2009 prepared in accordance with the IFRS. The data for H1 2010 was sourced from the semi-annual consolidated financial statements reviewed by an auditor.

Table 2 Consolidated statement of comprehensive income – historical data

LOTOS Group Consolidated statement of comprehensive income (PLNm) 2007 2008 2009 Sales revenue 13,125.1 16,294.7 14,321.1 Cost of sales (11,368.6) (15,315.0) (12,775.8) Gross profit 1,756.5 979.7 1,545.3 Impairment losses on goodwill (21.5) (12.6) 0.0 Selling costs (697.5) (737.3) (726.4) General and administrative expenses (313.5) (316.8) (332.7) Other operating income 81.9 29.8 74.3 Other operating expenses (92.2) (88.6) (140.7) Operating profit/(loss) 713.7 (145.8) 419.8 Finance income 307.3 80.2 954.9 Finance expenses (38.7) (464.6) (303.9) Interest in investments in associated undertakings 22.2 26.5 8.2 Loss of control over subsidiary 0.0 0.0 30.6 Pre-tax profit/(loss) 1,004.5 (503.7) 1,109.6 Corporate income tax (190.4) 114.3 (197.8) Net profit/(loss) from continuing operations 814.1 (389.4) 911.8 - attributable to owners of the parent 777.2 (453.5) 900.8

- attributable to non-controlling interests 36.9 64.1 11.0

Exchange differences on translating foreign operations and (3.9) 26.8 16.9 other comprehensive income

Total comprehensive income 810.2 (362.6) 928.7 - attributable to owners of the parent 773.3 (426.7) 908.1 - attributable to non-controlling interests 36.9 64.1 20.6 Source: the Issuer; the above data includes retrospective presentation adjustments introduced in 2009 to ensure comparability of financial information.

Table 3 Consolidated statement of comprehensive income – data for the period January–September 2010

LOTOS Group Consolidated statement of comprehensive income (PLNm) Jan–Sep 2009 Jan–Sep 2010 Sales revenue 10,296.5 13,941.5 Cost of sales (9,163.2) (12,455.7) Gross profit 1,133.3 1,485.8 Selling costs (521.1) (630.3) General and administrative expenses (226.3) (277.4) Other operating income 27.6 29.8 Other operating expenses (58.5) (68.6) Operating profit/(loss) 355.0 539.3 Finance income 641.9 202.8 Finance expenses (156.2) (265.2) Pre-tax profit/(loss) 30.8 Corporate income tax 871.5 476.9 Net profit/(loss) from continuing operations (188.8) (47.0) - attributable to owners of the parent 682.7 429.9 - attributable to non-controlling interests 673.5 427.9 Total comprehensive income 9.2 2.0 - attributable to owners of the parent 704.0 431.2 - attributable to non-controlling interests 694.7 429.2 Source: the Issuer.

Table 4 Consolidated statement of financial position – historical data

LOTOS Group

Dec 31 2007 Dec 31 2008 Dec 31 2009 Assets 9,883.8 12,319.9 15,226.0 Non-current assets 4,671.6 7,234.6 10,094.4 Current assets, including: 5,208.0 5,076.7 5,126.4

LOTOS Group

Dec 31 2007 Dec 31 2008 Dec 31 2009 Inventories 2,589.3 2,447.2 3,023.1 Receivables 1,542.5 1,564.9 1,668.2 Cash and cash equivalents 925.0 712.8 362.1 Assets held for sale 4.2 8.6 5.2 Equity and liabilities 9,883.8 12,319.9 15,226.0 Share capital 113.7 113.7 129.9 Statutory reserve funds 971.0 971.0 1,311.3 Retained earnings 4,871.4 4,430.2 5,353.9 Translation of foreign operations -7.5 7.0 14.3 Equity attributable to owners of the parent 5,948.6 5,521.9 6,809.4 Non-controlling interests 334.7 396.1 36.8 Total equity 6,283.3 5,918.0 6,846.2 Liabilities, including: 3,600.5 6,401.9 8,379.8 Non-current loans and borrowings 842.9 3,412.2 4,942.6 Current loans and borrowings 517.2 507.4 758.5

Debt and capital employed Financial debt 1,360.1 3,919.6 5,701.1 Net debt 435.1 3,206.8 5,339.0 Capital employed 6,718.4 9,124.8 12,185.2

Source: the Issuer; the above data includes retrospective presentation adjustments introduced in 2009 and 2010 to ensure comparability of financial information.

Table 5 Consolidated statement of financial position – as at September 30th 2010 and comparative data

LOTOS Group Consolidated statement of financial position (PLNm)

Dec 31 2009 Sep 30 2010

Assets 15,226.0 17,027.7 Non-current assets 10,094.4 10,738.2 Current assets, including: 5,126.4 6,283.9 Inventories 3,023.1 3,850.5 Receivables 1,668.2 1,935.0 Cash and cash equivalents 362.1 428.1 Assets held for sale 5.2 5.6 Equity and liabilities 15,226.0 17,027.7 Share capital 129.9 129.9 Statutory reserve funds 1,311.3 1,311.3 Retained earnings 5,353.9 5,794.7

Translation of foreign operations 14.3 15.6 Equity attributable to owners of the parent 6,809.4 7,251.5 Non-controlling interests 36.8 14.6 Total equity 6,846.2 7,266.1 Liabilities, including: 15,226.0 17,027.7 Non-current loans and borrowings 10,094.4 10,738.2 Current loans and borrowings 5,126.4 6,283.9

Source: the Issuer.

Risk Factors

− Risk factors associated with the environment in which the Issuer and its Group operate

 Risk related to overall macroeconomic climate

 Risks related to future legal environment

 Risks related to applicable tax laws

 General risk of changes in tax laws or their interpretations by tax authorities and administrative courts

 Risk related to transfer prices

 Risk related to excise duty

− Risk factors associated with the business of the Issuer and its Group

 Financial risks

 Risk related to prices of products and raw materials

 Currency risk

 Interest rate risk

 Credit risk

 Technological risks

 Technical risk

 Risk of Industrial failure

 Risk of human error

 Risk related to competition in fuel retailing

 Risk related to the Act on Remunerating Persons Who Manage Certain Legal Entities (the Compensation Cap Act)

 Risk that the experience of members of the governing bodies of the LOTOS Group companies may prove insufficient

 Risk of refusal or revocation of a licence or of failure to obtain a licence extension

 Risk related to special rights vested in the Minister of the State Treasury

 Risk of terrorist attacks

− Risks related to the upstream operations of the Issuer and its Group

 Risk related to the estimation of deposit size

 Risk related to the launch of production from new deposits

 Risk related to oil and gas prices

 Risk related to high cost of the technologies used by the Company

 Risk related to decommissioning of mines

 Risk of failure to obtain the extension of licences for exploration and appraisal of minerals

 Insurance risk

 Risk of certain project partners or shareholders not granting their approval to implement a project

 Risk of failure to obtain a permit for the construction of transmission pipelines in a particular location

 Risk related to restrictions on exploitation of gas deposits

 Risk related to the interpretation of the provisions of Polish Energy Law concerning pipelines that cross Polish borders

 Risk related to joint and several liability of all licence partners

 Risk of delays in field development plans resulting from discovery of a deposit extending beyond the licence area

 Risk related to availability of drilling equipment

 Risk related to the management of certain assets by third parties

 Risk related to regulations on the prevention of environmental damage

− Risks related to implementation of the 10+ Programme by the Issuer

 Risk related to ensuring market for products of the new refinery units

− Environmental risks

 Risk of more stringent standards and legal regulations concerning environmental protection

 Risk of environmental damage caused by the operations of the Issuer or other LOTOS Group companies

 Risk of increased expenditure on projects with negative impact on the environment

 Risk related to the Company‟s participation in the Greenhouse Gas Emissions Trading Scheme

 Investment risks related to the proximity of protected areas

− Risks related to the Issuer‟s and its subsidiaries‟ property, plant and equipment

 Risk related to security interests in the Issuer‟s property, plant and equipment

 Risk related to real estate with unresolved legal status

 Risk related to former owners‟ claims to significant real estate (pertaining to the right of perpetual usufruct and the ownership)

 Risk related to the planned property, plant and equipment

 Risk related to the termination or expiry of material agreements for the Issuer‟s use of significant real estate under a legal title other than ownership or right of perpetual usufruct

− Risks related to the shares and trade in the shares

 Risk of refusal to introduce or of delayed introduction of the Issuer shares to trading on the regulated market operated by the WSE

 Risk related to the PFSA imposing sanctions on the Issuer

 Risk related to the WSE suspending trading in the shares or excluding the shares from trading on the regulated market

 Risk related to share price volatility

II RISK FACTORS

Prior to making any investment decisions, prospective investors are advised to carefully consider the risk factors discussed below, as well as the other information contained in this Prospectus.

Risk factors, understood as sources of uncertainty, are inherent in any business activity. The risk factors discussed below – identified on the basis of the Issuer‟s best current knowledge – may not be the only risks affecting the Issuer and its business. In future, risks may emerge that are difficult to foresee at this point in time, such as acts of god and events remaining outside the Group‟s control. It ought to be noted that the occurrence of any of the risks described below may have a material adverse effect on the LOTOS Group‟s business, financial position and performance, and thus – indirectly – on the market price of Issuer shares. As a result, investors may not achieve the expected rates of return and may lose a part or all of their investments. The order in which the risk factors are presented is not intended to reflect the likelihood of their occurrence or their importance.

1 Risk Factors Associated with the Environment in Which the Issuer and its Group Operate

1.1 Risk Related to Overall Macroeconomic Climate

The financial standing of the Issuer and the Group depends on the economic conditions prevailing in Poland and globally. Factors with a bearing on the Group‟s financial performance include: the rate of GDP growth, the inflation rate, the unemployment rate, the level of personal incomes, the government‟s fiscal and monetary policies, development of the road infrastructure in Poland, as well as of development of services and retail trade.

In the event of any economic downturn in Poland or worldwide, a decline in consumer demand or the application of any economic policy measures negatively affecting the market position of the Issuer and its Group, the Group‟s performance may deteriorate.

1.2 Risks Related to Future Legal Environment

The LOTOS Group‟s business and financial performance are affected by legal regulations (both internal – Polish law, and external – EU regulations) pertaining to such issues as mandatory stocks, product quality standards, environmental protection, fuel storage, implementation of the National Indicative Target, service stations and pipelines, and competition. Accordingly, the enactment of any new, more stringent regulations, especially in the area of fuel quality and environmental protection, may drive up the operating expenses and capital expenditure of the Issuer and the Group, although the same will apply to the Issuer‟s competitors.

1.3 Risks Related to Applicable Tax Laws

1.3.1 General Risk of Changes in Tax Laws or Their Interpretations by Tax Authorities and Administrative Courts

The tax laws (including those applicable to social security contributions) – in addition to being complicated and opaque – are also subject to frequent, unpredictable changes. Consequently, their application by tax payers and tax authorities gives rise to many controversies and disputes, which usually need to be resolved by administrative courts. Furthermore, there occur discrepancies in the practice of tax authorities and in judicial decisions given by administrative courts with regard to the tax laws. Striving to ensure that the tax laws are applied in a secure and consistent manner with respect to selected crucial issues, the Company has pursued a policy of applying for individual interpretations of these laws. It sometimes happens that cases where the underlying facts or future circumstances are identical, are resolved in a mutually contradictory or inconsistent manner. As a consequence, disputes are currently pending, and are likely to arise in the future, regarding interpretations of the tax laws obtained by the Company. Should any such interpretations be reversed, the Company may be required to pay taxes on transactions to which they related. Moreover, there can be no assurance that it will not be necessary to adopt different approaches to identical facts in connection with differing interpretations obtained by the Company, or the risk that future disputes may arise on that account with tax authorities.

Tax authorities are entitled to inspect the correctness of the Company‟s tax settlements with respect to tax liabilities that have not become time-barred. Typically, the limitation period applicable to a tax liability expires after five years from the end of the calendar year in which the deadline for the tax payment lapsed. Following such an inspection, the competent tax authorities may assess the Company‟s tax arrears.

All the factors discussed above may have a significant effect on the Company‟s business, its development plans, legal status, financial position, revenues, profits and other economic parameters of its business.

1.3.2 Risk Related to Transfer Prices

The Company and its subsidiaries enter into numerous intra-group transactions, related mainly to sale of fuels and provision of services. While the Company takes due care to conclude related-party transactions at arm‟s length, there is a risk of potential disputes with tax authorities on that account. Such disputes may arise, for instance, due to rapid changes in the market conditions taken into account when determining the selling prices of fuels or services applied in such transactions, if they are not factored in properly or at the right time. As a consequence, there is a risk that tax authorities may challenge the market basis of prices applied in such transactions or the correctness of transfer price documentation (or any parts of it). Such circumstances may have a material adverse effect on the Company‟s business, performance or financial position.

1.3.3 Risk Related to Excise Duty

The Company is a supplier of goods on which excise duty is charged, although some of them are subject to preferential excise duty rates. In order to claim such preferential rates, the Company has to fulfil a number of formal conditions in respect of each transaction. For that purpose, the Company has developed and implemented internal procedures for collecting the documentation required by law as a condition for applying preferential excise duty rates. In addition, the Company performs periodic reviews of its documents, often relying on independent expert support, which allow it to constantly refine the internal procedures with a view to

13 minimising tax-related risks. Nevertheless, given that in many cases customs authorities (competent for excise duty) adopt a very stringent approach to the obligations of excise duty payers, and there is no established, unambiguous practice with regard to some excise duty-related issues, one cannot rule out the risk of disputes with customs authorities regarding the Company‟s right to apply preferential excise duty rates, especially in view of the large number and value of transactions executed by the Company.

2 Risk Factors Associated with the Business of the Issuer and its Group

2.1 Financial Risks

The LOTOS Group is exposed to a number of market risks, including mainly the refining margin risk, as well as currency and interest rate risks. In managing those risks, the Issuer relies on derivatives and other financial instruments. Grupa LOTOS has internal procedures in place for managing financial risks, whereas members of the LOTOS Group may use the advice and intermediation of Grupa LOTOS with respect to management of such risks, but enjoy discretion in deciding about the extent to which such risks are hedged and the hedging method.

2.1.1 Risk Related to Prices of Products and Raw Materials

The refining margin risk is connected with the difference between the prices of products sold and the prices of raw materials purchased. Crude oil is the key raw material used by the Issuer. The prices of crude oil on global markets are subject to significant fluctuations driven by changes in global demand for and supply of crude oil, as well as various political factors. The Issuer purchases crude oil under futures and spot contracts, at prices linked to crude oil prices on international markets. On the other hand, the prices of petroleum products offered by the Issuer and its Group depend on the prices quoted on global exchanges. As in the case of other oil companies, the financial position and performance of the Issuer and its Group depend on the difference between the prices of crude oil and the prices of petroleum products on global markets, and changes of the refining margin affect all market players to a similar degree.

In 2008 and 2009, the refining margins tended to be lower than in previous years. There is a risk that they may stabilise close to that level in the following years. Additionally, any increases in the prices of petroleum products may dampen demand for such products, which may adversely affect the LOTOS Group‟s financial standing and performance.

In order to mitigate the refining margin risk, the Issuer may decide to enter into hedging transactions, based on its assessment of the prevailing market situation.

2.1.2 Currency Risk

The main sources of the Issuer‟s exposure to currency risk include foreign currency loans, imports of raw materials, exports of products, as well as domestic sales where prices are linked to foreign currencies. The natural currency of the Issuer‟s operating market is USD. This currency is used in market quotations for crude oil and petroleum products. Consequently, the Issuer has a structurally long position in USD on its operating activity. For this reason it was decided that USD was the most appropriate currency for contracting and repaying long-term loans to finance the 10+ Programme, as such an approach contributes to reducing the 14 structurally long position, and consequently to mitigating the strategic currency risk. In 2009, almost all export sales and import purchases made by the Issuer and the Group were denominated in USD. As at the end of October 2010, the value of foreign currency loans at Grupa LOTOS was USD 1,865.6m.

Under the agreement on the financing of the 10+ Programme, Grupa LOTOS has the obligation to maintain a specified level of the hedge ratio for the currency risk (EUR/USD and USD/PLN) which arises in connection with the fact that the currency in which the investment projects are financed is different from the currencies in which project execution agreements are denominated. This obligation remains binding only with respect to payments under agreements for the execution of 10+ Programme projects to be made by mid-2011.

The Issuer actively manages its currency position and changes it depending on the expected market developments. As at October 29th 2010, the Issuer‟s currency position, including currency hedges (in the time horizon adopted by the Company – i.e. until June 30th 2011) was positive in USD at 3,020,502 and negative in EUR at -377,158.

2.1.3 Interest Rate Risk

The Issuer is exposed to market risk arising from changes of interest rates, primarily in connection with floating interest rate loans, reinvestments of surplus cash, and the balance of future cash flows. As at the end of June 2010, the value of floating interest rate loans (denominated both in the złoty and in foreign currencies) was PLN 4,545.9m at the non-consolidated level.

Under the agreement on the financing of the 10+ Programme, Grupa LOTOS has the obligation to maintain a specified level of the hedge ratio for the interest rate risk which arises in connection with the LIBOR USD floating interest rate on the credit facility contracted to finance the 10+ Programme in the period until mid- 2011.

In connection with its obligation to maintain the hedge ratio prescribed in the credit facility agreement and given its intention to partly mitigate the interest rate risk which is not covered by mandatory hedges, the Company has entered into hedging transactions. Taking advantage of the favourable market conditions, the Company has hedged a part of its exposure in a time horizon of up to ten years.

2.1.4 Credit Risk

Credit risk is related to uncertainty about the solvency of financial and business partners. Management of credit risk relating to counterparties in financial transactions consists in ongoing monitoring of the credit exposure in relation to the limits granted. The counterparties must have an appropriate credit rating assigned by leading rating agencies or hold guarantees issued by institutions meeting the minimum rating requirement. The Company enters into financial transactions with reputed firms that have a good credit standing.

As regards management of credit risk relating to counterparties in business transactions, all customers requesting trade credit undergo verification of their creditworthiness, whose results determine the level of credit limits granted. Furthermore, due to a low concentration of credit risk and the fact that the Company‟s receivables are monitored on an ongoing basis, the risk of non-collection of receivables is negligible.

2.2 Technological Risks

Technological risks are related to possible failure to meet the required operating parameters for the refinery units, or the risk that the technologies employed would have to be modified in response to market changes. With a view to minimising technological risks, new refinery units are built based on reliable technologies offered by international firms. Moreover, technology assessment of the main units is provided by independent consultants, while agreements for delivery and installation of new units provide for penalties payable by contractors if the units fail to meet the required operating parameters. An additional factor reducing technological risks is the Issuer‟s extensive track record of successful start-ups of refinery units.

2.3 Technical Risk

The LOTOS Group‟s operating activity in the area of crude oil production and refining is a complex process, subject to rigorous technical regimes. In the course of such activity, various defects of plant, equipment or materials may be identified. Any required repairs or replacements may drive up costs and result in delays, which may affect the LOTOS Group‟s future financial performance.

2.4 Risk of Industrial Failure

In connection with the amount and type of hazardous substances present on the premises of the Issuer and certain LOTOS Group companies, the Issuer and those companies are deemed to be exposed to a high risk of industrial failure, including in particular a risk of emission, fire or explosion taking place in the course of an industrial process, storage or transport, involving one or more hazardous substances, and resulting in an immediate, or delayed, threat to human life or health, or to the environment. Any such failure may materially affect the Issuer‟s and the LOTOS Group‟s financial performance.

2.5 Risk of Human Error

The activities of the LOTOS Group companies may be materially affected by the occurrence of human error. Any errors made by the service staff due to insufficient qualifications or psychological and physical abilities may cause failures or lead to lower quality of products, which may adversely affect the Issuer Group‟s financial performance.

2.6 Risk of Competition in Fuel Retailing

Competition among the key players on the Polish petroleum products market concentrates in the retail segment, where in addition to the Polish companies foreign corporations are also present. Over the last dozen or so years, the retail market has been developing very rapidly. Nearly all of the largest oil companies engage in intensive competitive activities, focused predominantly on those markets which are the most attractive in terms of the volume of demand and margins: the regions of Silesia, Wielkopolska and Mazowsze. Within the LOTOS Group, LOTOS Paliwa is responsible for the development of the service station network. Through the network development and better adaptation of the offer structure to customers‟ needs, LOTOS Paliwa has been strongly increasing its share in the fuel retail market in Poland.

The consolidation of the fuel retail market in Poland continues. Small operators are expected to establish and develop ever-stronger relationships with major market players and integrate into DOFO station networks of such corporations as Grupa LOTOS S.A., PKN Orlen, BP, Shell or Statoil, while larger companies will acquire smaller networks.

Russian oil companies, which are the principal crude oil suppliers to the CEE markets, have a large influence on the region‟s retail segment. They are interested in cooperation with and investments in Central European fuel companies. The competition may also be driven by the development of service station networks operated by retail chain stores, which offer products at significantly lower prices than those asked by the other operators on the fuel retail market. Given the location of retail chain stores in Poland, their current pricing policy may lead to price wars.

2.7 Risk Related to the Act on Remunerating Persons Who Manage Certain Legal Entities (the Compensation Cap Act)

Members of the Management and Supervisory Boards of the Issuer and its subsidiaries are subject to the provisions of the Act on Remunerating Persons Who Manage Certain Legal Entities. Under the Act, the remuneration of the Issuer‟s Management Board members may not be higher than six times (and in the case of members of Management Boards of subsidiaries – four times) the average monthly remuneration in the enterprise sector, net of bonuses paid out from profit in the fourth quarter of the preceding year, as announced by the President of the Central Statistics Office. The limit results in such persons receiving lower remuneration than the remuneration paid to members of management boards of enterprises that do not fall under the provisions of the Act on Remunerating Persons Who Manage Certain Legal Entities. A direct consequence of this situation is that in the future it may be difficult to hire qualified staff to the management positions at the LOTOS Group companies.

2.8 Risk that the Experience of Members of the Governing Bodies of the LOTOS Group Companies May Prove Insufficient

Due to the fact that the composition of the governing bodies is subject to certain restrictions under specific legal regulations (including the Act on Commercialisation and Privatisation of State-Owned Enterprises and the Act on Limitation of Business Activity of Persons Exercising Public Functions), there can be no assurance that in the future the members of the governing bodies will have sufficient experience to be able to assess the advisability of making certain investment decisions. Accordingly, there exists a risk that wrong corporate decisions will be made, including in particular decisions to abandon certain projects which could be profitable in the future.

Such situations may have a direct impact on the Issuer Group‟s financial position and performance as well as the generated cash flows.

2.9 Risk of Refusal or Revocation of a Licence or of Failure to Obtain a Licence Extension

A substantial part of the LOTOS Group‟s activities, in particular production, trade and storage of liquid fuels, is subject to the regulations of the President of the Energy Regulatory Office (URE).

In many areas the decisions of the President of URE may be highly discretionary and no assurance can be given that an action taken by the President of URE will not have an adverse effect on the LOTOS Group. Moreover, the regulatory policy of the President of URE may be unpredictable and may change at short notice.

In addition, the President of URE‟s full independence from the Polish government is not guaranteed as in accordance with the Energy Law the President may be removed at any time by the President of the Council of Ministers. Therefore, the decisions of the President of URE may be also influenced by political factors.

Changes in regulations applicable to the power sector may require the LOTOS Group to incur significant unexpected costs. If power companies fail to meet the requirements of the Energy Law, the President of URE may impose significant financial penalties on them and in some cases failure to comply with the regulations may result in a loss of licences necessary to conduct certain activities. Furthermore, in accordance with the Energy Law, if a threat specified therein (for instance, a threat to Poland‟s energy security, a threat to safety of people, or a threat of a significant financial loss) occurs, the Council of Ministers may impose, at the request of the Minister of Economy and for a specified period, restrictions on the sale of fuels and on the supply and consumption of electricity and heat across the entire country or in its part.

Decisions of regulatory authorities or changes in the regulatory environment may have a material adverse effect on the LOTOS Group‟s business, its financial position and performance.

In order to continue its operations in their current form, the LOTOS Group must maintain the required licences and obtain extension of their validity terms when necessary. Acquisition of new licences may be required for the Group‟s further growth. If any of the existing licences or other administrative permits is revoked or not extended, or if its scope is limited, or if any new licences or other administrative permits are refused, this may adversely affect the LOTOS Group‟s business, its financial position and performance.

2.10 Risk Related to Special Rights Vested in the Minister of the State Treasury

The Act on Special Rights Vested in the Minister Competent for the State Treasury and How Those Rights Should Be Exercised at Certain Companies or Groups of Companies Operating in the Electricity, Oil and Gas Fuels Sectors, dated March 18th 2010 (Dz.U. of 2010, No. 65, item 404), provides for special rights of the Minister of the State Treasury with respect to companies and groups of companies operating in the electricity, oil and gas fuels sectors, whose assets have been included in the single list of facilities, process units and installations, equipment, and services comprising critical infrastructure. Despite the fact that the Issuer has not been notified by the Minister of the State Treasury of any of its assets having been placed on the list of critical infrastructure, it is highly probable that some of the units and installations operated by the LOTOS Group will be included in such a list. Under the above Act, the Minister of the State Treasury has the right to object to a resolution adopted by a company‟s management board or its other act in law concerning disposal of critical infrastructure assets which constitute a real threat to the functionality, continuity and integrity of critical infrastructure.

The Minister of the State Treasury may also lodge an objection against a resolution of a company‟s governing body concerning: dissolution of the company, change of intended use or discontinuation of the use of the company‟s critical infrastructure asset, change of the company‟s business profile, sale or lease of its business or an organised part of its business, or encumbrance of the business with limited property rights, adoption of a business and financial plan, investment plan or long-tem strategic plan, transfer of the company‟s registered office abroad – if the implementation of such resolution would constitute a real threat to the functionality, continuity and integrity of critical infrastructure. The Act provides for the procedure of appealing to the administrative court against the Minister of the State Treasury‟s objection.

In addition, in accordance with the above Act, the management board of a company, in consultation with the Minister of the State Treasury and the Head of the Government Centre for Security (Rządowe Centrum

Bezpieczeństwa), appoints and removes from office a proxy responsible for the protection of the critical infrastructure. The proxy has the right to participate in the meetings of the company‟s management board on which matters related to the critical infrastructure are addressed, and to request the company‟s governing bodies to provide all documents, information and explanations regarding issues related to the critical infrastructure. The aim behind the appointment of the proxy is to enable the Minister of the State Treasury to obtain information on acts in law performed by the company‟s governing bodies with respect to critical infrastructure assets.

There exists a risk that the Company‟s restructuring activities will be considered by the Minister of the State Treasury as acts which constitute a real threat to the functionality, continuity and integrity of critical infrastructure and that such activities will be blocked, which may adversely affect the LOTOS Group‟s financial position and performance. Another consequence of the Act is that the Minister of the State Treasury will receive information which may not be disclosed to other shareholders.

2.11 Risk of Terrorist Attacks

On account of their operations Grupa LOTOS and its subsidiaries are exposed to the risk of terrorist attacks, which may lead to a loss of all or some of their significant assets. The consequences of such an attack may affect the LOTOS Group‟s operations and financial position. However, the risk is of a general nature as it applies to a similar extent to other companies operating in Poland.

3 Risks Related to the Upstream Operations of the Issuer and Its Group

The Issuer‟s Group conducts upstream operations described in Section 6.1 of the Registration Document. Material risks related to such operations are presented below.

3.1 Risk Related to the Estimation of Deposit Size

The information on the amount of hydrocarbons accessible to the LOTOS Group at present or potentially in the future is based on geological documentation and field development plans (or equivalent documents in Lithuania and Norway). Such information is subsequently revised in resource surveys and deposit models or following the acquisition of data from the neighbouring licence areas. On the one hand, such revisions contribute to more precise appraisal of the deposits, but on the other, they may lead to a change of a field boundaries or the need to adjust the field development concept.

Moreover, the estimation procedure applied to determine the amount of resources may be imprecise as it depends on many variable factors and assumptions, including the interpretation of geological and geophysical data, assumptions concerning the intended manner of production from the formation, and assumptions with respect to behaviour of hydrocarbons in the reservoir.

The estimated amount of resources is also dependent on assumptions concerning the sales of a given type of hydrocarbons, taxation and licence fees.

Therefore, there can be no assurance that the estimated amount of resources will be not be revised (increased or decreased) as more reservoir parameters are measured. Any material reduction of the 19 estimated deposit size may shorten the assumed production period. If such reduction is made with respect to a long-term project or prospect, it may also cause the Company to decide not to proceed with production activities on a given field. In consequence, such unfavourable changes may adversely affect the LOTOS Group‟s future financial performance.

3.2 Risk Related to the Launch of Production from New Deposits

An important aspect of the LOTOS Group companies‟ operations is the need to ensure future production capacity by obtaining access to new crude oil and natural gas reserves. At present, the LOTOS Group is carrying out analyses and making preparations as part of a few new investment projects.

There are many reasons why the LOTOS Group may not be able to discover or acquire oil and gas resources or establish their commercial production. For example, it may fail to obtain a licence or be unable to negotiate commercially reasonable terms of acquisition of such resources, their exploration, appraisal and launch of production. Moreover, there exist a number of risks which are entirely beyond the control of the LOTOS Group companies, including risks related to accidents, environmental risks or the risk of delays in the delivery of equipment.

If the activities aimed at acquiring new deposits and producing hydrocarbons from such deposits are limited or abandoned, or if there occur any unexpected formal and legal or technical difficulties during preparations preceding the launch of production, the LOTOS Group‟s production capacity may be reduced and consequently the production of hydrocarbons may be lower than assumed, which may affect the LOTOS Group‟s future performance.

3.3 Risk Related to Oil and Gas Prices

The profitability and cash flows of the LOTOS Group and its subsidiaries will by driven by future prices of crude oil and natural gas, which are known to fluctuate. There are many causes of such fluctuations, including local and global supply and demand, expected future supply, estimated future economic growth in the countries which have the largest share in consumption of global hydrocarbons production, cost and availability of new production technologies, political, economic and military developments in countries and regions where oil and gas are produced, in particular in the Middle East. Moreover, hydrocarbon prices are influenced by tax systems in oil and gas producing countries as well as by cartel activities. Any significant drop in prices of crude oil and natural gas relative to their historical levels may have a material adverse effect on the LOTOS Group‟s financial performance.

3.4 Risk Related to High Cost of the Technologies Used by the Company

The technology applied by the LOTOS Group in offshore production of crude oil and natural gas involves the use of specialist machinery and equipment manufactured by few shipyards in the world. In connection with the global consolidation of manufacturers of some of the above machinery, equipment and platforms, as well as the possibility of additional certification requirements which may be imposed on designers and manufacturers of such equipment, there exists a risk of an unexpected rise in its prices, which could increase the capital expenditure required to implement the Group‟s development strategy.

3.5 Risk Related to Decommissioning of Mines

In accordance with the provisions of the Geological and Mining Law, the LOTOS Group companies are required to decommission production infrastructure and plug wells after discontinuing operations in a given production area. LOTOS Petrobaltic maintains a mine decommissioning fund and LOTOS Petrobaltic‟s subsidiaries also maintain such funds or recognise provisions in accordance with the accounting and tax regulations applicable in the countries in which they operate. In addition, based on the documents prepared by the Company and approved by relevant authorities (field development plan, mine operation plan, or similar or equivalent documents), the expected scope and nature of action that the LOTOS Group companies will be required to take in the future to decommission the existing mines is known with a certain degree of accuracy. There exists a risk that in the future the action which is currently planned and described in the above documents will be considered insufficient as a result of regulatory changes or changes in standards applicable in the Baltic Sea, the North Sea, the Norwegian Continental Shelf or in Lithuania. The planned action may also be insufficient due to changes in certain geological and technical parameters of the fields where the mines operate.

Accordingly, there can be no assurance that the costs of mine decommissioning will not exceed the anticipated level, which may adversely affect the LOTOS Group‟s financial performance.

3.6 Risk of Failure to Obtain the Extension of Licences for Exploration and Appraisal of Minerals

In June and July 2010, Petrobaltic applied to the Minister of Environment for the extension of seven licences for offshore exploration and appraisal of minerals in Poland. No assurance can be given that the Minister of Environment will extend all licences or that the conditions for granting the extensions will match Petrobaltic‟s expectations. As the regulations have changed since the licences were granted, new (additional) requirements may be imposed on LOTOS Petrobaltic, whose scope is currently unknown.

Failure to obtain the extension of some licences or imposition of new requirements in administrative decisions may affect LOTOS Petrobaltic‟s future investment plans, and therefore have an adverse effect on the LOTOS Group‟s financial performance.

3.7 Insurance Risk

Although operations of the LOTOS Group‟s subsidiaries are insured, all companies conducting exploration, appraisal and production of minerals are exposed to non-insurable risks and/or certain risks which would require purchase of separate insurance with many exclusions and a very high deductible. Furthermore, no assurance can be given that the insurance taken out will be adequate to cover possible losses or liabilities. The occurrence of an unfavourable event not covered by insurance, in whole or in part, could directly affect the Group‟s financial position, its performance and the generated cash flows.

3.8 Risk of Certain Project Partners or Shareholders Not Granting Their Approval to Proceed with a Project

The Petrobaltic Group is pursuing many of its minerals exploration and appraisal projects with two or more partners, which is now a common practice around the world, applied in order to leverage the expertise of multiple parties and to reduce the risk related to a particular project.

Despite numerous advantages of such a solution, there is always a risk that certain partners may refuse to grant their approval to proceed with a project on the grounds of too great a risk, which may result in abandonment or suspension of a ready-to-launch project. In such cases, it may not be possible to implement the project with only certain parties bearing the risk.

Such situations may result in a reduced number of executed projects and can therefore affect the LOTOS Group‟s financial position, its performance and the generated cash flows.

3.9 Risk of Failure to Obtain a Permit for the Construction of Transmission Pipelines in a Particular Location

Certain long-term projects executed by the Petrobaltic Group are situated in places where it may be difficult to obtain a permit for the construction of oil or gas transmission pipelines due to spatial planning restrictions, local planning policy, protection of certain areas, or lack of relevant resolutions of the competent authorities. Therefore, certain projects (both off- and onshore) may require expenditure to obtain permits and approvals for the construction of pipelines that is significantly higher than expected.

In such cases, the LOTOS Group‟s financial position, its performance and the generated cash flows may be adversely affected.

3.10 Risk Related to Restrictions on Exploitation of Gas Deposits

Due to recurring problems with maintaining uninterrupted and stable gas supplies in the CEE region, the governments of some countries may impose special restrictions on the exploitation of certain natural gas deposits. Such restrictions may be based on the existing laws or may follow from new regulations. As a result, the sale of gas (for example its exports, off-peak or non-winter sale) may be limited.

Such restrictions may affect LOTOS Petrobaltic to the same or similar extent as other natural gas investors, and their introduction may have an adverse effect on the LOTOS Group‟s financial position and performance, as well as the generated cash flows.

3.11 Risk Related to the Interpretation of the Provisions of Polish Energy Law Concerning Pipelines that Cross Polish Borders

Under Polish Energy Law, interconnections with other gas systems should be operated by the transmission system operator (an energy company involved in the transmission of gas fuels). As LOTOS Petrobaltic intends to exploit gas deposits located outside the territory of Poland, it may be assumed (although the issue is not perfectly clear) that they should be viewed as covered by “other gas system”. Accordingly, it may be required that the section of the gas system connecting the offshore mine with land (i.e. the section crossing the Polish border) should be operated by the transmission system operator. Also, in such a case it may be necessary that other entities should be given access to the transmission system in accordance with the Third Party Access principle (TPA), or that an exemption from such requirement under Art. 4i of the Polish Energy Law should be obtained. Currently there are a number of disputes concerning application of the TPA principle in relation to a few gas transmission pipelines which cross Polish borders. This may have an adverse effect on the interpretation of this issue with respect to such offshore pipelines planned by LOTOS Petrobaltic.

If any of the difficulties described above occur, the LOTOS Group‟s financial standing, its performance and the generated cash flows may be affected. 22

3.12 Risk Related to Joint and Several Liability of All Licence Partners

In line with the Norwegian government‟s regulations governing operations conducted on the Norwegian Continental Shelf, all licences granted to partners in a consortium impose joint and several liability on all consortium members. Such joint and several liability may apply not only during exploration and appraisal of minerals, but also during their production, and it also extends to all ships (such as tankers or service ships) moored to production platforms.

Therefore, if any of licence partners cannot meet its financial liabilities, LOTOS EPN‟s liability under such licence may be increased, which may affect the company‟s financial position, its performance and the generated cash flows.

Furthermore, when LOTOS EPN applied for an authorisation to operate on the Norwegian Continental Shelf, LOTOS Petrobaltic issued guarantees for LOTOS EPN‟s liabilities. Therefore any material liability of LOTOS EPN as described above may also directly affect the LOTOS Group‟s financial position.

3.13 Risk of Delays in Field Development Plans Resulting from Discovery of a Deposit Extending beyond the Licence Area

One of the geological risks related to exploration and appraisal of minerals is that a discovered and documented hydrocarbon accumulation may be partly located outside of the licence area. Such a situation requires obtaining an extension of the licence area already held, or connecting separate licence areas, which is often time-consuming and requires permits and approvals of many parties.

Due to the great number of executed projects, there can be no assurance that a situation described above will not occur, adversely affecting development of a given field.

The risk applies mainly to the operations on the Norwegian Continental Shelf, but it may also occur with respect to the operations in the Baltic Sea, including in particular the licences held by Petrobaltic for areas located close to the borders of the Polish Exclusive Economic Zone.

3.14 Risk Related to Availability of Drilling Equipment

Exploration and documentation activities related to hydrocarbon deposits depend on the availability of drilling machines and other ancillary equipment. The current high demand for drilling equipment, coupled with its limited availability, may adversely affect the ability of the LOTOS Group companies to fulfil their obligations under field development plans and plans for mineral exploration. In particular, this refers to projects where LOTOS EPN is not the operator and where it has indirect influence (through influence on the licence operator).

Limited access to drilling equipment may adversely affect the financial position of the LOTOS Group companies, their performance and the generated cash flows.

3.15 Risk Related to the Management of Certain Assets by Third Parties

All production assets of the LOTOS Group located in Poland and in the Polish Exclusive Economic Zone are managed by LOTOS Petrobaltic. On the other hand, assets held by the subsidiaries in Norway and Lithuania (except for three licences listed below) are managed by entities over which LOTOS Petrobaltic exercises 23 indirect corporate supervision within the scope of its powers, or exercises supervision as a consortium member.

With respect to licences PL 556, PL 503 and PL 498, LOTOS EPN is the licence operator (see Section 11.1 of the Registration Document).

Operational agreements with entities which are operators under other licences on the Norwegian Continental Shelf as well as agreements with shareholders exercising operational control over assets located in Lithuania, grant LOTOS Petrobaltic the right to hold consultations and require the company‟s approval for important issues. LOTOS Petrobaltic‟s ability to control day-to-day management and decisions whether to embark on or abandon an exploration and appraisal project, is, however, limited. Management errors of the abovementioned entities may result in delays or increased costs. Such situations may have an adverse effect on the financial position of the LOTOS Group, its performance and the generated cash flows.

3.16 Risk Related to Regulations on the Prevention of Environmental Damage

New regulations that have been implemented by the UE since 2007 allow the competent authorities to impose limitations on businesses viewed as potential polluters in order to prevent or remedy environmental damage.

In accordance with the abovementioned regulations, if the environmental damage or imminent threat of the damage is caused by several operators, they are jointly and severally liable for the damage. The remedial measures to be taken are defined by virtue of an administrative decision.

Additionally, in the event of damage to the environment, the competent authorities may require the perpetrator to undertake compensatory remediation aimed at compensating for losses that occur from the date of the damage until the recovery of the baseline or equivalent condition or until the achievement of a similar condition of environmental components or their functions.

The new regulations enable competent authorities to require that security be provided, including financial security in the form of a deposit, a bank guarantee, an insurance guarantee or an insurance policy.

The governmental authorities of the two countries where LOTOS Petrobaltic conducts activities which may fall under the environmental damage regulations do not have much experience in interpreting and implementing the new laws. Irrespective of the above, there can be no assurance that the application of those regulations will not have a material effect on investment decisions made by the Company.

If the authorities‟ instructions, decisions or interpretations substantially affect the possibility of designing particular units for exploration, appraisal and production of minerals, the Company may be forced to abandon certain investment projects or shorten the life of existing ones. Such limitations may lead to some projects being completely abandoned or executed within a limited scope only and/or with use of more expensive technical solutions. This may have a material adverse effect on the financial performance of LOTOS Petrobaltic and its subsidiaries.

4 Risks Related to Implementation of the 10+ Programme by the Issuer

Given the fact that implementation of the 10+ Programme (see Section 5.2 of the Registration Document) reached 99.81% as at the end of September 2010, most risks connected with the programme diminished or ceased to exist. However, these risks are still being monitored and controlled. They include, among other things:

 delivery/fitting in of defective installations/equipment and materials, leading to the necessity of repairs and replacements, increased costs and delays,

 bankruptcy of subcontractors, as a result of various phenomena caused by the global crisis, leading to delays in execution of the project, forfeiture of payments made and the necessity to buy additional material,

 construction failures caused by difficult working conditions or non-observance of applicable procedures, leading to work stoppages, delays and exceeding the budget,

 failure to achieve full process parameters by the new units due to hidden design/engineering defects, leading to additional costs having to be incurred to bring a unit to a condition where it achieves its basic design/engineering parameters, or loss of profit,

 adverse weather conditions – resulting in delays and damage to installed equipment,

 protests and objections raised by third-party individuals or institutions, related e.g. to the project‟s environmental impact, leading to work stoppages and delays or administrative decisions being withheld,

 accidents caused by difficult working conditions or high concentration of work carried out in a confined area, or failure to observe the health and safety at work rules,

 temporary suspension of financing, leading to work stoppages due to lack of funds.

4.1 Risk Related to Ensuring Market for Products of the New Refinery Units

The implementation of the 10+ Programme will increase the Gdańsk refinery‟s annual capacity to 10.5 million tonnes and will result in a rise in production volumes, which involves the risk of insufficient market demand for the new products. In order to minimise this risk, the Issuer was gradually increasing its share in the domestic market by importing fuels while the 10+ Programme was being carried out. In view of the above and given the current structural shortage of diesel oil in Poland as well as the Issuer‟s export capacity, there should be no difficulty in selling additional quantities of products after the 10+ Programme is completed.

5 Environmental Risks

5.1 Risk of More Stringent Standards and Legal Regulations Concerning Environmental Protection

Legal regulations on the economic use of environment and natural resources by businesses are amended on an ongoing basis. In recent years, the EU laws on environmental protection have become more and more stringent. It should be noted that the draft of a new directive on industrial emissions, which introduces stricter rules and conditions for emitting pollutants into the atmosphere, is at the last stage of the legislative procedure. Moreover, Polish legislators are currently drafting new regulations concerning the implementation of waste management principles that would comply with the new Waste Framework Directive, clarifying the criteria for classification of substances and materials as waste and defining new, more comprehensive principles of waste management. The EU member states have already commenced implementation of the energy and climate package whereby greenhouse gas emissions are to be reduced by 20% by 2020, however, the level is likely to be raised to 30%. There can be no assurance that there will be no further legislative changes tightening environmental regulations in the sector of the Issuer or other LOTOS Group companies. Such potential changes may require the companies of the LOTOS Group to ensure compliance with the new requirements (e.g. to alter their technologies in order to reduce emissions into the air or improve waste management), thus generating capital expenditure and consequently adversely affecting the Group‟s financial performance.

5.2 Risk of Environmental Damage Caused by the Operations of the Issuer or Other LOTOS Group Companies

The operations of the Issuer and other LOTOS Group companies have a significant impact on the natural environment. The nature of the companies‟ business entails the risk of incidents that may cause pollution of various components of the environment (in particular the risk of industrial failure or leakage of substances to terrestrial and aquatic environment from the units operated by the Issuer or other LOTOS Group companies), and consequently give rise to financial liability. When environmental damage occurs, the Issuer and/or other LOTOS Group companies may be required to undertake remediation activities in order to remove the pollution. In addition, where the incident involves damage to property or injury to a person, the Issuer and/or other LOTOS Group company may also be obliged to pay compensation under civil liability. While the Issuer and the LOTOS Group companies implement all available organisational and investment measures to counteract the risk of environmental damage, such risk cannot be fully eliminated. The cost of any potential remediation effort and the Issuer‟s financial liability may be estimated only on a case by case basis, after the occurrence of an incident. Therefore, at the present stage it is impossible to assess its potential adverse impact on the LOTOS Group‟s financial performance.

5.3 Risk of Increased Expenditure on Projects with Negative Impact on the Environment

Pursuant to the applicable laws and due to the business profile of the Issuer‟s Group, most of the investment projects planned by the Issuer and other companies of the LOTOS Group (including new construction projects, major upgrades of units, or exploration, appraisal and production activities related to hydrocarbon reserves), must be analysed in terms of their potential environmental impact, and in particular, adverse effect on environmentally sensitive areas (such as areas protected under Natura 2000 programme, nature reserves, 26 national and landscape parks). Grupa LOTOS or another company of the LOTOS Group implementing a particular project may be required to prepare the assessment of the project‟s environmental impact and apply for a decision defining environmental conditions for the project. The issuance of such a decision is a pre- condition for obtaining other necessary permits for the project execution (including a building permit or a licence for exploration, appraisal and production of minerals). Following the assessment of environmental impact, certain obligations may be imposed on the investor to eliminate the adverse effect on the environment, which in practice usually involves additional capital expenditure and higher costs of project execution. Increased capital expenditure may adversely affect the Issuer‟s financial performance.

5.4 Risk Related to the Company’s Participation in the Greenhouse Gas Emissions Trading Scheme

The Issuer participates in the EU Emissions Trading Scheme in connection with its emissions of carbon dioxide from its CHP and refinery installations. The emission allowances allocated to the Issuer for 2008–2010 (a part of the second trading period) covered the actual emissions from the Issuer‟s installations in that period. However, the ongoing modernisation and extension of the Gdańsk refinery, implemented under the 10+ Programme, will contribute to an increase in carbon dioxide emissions from the Issuer‟s installations and thus the emission allowances granted to date will not be sufficient (the Issuer estimates that it will need about 1,500 additional allowances in each settlement year). The Issuer has applied for additional allowances for next years. The proceedings are pending. Without additional allowances the Issuer would have to reduce carbon dioxide emissions (that is to limit the production) or to purchase allowances on the market. This may adversely affect the Issuer‟s financial performance.

It also should be noted that in the next, third trading period of the Emissions Trading Scheme (2012–2020), the scheme will operate under amended rules, with the amendments including changes in the allowance allocation rules. After 2012, the basic way for obtaining allowances will be auctioning (purchase of required allowances at an auction). Only in special cases, specified under the ETS Directive and the implementation regulations, and exclusively within predefined time windows, operators of the installations covered by the scheme will be entitled to obtain a pool of emission allowances free of charge. As the EU implementation regulations are currently being drafted and agreed upon, as at the Prospectus Date it was not definitely determined what quantity of free-of-charge allowances the Issuer will be entitled to. However, no assurance can be given that the Issuer will not have to purchase a part of required allowances at an auction, which may adversely affect the LOTOS Group‟s financial performance.

5.5 Investment Risks Related to the Proximity of Protected Areas

Some of the areas covered by licences for the exploration and appraisal of minerals (or equivalent documents) held by the Petrobaltic Group‟s companies (including subsidiaries operating in Lithuania and Norway) are located in the direct proximity of protected areas or overlap with such areas. This does not hinder the operations of the Petrobaltic Group as they are carried out now, but any planned investment activities of the Petrobaltic Group need be analysed in terms of their potential impact on the protected areas. Such analyses also have to cover any possible interaction between the planned method of transporting the minerals produced to the end user and the location of protected areas.

The applicable legal regulations stipulate that business activities which adversely affect the natural environment in (and in the vicinity of) protected areas may be subject to significant limitations. Such limitations might prevent the execution of certain investment projects, limit the scope of such projects, and/or force the

27 use of more expensive technological solutions. Consequently, this may adversely affect the financial performance of LOTOS Petrobaltic and its subsidiaries.

6 Risks Related to the Issuer’s and Its Subsidiaries’ Property, Plant and Equipment

6.1 Risk Related to Security Interests in the Issuer’s Property, Plant and Equipment

As stated in Section 8.1. of the Registration Document, the majority of the Issuer‟s significant real estate and movables have been encumbered to secure the Issuer‟s liabilities contracted in connection with the implementation of the 10+ Programme. In accordance with the agreement creating registered pledge over assets, dated June 27th 2008 (described in more detail in Section 8.1.3 of the Registration Document) the creditors‟ claims may be enforced against the pledged assets by taking over the ownership of the refinery. Accordingly, a risk exists that the Issuer may lose its assets if it is not able to settle its financial liabilities, including in particular where the gains on the implementation of the investment programme prove lower than expected.

6.2 Risk Related to Real Estate with Unresolved Legal Status

The total area of real estate described in Section 8.1 of the Registration Document does not include the real estate to which the Issuer does not hold any legal title and on which transmission infrastructure is located. The Issuer uses without a legal title third parties‟ real estate on which fuel and water pipelines, as well as the Issuer‟s associated infrastructure are located. The legal status of the Issuer‟s use of some of the real estate located along the route of the pipeline running to the storage reservoir in Przejazdowo and being predominantly property of natural persons, as well as some of the real estate located along the route of the pipeline running to Port Północny (the Northern Port) being predominantly property of the City of Gdańsk or the State Treasury, has not been resolved. Under Art. 222.2 of the Polish Civil Code, the owners of real property through which the pipelines run are entitled to claims against the Issuer for the establishment of easement, remuneration and compensation for extra-contractual use, as well as a claim for the removal of infrastructure from the real estate or its relocation.

6.3 Risk Related to Former Owners’ Claims to Significant Real Estate (Pertaining to the Right of Perpetual Usufruct and the Ownership)

The Issuer‟s significant real estate was originally acquired by the State Treasury in accordance with legal regulations which are no longer effective, and the available archival documentation is incomplete. Accordingly, it cannot be definitely determined whether all conditions for effective and legal acquisition were met. Therefore, a risk exists that the former owners might raise claims to this real estate. In addition to claims for discontinuing extra-contractual use of real estate and removal of the infrastructure located thereon, it is also possible that the former owners would raise claims against the Issuer for remuneration for extra-contractual use of the real estate and for compensation. Currently, two proceedings are pending for a declaration of nullity of decisions on expropriation of real estate, pertaining to land lots representing a part of the Issuer‟s significant real estate. The proceedings pertain to lots located in Przejazdowo in the Municipality of Pruszcz Gdański: Lot

No. 5/3 (the flare exclusion zone) and Lots No. 5/13 and No. 5/14 (a part of the access road to the refinery and a lane in Benzynowa street), which are entered in the Land and Mortgage Register maintained by the District Court for Gdańsk-Północ in Gdańsk under No. KW GD1G/00066139/6.

6.4 Risk Related to the Planned Property, Plant and Equipment

Execution of the investment project connected with the extension of the refinery under the 10+ Programme, as described in detail in Section 5.2. of the Registration Document, requires the Issuer to obtain a number of administrative decisions and permits for the construction and operation of facilities. Given the fact that some of significant units described in Section 8.1.4. of the Registration Document are still under construction, there is a risk related to the obligation to obtain operating permits for such units and a risk that the competent administrative body may lodge objections in the cases provided for in the Construction Law of July 7th 1994 (Dz.U. No. 156, item 118, as amended). Any delay in obtaining or failure to obtain the necessary permits and administrative decisions may cause a delay in the commissioning of certain units constructed under the 10+ Programme, which in turn may make it impossible to meet the production and financial targets, thus adversely affecting the implementation of the Issuer‟s growth strategy.

6.5 Risk Related to the Termination or Expiry of Material Agreements for the Issuer’s Use of Significant Real Estate under a Legal Title Other Than Ownership or Right of Perpetual Usufruct

The Issuer uses real estate in the form of land with a total area of 118,237 square metres under agreements providing for a legal title other than ownership or right of perpetual usufruct. Some of the agreements are deemed of material importance to the Issuer on account of the type of the Issuer‟s transmission infrastructure located on the real estate. The infrastructure includes a storm pump station, water pipelines, fuel pipelines with the accompanying infrastructure supporting product dispatch and wastewater discharge. In the case of some of those agreements there is a risk that they may be terminated or expire upon the lapse of their respective terms, thus depriving the Issuer of the legal title to real estate and placing it under the obligation to remove the equipment and units or installations located on such real estate.

7 Risks Related to the Shares and Trade in the Shares

7.1 Risk of Refusal to Introduce or of Delayed Introduction of the Issuer Shares to Trading on the Regulated Market Operated by the WSE

Series C Shares will be admitted to trading on a regulated market under Par. 19 of the WSE Rules, provided that the requirements specified in the WSE Rules and in the provisions of the Regulation of the Minister of Finance on detailed requirements for an official stock-exchange listing market and issuers of securities admitted to trading on such market, dated May 12th 2010 (Dz.U. No. 84, item 547), are met. If it is found that Series C Shares do not meet the conditions stipulated in the legal regulations referred to above, the Management Board of the WSE may decide to refuse to admit the shares to trading on the regulated market. The application for the introduction of the shares to trading on a regulated market may be resubmitted only after the lapse of six months from the date of delivery of the WSE Management Board‟s resolution on the refusal, and if an appeal has been submitted, from the date of delivery of another resolution on the refusal.

Nevertheless, the Issuer will make every effort to arrange for Series C Shares to be introduced to trading on the regulated market operated by the WSE as soon as possible after the Prospectus approval date. However, the shares may be introduced to stock-exchange trading only after:

 the Management Board of the Polish NDS adopts a resolution to register Series C Shares and assign an ISIN code thereto,

 the Management Board of the WSE adopts a relevant resolution to introduce Series C Shares to stock- exchange trading after their registration with the Polish NDS.

If the proceedings before the Polish NDS or WSE get prolonged, in particular by the Issuer‟s fault, the introduction of Series C Shares to trading on the WSE may be delayed, which would in turn limit the possibility of reselling the shares.

7.2 Risk Related to the PFSA Imposing Sanctions on the Issuer

Potential investors are advised to consider the risks related to the possibility of PFSA imposing sanctions on the Issuer if the Issuer violates the law or there is a reasonable suspicion that such violation has occurred or may occur.

In particular, pursuant to Art. 17 of the Public Offering Act, if the Issuer or any other entity acting on behalf of, or on instructions from, the Issuer violates the law in connection with the seeking of admission of securities to trading on a regulated market, or there is a reasonable suspicion that such violation has occurred or may occur, the PFSA may:

 order that the admission of the securities to trading on a regulated market be withheld for a period of not more than 10 business days; or

 proscribe admission of the securities to trading on a regulated market; or

 p, at the expense of the Issuer, information concerning the illegal activities with respect to seeking of admission of securities to trading on a regulated market.

Pursuant to Art. 18 of the Public Offering Act, the PFSA may apply the measures provided for in Art. 17 of the Act also if the contents of the documents or information submitted to the PFSA or made available to the public indicate that:

 the admission of the securities to trading on a regulated market would materially compromise investors‟ interests;

 circumstances exist that, in the context of legislation in force, may lead to termination of the Issuer‟s legal existence;

 activities of the Issuer were, or are, conducted in gross violation of applicable laws, which may have a material impact on the assessment of Issuer‟s securities, or, in the context of legislation in force, may lead to termination of the Issuer‟s legal existence or to the Issuer‟s bankruptcy; or the legal status of the securities does not comply with applicable laws, and in the context of those laws there is a risk that the securities would be considered nonexistent or burdened with a legal defect having a material impact on their assessment.

Investors should also note that pursuant to Art. 20.1 of the Act on Trading in Financial Instruments, if justified by the security of trading on the WSE or a threat to investors‟ interests, at the demand of the PFSA the

Management Board of the WSE withholds the admission to trading on the WSE or the listing of the securities or other financial instruments indicated by the PFSA for up to ten days.

Pursuant to Art. 96 of the Public Offering Act, if the Issuer fails to perform or improperly performs the obligations and orders listed in Art. 96.1 of the Act or acts in breach of the obligations referred to therein, the PFSA may:

 issue a decision excluding given securities from trading on a regulated market for a definite or indefinite period, or

 impose, taking into account in particular the financial standing of the entity on which the penalty is to be imposed, a pecuniary penalty of up to PLN 1,000,000, or

 apply both these sanctions jointly.

Further, pursuant to Art. 176 of the Act on Trading in Financial Instruments, if the Issuer fails to perform or improperly performs the obligations connected with inside information and referred to in Art. 157, Art. 158 or Art. 160 of the Act, the PFSA may:

 issue a decision that the relevant securities be excluded from trading on the regulated market; or

 impose a pecuniary penalty of up to PLN 1,000,000; or

 issue a decision that the securities be excluded, for a definite or indefinite period, from trading on the regulated market and impose the pecuniary penalty referred to above.

In such circumstances, investors may find it difficult to sell the Issuer shares and may have to incur higher additional costs and settle for a significantly lower price than the market price quoted at the last trading session on the day before the Issuer shares were excluded from stock-exchange trading.

7.3 Risk Related to the WSE Suspending Trading in the Shares or Excluding the Shares from Trading on a Regulated Market

Pursuant to Par. 30 of the WSE Rules, the Management Board of the WSE may suspend trading in the shares on the WSE for up to three months:

 at the Issuer‟s request,

 if the Management Board of the WSE decides that such suspension is required by the interests and security of the trading participants, or

 if the Issuer is in breach of the regulations governing the WSE.

Moreover, pursuant to Par. 30.2 of the WSE Rules, the WSE Management Board suspends trading in shares for a period of maximum one month upon request of the PFSA made in accordance with Art. 20.2 of the Act on Trading in Financial Instruments if the trading in specified securities or other financial instruments is performed in circumstances suggesting a possible threat to the proper operation of a regulated market, security of trading on that market, or investors‟ interests.

Further, pursuant to Par. 31 of the WSE Rules, the WSE Management Board delists securities:

 if their transferability has become restricted,

 upon request of the PFSA made in accordance with the Act on Trading in Financial Instruments, 31

 if they are no longer in book-entry form, or

 if they are delisted from trading on a regulated market by a relevant supervision authority.

Moreover, the WSE Management Board may also delist securities:

 if they cease to fulfil the conditions for admission to stock-exchange trading other than the unrestricted transferability condition,

 if the Issuer is persistently in breach of any of the WSE rules and regulations,

 at the Issuer‟s request,

 upon declaration of the Issuer‟s bankruptcy or in the event of the court‟s dismissal of a bankruptcy petition on the grounds that the assets owned by the Issuer are insufficient to cover the costs of the proceedings,

 if it deems it justified by the need to safeguard the interest of trade participants and ensure their security,

 in the event of the Issuer‟s merger with another entity, its division or transformation,

 if no stock-exchange transactions in a given financial instrument have been executed in the last three months,

 in the event of the Issuer engaging in illegal activities,

 if liquidation proceedings are opened with respect to the Issuer.

Suspension of trading in the Shares on the WSE or their exclusion from trading for any of the reasons referred to above may adversely affect the liquidity of the Shares and, consequently, may lead to a decline in the value or price thereof.

7.4 Risk Related to Share Price Volatility

The price and liquidity of the Issuer shares depend on the number and volume of buy and sell orders placed by stock-exchange investors. Investors‟ behaviour is driven by various external factors which are not directly connected with the Issuer‟s financial standing. Therefore, trading in the shares on a regulated market may be subject to significant share price volatility. Accordingly, in the periods of market disruptions, caused for instance by developments of the economic or political situation, both in Poland and globally, and adversely affecting the financial markets, investors may find it difficult to sell the Issuer shares at a satisfactory price.

III REGISTRATION DOCUMENT

1 Responsible Persons

1.1 Persons Responsible for Information Contained in this Prospectus

1.1.1 Issuer

Company name: Grupa LOTOS Spółka Akcyjna Abbreviated name: Grupa LOTOS S.A. Registered office: Gdańsk Address: ul. Elbląska 135, 80-718 Gdańsk Contact numbers: Tel: + 48 58 308 71 11 Fax: + 48 58 301 88 38 E-mail: [email protected] Web page: www.lotos.pl

The following persons may make declarations of will on behalf of the Company:

- two Members of the Management Board acting jointly,

- one Member of the Management Board acting jointly with a commercial proxy.

DECLARATION UNDER COMMISSION REGULATION (EC) NO. 809/2004 of April 29th 2004

Acting on behalf of Grupa LOTOS S.A. as the entity responsible for all the information contained in this Prospectus, we hereby represent that to the best of our knowledge, after taking all reasonable care to ensure that such is the case, the information contained in this Prospectus is true, reliable and in accordance with the facts, and contains no omission likely to affect its import.

……………………………. ………………………………..

Paweł Olechnowicz Mariusz Machajewski

President of the Management Board Vice-President of the Management Board

……………………………. ………………………………..

Marek Sokołowski Maciej Szozda

Vice-President of the Management Board Vice-President of the Management Board

1.2 Entities Responsible for the Preparation of this Prospectus

1.2.1 Legal Advisor

Company name Kancelaria Prawna Domański i Wspólnicy Spółka Komandytowa Abbreviated name: Kancelaria Prawna Domański i Wspólnicy Sp.K. Registered office: Gdańsk Address: ul. Elbląska 135, 80-718 Gdańsk Contact numbers: Tel: + 48 58 308 73 45 Fax: + 48 58 308 73 29 E-mail: [email protected] Website: www.kpdi.pl

The person acting on behalf of Kancelaria Prawna Domański i Wspólnicy Sp.K.:  Robert Ignatiuk – General Partner

Based on the information furnished or confirmed by the Company, Kancelaria Prawna Domański i Wspólnicy Sp.K. prepared with due professional care and remains responsible for the following parts of this Prospectus: a) in Part II – Risk Factors, Sections: 2.7, 2.8, 2.9, 2.10, 5.1, 5.2, 5.3, 5.4, 6 b) in Part III – Registration Document, Sections: 6.4, 8, 11.2,17, 19, 22 c) in Part IV – Securities Note, Sections: 4.5, 4.8, 4.10

DECLARATION UNDER COMMISSION REGULATION (EC) NO. 809/2004 of April 29th 2004

Acting on behalf of Kancelaria Prawna Domański i Wspólnicy Sp.K., I hereby represent that to the best of my knowledge, after taking all reasonable care to ensure that such is the case, the information contained in the parts of this Prospectus for which Kancelaria Prawna Domański i Wspólnicy Sp.K. is responsible, is true, reliable and in accordance with the facts, and contains no omission likely to affect its import.

……………………………

Robert Ignatiuk

General Partner

1.2.2 Offeror

Company name: IPOPEMA Securities S.A. Abbreviated name: IPOPEMA Registered office: Warsaw Address: ul. Waliców 11, 00-851 Warsaw Contact numbers: Tel: + 48 22 236 92 00 Fax: + 48 22 236 92 82 E-mail: [email protected] Web page: www.ipopema.pl

The persons acting on behalf of Ipopema:  Mariusz Piskorski – Vice-President of the Management Board  Mirosław Borys – Vice-President of the Management Board

The Offeror has prepared with due care, on the basis of information provided or confirmed by the Company, and is responsible for, the following sections of this Prospectus.

IPOPEMA Securities S.A. participated in the preparation of the following parts of this Prospectus: a) in Part II – Risk Factors, Section 7 b) in Part IV – Securities Note, Section 6

DECLARATION UNDER COMMISSION REGULATION (EC) NO. 809/2004 of April 29th 2004

Acting on behalf of IPOPEMA Securities S.A. of Warsaw, we hereby represent that to the best of our knowledge, after taking all reasonable care to ensure that such is the case, the information contained in the parts of this Prospectus for which IPOPEMA Securities S.A. is responsible, is true, reliable and in accordance with the facts, and contains no omission likely to affect its import.

…………………………… ……………………………

Mariusz Piskorski Mirosław Borys

Vice-President of the Management Board Vice-President of the Management Board 35

2 Auditors

2.1 First Names and Surnames (Names), Addresses and Membership of Professional Organisations

The auditor which reviewed the interim consolidated financial statements of the LOTOS Group and the condensed financial statements of Grupa LOTOS S.A. for the six months ended June 30th 2010, which are incorporated by reference in Section 20 of the Registration Document, was:

Ernst & Young Audit Sp. z o.o. of Warsaw, with registered office at Rondo ONZ 1, 00-124 Warsaw, Poland, tel.: + 48 022 557 70 00, fax: +48 022 557 70 01.

Ernst & Young Audit Sp. z o.o. is a member of the National Board of Chartered Auditors (Krajowa Rada Biegłych Rewidentów) and is entered in the register of entities qualified to audit financial statements under No. 130. Ernst & Young Audit Sp. z o.o. does not hold any material interest in the Company. In particular, as at the Prospectus Date it does not hold Shares representing more than 1% of the Company‟s share capital.

The auditor issuing opinion on the historical financial information of the LOTOS Group for the twelve months ended December 31st 2007, December 31st 2008 and December 31st 2009, which is incorporated by reference in Section 20 of the Registration Document, was:

Deloitte Audyt Sp. z o.o., with registered office at al. Jana Pawła II 19, 00-854 Warsaw, Poland, tel.: +48 022 511 08 11, fax: +48 022 511 08 13

Deloitte Audyt Sp. z o.o. is a member of the National Board of Chartered Auditors (Krajowa Rada Biegłych Rewidentów) and is entered in the register of entities qualified to audit financial statements under No. 73. Deloitte Audyt Sp. z o.o. does not hold a material interest in the Company. In particular, as at the Prospectus Date, it does not hold Shares representing more than 1% of the Company‟s share capital. Deloitte Audyt Sp. z o.o. audited the consolidated financial statements of the LOTOS Group for the financial years 2007, 2008 and 2009 prepared in accordance with the IFRS endorsed by the EU.

The opinion from the audit of the consolidated financial statements of the LOTOS Group for the financial year ended December 31st 2009 prepared in accordance with the IFRS endorsed by the EU was signed by  Piotr Sokołowski, qualified auditor, Reg. No. 9752, Member of the Management Board of Deloitte Audyt Sp. z o.o.  Marta Towpik, qualified auditor, Reg. No. 90113, Member of the Management Board of Deloitte Audyt Sp. z o.o.

The opinion from the audit of the consolidated financial statements of the LOTOS Group for the financial year ended December 31st 2008 prepared in accordance with the IFRS endorsed by the EU was signed by:  Maria Rzepnikowska, qualified auditor, Reg. No. 3499, President of the Management Board of Deloitte Audyt Sp. z o.o.  Piotr Sokołowski, qualified auditor, Reg. No. 9752, Member of the Management Board of Deloitte Audyt Sp. z o.o.

The opinion from the audit of the consolidated financial statements of the LOTOS Group for the financial year ended December 31st 2007 prepared in accordance with the IFRS endorsed by the EU was signed by:  Wacław Nitka, qualified auditor, Reg. No. 2749, Member of the Management Board of Deloitte Audyt Sp. z o.o.  Piotr Sokołowski, qualified auditor, Reg. No. 9752, Member of the Management Board of Deloitte Audyt Sp. z o.o.

2.2. Information on Resignation, Dismissal or Change of the Auditor

In the period covered by the historical financial information, which is incorporated by reference in this Prospectus, neither the auditor nor Grupa LOTOS S.A. terminated the agreement for the audit of the Issuer‟s financial statements. In connection with the policy of periodical change of auditor, pursuant to a resolution of the Supervisory Board of Grupa LOTOS S.A. of December 17th 2009, Ernst&Young Audit Sp. z o.o., with registered office at Rondo ONZ 1, 00-124 Warsaw, Poland, entered in the list of qualified auditors of financial statements maintained by the National Chamber of Chartered Auditors (KIBR) under Reg. No. 130, was appointed to act as the qualified auditor of the Company‟s financial statements for 2010, 2011 and 2012.

3 Financial Highlights

The selected historical financial information was prepared on the basis of the annual consolidated financial statements for the years 2007–2009 and the consolidated financial statements for the first half of 2010 together with the comparative data prepared in accordance with the IFRS.

The annual consolidated financial statements for the years 2007–2009 were audited, and the H1 2010 financial statements were reviewed by a qualified auditor. The H1 2010 financial statements were not audited by a qualified auditor.

3.1 Selected Financial Information – Historical Data

Table 6 Financial highlights – historical information (PLN ‘000)

Year ended Year ended Year ended LOTOS GROUP Dec 31 2007 Dec 31 2008 Dec 31 2009 (comparative (comparative (comparative

data) data) data) Sales revenue 13,125,123 16,294,738 14,321,041 Operating profit/(loss) 713,664 (145,828) 419,793

Pre-tax profit/(loss) 1,004,494 (503,700) 1,109,608 Net profit/(loss) from continuing operations 814,147 (389,415) 911,812 Profit/(loss) from continuing operations attributable to 777,160 (453,549) 900,761 owners of the parent Profit from continuing operations attributable to non- 36,987 64,134 11,051 controlling interests Total comprehensive income 810,245 (362,559) 928,661 Comprehensive income attributable to owners of the 773,258 (426,693) 908,083 parent Comprehensive income attributable to non- 36,987 64,134 20,578 controlling interests Net cash provided by/(used in) operating activities 157,830 311,670 694,498 Net cash provided by/(used in) investing activities (816,440) (2,417,112) (3,339,669) Net cash provided by/(used in) financing activities 513,145 1,963,145 2,155,844

Total net cash flow (147,061) (138,751) (486,988) Basic earnings/(loss) per ordinary share (PLN) 6.84 (3.74) 7.44 Diluted earnings/(loss) per ordinary share (PLN) - - -

As at As at As at

Dec 31 2007 Dec 31 2008 Dec 31 2009 (comparative (comparative (comparative

data) data) data)

Total assets 9,883,830 12,319,949 15,225,952 Equity attributable to owners of the parent 5,948,618 5,521,925 6,809,393 Non-controlling interests 334,691 396,078 36,752 Total equity 6,283,309 5,918,003 6,846,145 Source: the Issuer.

3.2 Selected Interim Financial Information

Table 7 Financial highlights for the period January–September 2010 and comparative data (PLN ‘000)

9 months ended 9 months ended LOTOS GROUP Sep 30 2009 Sep 30 2010 comparative data unaudited Sales revenue 10,296,523 13,941,537 Operating profit/(loss) 354,984 539,357 Pre-tax profit/(loss) 871,539 476,910 Net profit/(loss) from continuing operations 682,726 429,857 Profit/(loss) from continuing operations attributable to owners 673,459 427,852 of the parent Profit from continuing operations attributable to non- 9,267 2,005 controlling interests Total comprehensive income 703,989 431,195 Comprehensive income attributable to owners of the parent 694,722 429,180 Comprehensive income attributable to non-controlling 9,267 2,015 interests Net cash provided by/(used in) operating activities 655,852 824,750 Net cash provided by/(used in) investing activities (2,806,861) (912,795) Net cash provided by/(used in) financing activities 1,829,397 472,598 Total net cash flow (321,906) 376,832 Basic earnings/(loss) per ordinary share (PLN) 5.70 3.29 Diluted earnings/(loss) per ordinary share (PLN) - - As at As at Dec 31 2009 Sep 30 2010 (restated) (unaudited) (audited) Total assets 15,225,952 17,027,696 Equity attributable to owners of the parent 6,809,393 7,251,508

Non-controlling interests 36,752 14,582 Total equity 6,846,145 7,266,090 Source: the Issuer.

4 Risk Factors

The description of risk factors that are material to the securities to be admitted to trading and relevant to the assessment of market risk associated with the securities is presented in Chapter II – Risk Factors of this Prospectus.

5 Information on the Issuer

5.1 History and Development

5.1.1 Legal Name (as specified in the Articles of Association) and Trade Name

Pursuant to Par. 1.1 of the Articles of Association, the Issuer operates under the name Grupa LOTOS Spółka Akcyjna and may use the abbreviated name Grupa LOTOS S.A.

5.1.2 Relevant Register and Registration Number

The Issuer was entered in Section B of the Commercial Register maintained by the District Court in Gdańsk, 9th Commercial Division, under entry No. 6553, by virtue of the court‟s decision of October 1st 1991.

On April 10th 2002, the Issuer was entered in the Register of Entrepreneurs of the National Court Register maintained by the District Court for Gdańsk-Północ in Gdańsk, 7th Commercial Division, under entry No. KRS 106150, by virtue of the Registry Court‟s decision of April 10th 2002.

5.1.3 Date of Incorporation and Duration

The state-owned enterprise operating under the name Rafineria Nafty Gdańsk w budowie (under construction) was established by virtue of an order issued by the Minister of Industry and Commerce on March 18th 1972 (sign. EZ6D, ref. No. 39) pursuant to Art. 4.1 of the Decree on State-Owned Enterprises of October 26th 1950 (consolidated text: Dz.U. of 1960, No. 18, item 111), and Par. 7.3 of the Order on Organisation and Responsibilities of Investment Departments at State-Owned Organisations (M.P. No. 41, item 234, as amended) issued by the Chairman of the Council of Ministers‟ Planning Committee on July 27th 1965.

Following the technological commissioning of the fuel unit, the state-owned enterprise Rafineria Nafty Gdańsk w budowie (under construction) was transformed into an operational enterprise under the name of Gdańskie Zakłady Rafineryjne pursuant to an order of the Minister of Chemical Industry dated July 7th 1976 (sign. EZ6- 01231, ref. No. 54), amending the order of the Minister of Industry and Commerce dated March 18th 1972. By virtue of the order of July 7th 1976, the company name was changed to Gdańskie Zakłady Rafineryjne and its business profile to: (i) refining of crude oil into motor fuels and fuel oils, and (ii) acting as investor. Upon coming into force of the Polish Act on State-Owned Enterprises of September 25th 1981 (Dz.U. No. 24, item 122), which defined the rules governing functioning of state-owned enterprises, by way of an order of the Minister of Chemical and Light Industry dated October 12th 1982 (No. 103/Org/82) the organisation of the enterprise was adjusted to comply with the provisions of the Act. Moreover, by virtue of the Act, the Minister of Chemical and Light Industry assumed the role of the enterprise‟s founding body and of the authority supervising its operations. Gdańskie Zakłady Rafineryjne was entered in the Register of State-Owned Enterprises maintained by the District Court in Gdańsk, under entry No. PP-119.

In 1991, by virtue of Art. 5 of the Polish Privatisation Act, the Minister of Ownership Transformations transformed Gdańskie Zakłady Rafineryjne, then operating as a state-owned enterprise, into a state-owned stock company operating under the name of Rafineria Gdańska Spółka Akcyjna (Notarial Deed of September 18th 1991, prepared by Paweł Błaszczak, Notary Public in Warsaw, Rep. No. 8932/91 – hereinafter referred to as “the Deed of Transformation”).

By virtue of the Deed of Transformation, the Issuer‟s equity was created from the initial capital and enterprise fund of Gdańskie Zakłady Rafineryjne. The equity included share capital of PLZ 787,000,000,000 (following redenomination: PLN 78,700,000), which was divided into 7,870,000 bearer Shares with a par value of PLZ 100,000 (following redenomination: PLN 10) per share, and reserve funds created from the remaining portion of the equity. Based on the closing balance of the enterprise, prepared as at September 30th 1991, the equity of Gdańskie Zakłady Rafineryjne totalled PLZ 1,510,412,000,000 (following redenomination: PLN 151,041,200).

The Issuer has been established for indefinite term.

5.1.4 Registered Office, Legal Form, Legal Basis for Operations, Country of Domicile, Address and Telephone Numbers of the Registered Office (or Principal Place of Business If Different from the Registered Office)

Company name: Grupa LOTOS Spółka Akcyjna Legal form: joint-stock company Country of domicile: Poland Registered office: the city of Gdańsk Address: ul. Elbląska 135, 80-718 Gdańsk, Poland Telephone: +48 58 308 71 11 Fax: +48 58 301 88 38 E-mail: [email protected] Website: www.lotos.pl REGON (Industry Identification Number): 190541636 NIP (Tax Identification Number): 583-000-09-60, PL5830000960

The Company operates in the form of a joint-stock company under the provisions of the Commercial Companies Code and other generally applicable Polish laws.

5.1.5 Important Events in the Development of the Issuer’s Business

The state-owned enterprise Rafineria Nafty Gdańsk w budowie was established by virtue of the decision of the Minister of Industry and Commerce dated March 18th 1972.

On July 7th 1976, following the technological commissioning of the fuel unit, the state-owned enterprise Rafineria Nafty Gdańsk w budowie was transformed into an operational enterprise with the annual throughput of 3 million tonnes of crude oil.

In 1991, the state-owned enterprise Gdańskie Zakłady Rafineryjne was transformed into a state-owned stock company, then operating under the name of Rafineria Gdańska Spółka Akcyjna.

At the beginning of 1996, the Issuer initiated the process of spinning off particular operations into subsidiaries, starting with the formation of LOTOS Paliwa, a company established to oversee and manage the LOTOS service station network. LOTOS Paliwa was entered in the Commercial Register in January 1996. The undertaking received the assets separated from the Issuer‟s enterprise, including the Issuer‟s CODO and COCO stations. In August 2001, LOTOS Paliwa was entrusted with overseeing the DODO station network.

In 2000, the Issuer established LOTOS Kolej (originally Zakład Transportu Kolejowego Rafinerii Gdańskiej Sp. z o.o.), to engage in rail transport on behalf of the Issuer. LOTOS Kolej was entered in the Commercial Register in January 2000.

In 2002, the Supervisory Board approved a restructuring programme developed by the Management Board (“Restructuring Programme”), whose principal objective was to transform the Issuer into a modern energy concern with a national reach, comprising a group of companies operating in the areas of crude oil extraction, production, trading and services auxiliary to the Issuer‟s core business.

On May 28th 2003, the Issuer‟s name was changed from Rafineria Gdańska S.A. to Grupa LOTOS.

In the first days of February 2005, as part of the government‟s strategy for Polish oil sector, an agreement was executed between Nafta Polska and Grupa LOTOS whereunder Nafta Polska disposed of its entire shareholdings in Petrobaltic (a 69.00% interest) and “southern refineries”, i.e. Rafineria Czechowice refinery (an 80.04% interest), Rafineria Jasło refinery (an 80.01% interest), and Rafineria Nafty Glimar refinery (a 91.54% interest; company in bankruptcy).

On June 9th 2005, the shares of Grupa LOTOS S.A. were floated on the Warsaw Stock Exchange. Following the issue of 35,000,000 Series B shares, an increase in the share capital of Grupa LOTOS S.A. to PLN 113,700,000 was registered on June 28th 2005.

In August 2005, upon the completion of an overhaul shutdown, the Gdańsk refinery‟s annual processing capacity reached 6 million tonnes of crude oil.

In 2006–2010, the Company has been implementing its new strategy for the LOTOS Group, whose objectives were to:

 increase the economic effectiveness of crude oil processing through optimal utilisation of the existing refinery complex and implementation of the key investment projects, i.e. the 10+ Programme (for more details see Section 5.2.1 of the Registration Document),

 develop crude oil exploration and production activities,

 increase sales efficiency,

 strengthen its position on the wholesale and retail fuel market.

The 10+ Programme was launched in August 2007, while a month later LOTOS EPN, a Polish-Norwegian company, was established to be responsible for exploration and production of crude oil on the Norwegian Continental Shelf. In May and October 2008, LOTOS EPN purchased a 20% interest in production licences relating to the YME field in the North Sea.

In June 2008, the Issuer signed a credit facility agreements to finance the 10+ Programme for the total amount of USD 1.75bn with a consortium of 17 financial institutions.

In February 2009, as a result of the financial crisis on the global capital markets, the Management Board of Grupa LOTOS S.A. implemented a Package of Anti-Crisis Measures, which produced savings of PLN 470.1m in the form of suspended or abandoned investment projects and cost savings of PLN 252.5m.

The Spring 2009 overhaul shutdown commenced in March 2009. The objective of the shutdown, apart from the need to perform the maintenance work on the refinery, was to integrate all new process units under construction with the existing system of the refinery without further disruption to the production process.

On July 17th 2009, an increase in the share capital of Grupa LOTOS S.A. following the issue of 16,173,362 Series C Shares, paid up by contributions in the form of shares in Petrobaltic S.A., LOTOS Jasło S.A. and LOTOS Czechowice S.A., was registered.

In April 2010, one of the key units constructed under the 10+ Programme, i.e. the crude distillation unit (CDU/VDU), was put into service.

In 2010, the Issuer‟s Supervisory Board approved the new strategy for the LOTOS Group for 2011–2015. The new Strategy provides for the continuation of the current policy oriented towards stimulating sustainable growth of the core business, that is exploration for and production of hydrocarbons, deep conversion of feedstock in fuel production, and trade in high-margin petroleum products, with the focus on the overriding strategic objective of building shareholder value.

5.2 Investments of the Issuer’s Group

5.2.1 Major Investment Projects of the Issuer’s Group in 2007–2009

The main investment project of the LOTOS Group carried out in the years 2007–2009 were connected with expanding the throughput capacity of the Gdańsk refinery and increasing oil production. The key projects in the period were the 10+ Programme and the YME Project.

Below is presented the capital expenditure incurred by the Issuer‟s Group in the years 2007–2009 on tangible assets under construction and purchase of property, plant and equipment and intangible assets.

Table 8 Tangible assets under construction and purchase of property, plant and equipment (PLN ‘000)

2007 2008 2009

Construction and assembly work 104,607 617,030 1,195,522

Procurement of ordered materials and 61,205 703,580 2,059,623 equipment – purchases

Purchase of intangible assets 24,334 12,565 52,269

Other expenditure 296,539 1 085,232 736,745

Prepayments for tangible assets under 681,601 778,953 258,581 construction

Settled prepayments - 47,839 - 345,012 - 1,305,765

Total 1,120,447 2,852,348 2,996,975

Source: the Issuer.

5.2.2 Description of Major Investment Projects Currently Implemented by the Issuer’s Group The key domestic and foreign investment projects currently implemented by the Issuer‟s Group are the 10+ Programme and the YME Project, both continued from previous years.

5.2.2.1 Domestic Projects

The main domestic investment project currently implemented by the LOTOS Group is the 10+ Programme, the Issuer‟s largest project which is of key importance to future growth of the Company‟s shareholder value. The 10+ Programme is designed to increase the economic effectiveness of crude oil processing through increased processing volumes, higher conversion ratio and product desulphurisation. As part of the project a complex of refining units is being built at the Gdańsk refinery. It is a modern and integrated solution enabling crude oil processing to be intensified. Below is presented the capital expenditure incurred on the project.

Table 9 Capital expenditure on the 10+ Programme (PLN ‘000)

2007 2008 2009 Jan 1 – Sep 30 2010 Capital expenditure on 10+ Programme 795,754 1,868,108 2,211,252 463,431

internal sources of financing 66.34% 13.53% 37.80% 21.86%

external sources of financing 33.66% 86.47% 62.20% 78.14%

Source: the Issuer.

Following completion of the 10+ Programme, the Gdańsk refinery will be able to satisfy the domestic demand for highest-quality fuels, while production surplus may be exported, given the refinery‟s seaside location. In line with the LOTOS Group‟s strategy for 2011–2015, following completion of the 10+ Programme, the main objective will be to ensure effective management of heavy residue of crude oil processing, including in particular the asphalten fraction from the ROSE unit, which is planned to be eliminated completely from the product portfolio.

Source: the Issuer.

2007

With respect to the execution of the 10+ Programme, the Company‟s efforts in 2007 focused on reviewing the received bids, preparing the contractor selection process and launching the implementation phase of the project, commencing the performance of concluded execution agreements, further selection of contractors and efforts relating to the arrangement of financing: technological, market, legal and insurance analyses of the 10+ Programme, as well as work on a financing concept for the Programme, negotiations and cooperation with financial institutions.

Work was also continued on optimising the concept for the utilisation of the ROSE unit, based on the Kellog Brown & Root technology, as part of the implemented configuration of the 10+ Programme.

The time of execution of the heavy residue gasification unit would depend on the market situation with respect to the sale of heavy products, in particular bitumens, whose sale is an alternative for heavy residue gasification.

As part of the work aimed at arranging financing for the 10+ Programme, the transaction structure and an information package for banks were being prepared.

Wood MacKenzie (WMK) was engaged to perform a market analysis for the purposes of the 10+ Programme. WMK presented its assessment of the European product market from the perspective of the production structure to be introduced by Grupa LOTOS S.A. in the future, as well as an analysis of the bitumen market. The volume of domestic sales as projected by Grupa LOTOS S.A. was also confirmed as achievable. A comparative analysis of Grupa LOTOS S.A.‟s competitiveness before and after the implementation of the 10+ Programme was performed. The comparison included 107 European refineries. The final report on the 45 analysis confirmed the correctness of Grupa LOTOS S.A.‟s market assumptions justifying the execution of the 10+ Programme, including in particular: demand forecasts for individual products and possibility of marketing the products in Poland and other European countries, price forecasts, and the favourable effect of the 10+ Programme on the Company‟s competitive position.

Stone & Webster performed a technological analysis of the 10+ Programme for the financing institutions. The final due diligence report included a positive assessment of the 10+ Programme and identified no material risks in any of the Programme‟s aspects covered by the due diligence examination (including the budget, timetable, contractor selection strategy, management strategy, environmental issues, permits, and technology).

The Linklaters law firm was selected as the legal adviser to the financial institutions and engaged to perform a legal due diligence of the 10+ Programme and Grupa LOTOS S.A. The legal due diligence report, containing a positive assessment of Grupa LOTOS S.A., was prepared towards the end of December 2007. Linklaters was also involved in the preparation of the term sheet proposed to prospective participants in financing.

Miller was selected as the insurance adviser to the financial institutions. Based on a due diligence examination concerning the insurance programme connected with the execution of the 10+ Programme, Miller accepted and positively assessed Grupa LOTOS S.A.‟s insurance assumptions for the coming years.

Insurance policies covering construction and assembly risks connected with the commencement of the 10+ Programme (in line with the assumptions of Grupa LOTOS S.A.‟s Insurance Programme for 2008–2010) were arranged. Work was completed on extended operating insurance for the existing assets of Grupa LOTOS S.A.‟s Gdańsk refinery. The policy for 2008–2010 was signed on November 30th 2007.

Financing The process of developing a concept of and arranging the financing for the 10+ Programme and other needs of the Company had a few phases. On December 20th 2007, the Issuer signed a credit facility agreement with a consortium of four banks (described in more detail in Section 22.2 of the Registration Document as credit facility agreement for the refinancing and financing of mandatory stocks). This was the first step in the process of raising financing for Grupa LOTOS S.A.‟s needs connected with the execution of the 10+ Programme. The facility enabled the then existing inventories to be refinanced and the funds frozen in the inventories to be released.

Subsequently, on December 21st 2007, Grupa LOTOS S.A. sent to the interested financial institutions an invitation to submit bids for the financing of the 10+ Programme and the Company‟s working capital, in the amount of USD 1,550m and USD 200m, respectively. The invitation was accompanied by an information package and was made available to banks and other financial institutions. The deadline for submitting bids was set for January 2008.

2008

With respect to the execution of the 10+ Programme, the Company‟s efforts in 2008 focused on the performance of concluded execution agreements, further selection of contractors, and arrangement of financing.

Financing On June 27th 2008, Grupa LOTOS signed a credit facility agreement with a consortium of financial institutions (described in more detail in Section 22.2 of the Registration Document as credit facility agreement for the financing of the 10+ Programme).

The credit facility agreement, together with the credit facility agreement for the refinancing and financing of the inventories of Grupa LOTOS S.A. of December 20th 2007, secured funds sufficient to meet the Company‟s total requirement for external financing in connection with the implementation of the 10+ Programme.

Figure 1 Financing structure chart

Source: the Issuer.

2009

In 2009, the implementation of the 10+ Programme focused on performing the concluded execution agreements, as well as on commissioning for subsequent start-up of key units of the 10+ Programme, including the HDS, HGU, ASR and CDU/VDU units, and certain parts of auxiliary facilities.

100%

80%

60% 100% 100% 100% 100% 99% 91% 40% 59% 20%

HDS KAS HGU CDU MHC ROSE U&O 47

Legend: HDS – hydrodesulphurisation unit (for diesel oils)

KAS = ASR – amine sulphur recovery unit

HGU – hydrogen generation unit

CDU – crude distillation unit

MHC – mild hydrocracking unit

ROSE – residuum oil supercritical extraction unit

U&O – utilities and offsites

Source: the Issuer.

Staff 2009 Project

The Staff 2009 Project, which envisages hiring 120 employees to operate the units constructed as part of the 10+ Programme, was fully implemented. All employees who will operate the units were trained.

Source: the Issuer.

2010 48

As at the end of September 2010, the work under the 10+ Programme was completed in 99.81% compared with the planned 99.82%. The completion status was close to that assumed in the Early Start plan, which means that the work is performed in line with the schedule. The engineering, procurement and construction process has been completed with respect to the HDS, ASR, CDU/VDU and HGU units, as well as most auxiliary facilities. In April 2010, tests of the CDU/VDU unit were run.

Chart 1 Completion status of the 10+ Programme

Source: the Issuer.

CDU/VDU Unit

Start-up of the CDU/VDU unit in March 2010 enabled the utilisation ratios of units already placed in service under the 10+ Programme (i.e., HDS and ASR) to be increased. After all material parameters and full operational capacity of the CDU/VDU unit were achieved in May 2010, it operates under load consistent with the current production plan of the Gdańsk refinery. The total annual throughput of crude oil should increase from approx. 6m tonnes to approx. 8m tonnes in 2010.

Another change in the volume of processed crude oil is planned for the fourth quarter of 2010, following the start-up of the MHC unit.

5.2.2.2 Foreign Projects

The key foreign investment project currently implemented by the LOTOS Group is the upstream YME Project, located in the south-east of the Norwegian Sea, i.e. in the so-called Egersund Basin, approx. 100 nautical miles off the shore. It has been conventionally divided into two areas: Gamma and Beta, located approx. 12 km apart, with water depths of 93 meters and 77 meters, respectively. The YME field was closed in 2001 due to its high water content and low crude prices (below USD 15 per barrel). In 2004, licence PL316, which covers the area where the field is located, was granted to a joint venture comprising the following companies: Paladin Resources AS, Talisman Energy Norge AS and Revus Energy ASA. 49

In 2008 and 2009, LOTOS EPN acquired a 20% interest in the project. The current structure of the joint- venture developing the YME field is as follows: Talisman Energy Norge AS (60%), LOTOS EPN (20%), Wintershall (10%) and AEDC (10%). Below is presented the capital expenditure incurred on the project.

Table 10 Capital expenditure on the YME Project (NOK ‘000)

2008 2009 Jan 1 – Sep 30 2010

Capital expenditure on YME Project 1,023,417 600,532 389,955

internal sources of financing 100.00% 77.97% 56.26%

external sources of financing 0.00% 22.03% 43.74%

Source: the Issuer.

Drilling on the YME field, with the use of the Mærsk Giant drilling platform, commenced in 2008. Nine wellbores, including six producers and three water injectors, were planned to be drilled as part of the project. By mid 2010, six producers and three water injectors had been drilled as planned. Gas pressure in the drilled wells was found to be higher than expected. The wells‟ completion intervals in the deposit are also longer than expected.

The planned production life of the field (ten years) is shorter than the expected operational life of the platform (15 years).

The oil production centre on the YME field is covered by a standard Bareboat Charter Agreement entered into with SBM MOPUSTOR YME LTD on January 5th 2007. The agreement is concluded for a five-year lease term, with an option to extend the lease term to 15 years. The lessee has the option to purchase the facility for USD 478m at the end of the year of its delivery and for USD 143m at the end of the five-year lease period, as well as at any time between those dates. The lease agreement is effective from the moment the platform was constructed.

In its annual report for 2009 prepared in March 2010, the auditor of LOTOS EPN stated that the total liabilities of LOTOS EPN under the lease agreement (for the period until 2023) amount to the equivalent of USD 203,096,560.

The reserves and resources of the YME field estimated by LOTOS Petrobaltic and LOTOS EPN on the basis of the results of existing surveys are presented in Table 11.

Table 11 Reserves and resources attributable to LOTOS EPN, based on the company’s own estimates

Reserves and resources attributable to LOTOS EPN Reserves and resources (million bbl) (i.e. attributable to its 20% interest) Reserves Crude oil (1P/2P/3P) 9.4 / 12.86 / 14.3 Contingent (1C/2C/3C) 0 / 0.5 / 2.2 Prospective (P90/P50/P10) - - Source: LOTOS EPN.

Chart 2 YME Project’s production forecast (attributable to the 20% interest of LOTOS EPN)

3,0

2,5

2,0

1,5 mln bbl/rok

1,0

0,5

0,0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Source: LOTOS EPN. Each partner in the project will have the right and obligation to take delivery its share of crude oil from the YME field in proportion to its interest in the field. However, in the first 24 months the partners agreed to jointly take deliveries of crude oil. Following the first 24 months, each partner will have the ability to take delivery of its own shipments. The operator will be responsible for assigning and scheduling shipments and preparing and distributing shipment documentation. The costs of oil deliveries will be divided pro rata to the shipments delivered. The operator will be responsible for the initial payment of all the costs covered by the contract of affreightment (CoA) and will subsequently charge those costs to the partners pro rata to their shares in the shipment. A contract of affreightment (CoA) has been signed with Knutsen OAS (UK) Ltd.

Grupa LOTOS S.A. will be able to buy YME crude oil in excess of the volumes resulting from LOTOS EPN‟s interest in the field from the operator on arm‟s length terms.

In September 2008, the total investment budget of the YME Project was increased to NOK 6,386m. Currently, the estimates of LOTOS Petrobaltic show that the total investment budget of the YME Project should not exceed NOK 7,527m.

5.2.3 Information on Major Investment Projects to Be Implemented by the Issuer’s Group in the Future

As at the Prospectus Date, the key projects to be carried out in the future comprise further stages of the 10+ Programme and the YME Project. Other projects planned for execution are connected with licences PL455, PL497, PL498, PL503 and PL515. LOTOS EPN‟s planned capital expenditure on exploration and appraisal of fossil fuels in the years 2010–2013 is estimated at: NOK 86m in 2010, NOK 68.2m in 2011, NOK 197.3m 2012 and NOK 157.6m in 2013.

The capital expenditure will be incurred subject to:

 selecting contractors to perform the 3D surveys;

 results of preliminary surveys;

 consent of all licence holders;

 crude oil price;

 prices of services and work on the Norwegian Continental Shelf;

 any potential new restrictions imposed by the Norwegian authorities in the area of technical safety of work.

As at the Prospectus Date, the Issuer‟s management bodies made no binding commitments with respect to any major projects other than those connected with the implementation of the 10+ Programme and the YME Project described above.

   

6 The Issuer’s Business

6.1 Core Business

6.1.1 Description of, and Key Factors Relating to, the Nature of the Issuer’s Operations and its Principal Activities, Stating the Main Categories of Products Sold and/or Services Performed for Each Financial Year for the Period Covered by the Historical Financial Information

Nature of the Issuer’s and its Group’s Business

The LOTOS Group is an oil concern whose business consists in crude oil production and processing, as well as wholesale and retail sale of high-quality petroleum products. The concern sells a range of products, including unleaded gasoline, diesel oil and aviation fuel. It is also Poland‟s leader in the production and sale of motor oils, bitumens and paraffin. A countrywide network of service stations operates under the LOTOS brand. Through LOTOS Petrobaltic S.A. and LOTOS Exploration and Production Norge AS the concern is also present on the Baltic Sea and at the Norwegian Continental Shelf, where it is active in the area of crude oil exploration and production.

The strategic objective of the LOTOS Group is to create shareholder value through optimal leveraging of the available intellectual resources and physical assets, as well as implementing development programmes in the following areas:

 upstream segment,

 crude oil processing,

 trade.

The Group‟s operating activities comprise two main reportable operating segments:

 upstream segment – comprising activities related to the acquisition of crude oil and natural gas reserves, and crude oil and natural gas production,

 downstream segment – comprising the production and processing of refined petroleum products and their wholesale and retail sale, as well as auxiliary, transport and service activities.

Grupa LOTOS S.A. is part of the downstream segment. The upstream segment comprises the entire group of LOTOS Petrobaltic, the Issuer‟s subsidiary company.

Table 12 Companies with capital links to the Issuer as at the Prospectus Date

Percentage of Name Business profile the share capital held by GL S.A.

Parent Company

production and processing of refined petroleum Grupa LOTOS S.A. products (mainly gasolines and diesel oils) and their wholesale LOTOS Petrobaltic S.A. exploration and exploitation of crude oil and natural 99.32% gas reserves LOTOS Czechowice S.A. services consisting in the storage of stocks, 97.54% distribution of fuels LOTOS Jasło S.A. production and sale of heavy fuel oil, LDPE 98.03% regranulate, distribution of fuels maintenance services related to: measurements, LOTOS Serwis Sp. z o.o. automation, control and measurement systems, 100% electric and mechanical operations, communication, equipment and transport laboratory and test services related to: process tests, sampling and quality control, inspection of finished LOTOS Lab Sp. z o.o. products in the sales network, tests of water, 100% groundwater and sewage, measurements and preparation of documents regarding working conditions fire protection and rescue services, organisation and LOTOS Straż Sp. z o.o. 100% implementation of precautionary measures, issuing opinions on fire prevention documentation LOTOS Ochrona Sp. z o.o. personal and property protection services, control of 100% the traffic of persons, goods and vehicles LOTOS Ekoenergia Sp. z o.o. the company does not conduct operating activities 100%

UAB LOTOS Baltija provision of advisory and support services to the 100% LOTOS Group companies LOTOS Park Technologiczny the company does not conduct operating activities 100% Sp. z o.o.

LOTOS Gaz S.A. the company does not conduct operating activities 100%

LOTOS Oil S.A. production and sale of motor oils, industrial oils and 100% lubricants; sale of base oils and plasticizers domestic sale of unleaded gasolines (Pb 95, Pb 98), LOTOS Paliwa Sp. z o.o. 100% DYNAMIC fuels (Pb 98, ON), diesel oils, light fuel oil, LPG railway transport of petroleum products, goods and LOTOS Kolej Sp. z o.o. 100% empty tanker wagons; provision of services at railway sidings LOTOS Asfalt Sp. z o.o. production and sale of road bitumens, modified 100% bitumens; sale of heavy fuel oil (1% and 3%)

Percentage of Name Business profile the share capital held by GL S.A.

production and sale of paraffin for votive candles, LOTOS Parafiny Sp. z o.o. industrial paraffin mass, standard paraffin, low-oil 100% paraffin; production and sale of candles and votive candles LOTOS Tank Sp. z o.o. sale of JET A-1 aviation fuel 100%

Significant Companies with Capital Links

Przedsiębiorstwo Przeładunku Paliw Płynnych NAFTOPORT Sp. z o.o. reloading of crude oil and petroleum products 8.97%

Indirect Subsidiary Undertakings

LOTOS Exploration and oil exploration and production at the 100% - LOTOS Production Norge AS Norwegian Continental Shelf Petrobaltic S.A.

LOTOS Biopaliwa Sp. z o.o production and sale of fatty acid methyl 100% - LOTOS esters (FAME) Czechowice S.A.

KRAK GAZ Sp. z o.o. in bankruptcy by liquidation 100% - LOTOS (In liquidation) GAZ S.A.

RCEkoenergia Sp. z o.o. production and distribution of electricity, 100% - LOTOS heat and gas Czechowice S.A.

Plastekol Organizacja Odzysku wholesale of waste products and scrap 95.5% - LOTOS S.A metal, freight transport by road, sewage Jasło S.A. management as well as waste removal and neutralization

Miliana Shippi g Company Ltd. services consisting in the storage and 99.9% - LOTOS transport of crude oil, rescue and spill Petrobaltic S.A. prevention assistance, as well as geotechnical services

Aphrodite Offshore Services N.V sea transport and sea fleet management, 100% - LOTOS as well as purchasing, holding and Petrobaltic S.A transferring ownership rights, renting, leasing and commissioning the construction of ships, operation of ships and conclusion of charter agreements

Energobaltic Sp. z o.o. production and sale of heat and electricity, 100% - LOTOS natural gas condensate and LPG Petrobaltic S.A.

AB Geonafta exploration and production of crude oil in 40.59% - LOTOS

Percentage of Name Business profile the share capital held by GL S.A.

the territory of the Republic of Lithuania Petrobaltic S.A.

Source: the Issuer.

Upstream Segment

LOTOS Petrobaltic has been a part of the LOTOS Group since February 2005. The company is the core of the Group‟s upstream division. Its current headcount is over 400. Many of its employees have been working for more than 20 years in exploration and appraisal of minerals and production from offshore fields.

LOTOS Petrobaltic formed its own group of companies, composed of 5 subsidiaries and associates: LOTOS EPN (100.00% held by LOTOS Petrobaltic), AB Geonafta (40.59% held by LOTOS Petrobaltic), Energobaltic Sp. z o.o. (100.00% held by LOTOS Petrobaltic), and two shipping companies: Aphrodite Offshore Services N. V. (AOS) (100.00% held by LOTOS Petrobaltic) and Miliana Shipping Company Ltd. (MSC) (99.90% held by LOTOS Petrobaltic).

The core activities of the key companies are as follows:

 LOTOS EPN provides access to crude oil fields on the Norwegian Continental Shelf in the North Sea and the Norwegian Sea;

 Energobaltic is responsible for managing tail gas generated now and in the future during the production of oil from fields located in the Baltic Sea;

 The shipping companies are responsible for safe and timely transport of crude oil coming from the Baltic Sea and (in the future) from the Norwegian Continental Shelf.

LOTOS Petrobaltic has extensive knowledge in the area of crude oil and gas production from offshore fields and operates in accordance with the applicable regulations, including the provisions of:

 International Convention for the Prevention of Pollution from Ships Marpol 73/78;

 Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter;

 International Convention Relating to Intervention on the High Seas in Case of Oil Pollution Casualties;

 The 1974 Helsinki Convention;

 Polish geology, mining, and environmental protection laws.

LOTOS Petrobaltic is actively developing new areas of its activity. It takes part in programmes involving carbon dioxide injection projects with a view to acquiring and customising the Enhanced Oil Recovery (EOR) technology based on carbon dioxide injection. Analyses of the prospective use of deposit structures for CO2 injections are currently underway.

The Petrobaltic Group works closely with a number of experienced companies and research institutes as well as technical support providers, and since 2009 has been implementing a system of oil and gas resources 56 estimation in accordance with the Petroleum Reserves and Resources Classification adopted by Society of Petroleum Engineers and Word Petroleum Council

Table 13 Crude oil and natural gas resources of the Petrobaltic Group according to the Society of Petroleum Engineers and World Petroleum Council’s classification

Total – the Baltic Sea and the Norwegian Continental Shelf Category (*) crude oil natural gas million tonnes billion cubic meters Proved Reserves 6.3 (****) 4.5 (**) Contingent Resources 0.8 (***) 2.4 (*****) Source: in-house analysis of LOTOS Petrobaltic. (*) Exclusive of prospective resources that may potentially be discovered under exploration licences. (**) Gas resources are classified as undeveloped resources – except 0.12 billion cubic meters of the B3 field and 0.425 billion cubic meters of the B8 field that are already developed; 4.5 billion cubic meters is the total of proved reserves (2P = P1 + P2) of the B4 field [2.105 billion cubic meters], the B6 field [1.88 billion cubic meters], the B3 field [0.108 billion cubic meters] and the B8 field [0.422 billion cubic meters]; (***) This figure includes undeveloped resources of 0.38 million tonnes (the B21 field); 0.8 million tonnes is the total of contingent resources (2C = C1 + C2) of the B3 field [0.424 million tonnes] and the B21 field [0.379 million tonnes]; (****) 6.3 million tonnes is the total of proved resources (2P = P1 + P2) of the B3 field [1.034 million tonnes], the B8 field [3.545 million tonnes] and the YME field [1.730 million tonnes]; (*****) 2.4 billion cubic meters is the total of contingent resources (2C = C1 + C2) of the B3 field [0.045 billion cubic meters] and the B21 field [2.368 billion cubic meters]. Of these, only the B3 field resources are developed;

In addition to the abovementioned resources, LOTOS Petrobaltic holds a minority stake in AB Geonafta based in Lithuania. The LOTOS Petrobaltic‟s share (based on its interest) in the proved resources of the developed oil fields of AB Geonafta and its subsidiaries (computed in proportion to the ownership interest), estimated on the basis of corporate records of these companies, were 4,454.35 thousand bbl as at December 31st 2009 (708 thousand cubic meters of oil assuming that 1 bbl = 0.15899 cubic meters).

Given the specific ownership structure, minority interest, lack of operational control over the resources, and certain additional investment expenditure (of unknown amount) which may be required to make these resources available, LOTOS Petrobaltic does not add this amount to the amounts presented above.

Poland – the Baltic Sea

In the strategy developed in 2008, the total capital expenditure on the exploration and appraisal of deposits and development of appraised oil fields in the Baltic Sea planned for 2008–2012 was estimated at PLN 3.37bn. In the aftermath of the global economic downturn and changes in oil and gas markets, the actual capital expenditure in 2008–2010 (H1) totalled PLN 156.3m, and capital expenditure on oil fields in the Baltic Sea currently planned for 2010 (H2) – 2011 is estimated at about PLN 294m.

Liabilities of LOTOS Petrobaltic relating to the applications filed by the company in Q2 2010 for the extension of its exploration and appraisal licences go beyond the time horizon of the above forecasts and relate only to the exploration and appraisal phase (they do not cover expenditure on the development of appraised fields). Total expenditure needed to complete the work (including drillings performed using the contracted platform) specified in the applications for the extension of the licences and to perform the company‟s current licence obligations, is estimated at about PLN 432m. Performance of all licence obligations will depend on the outcomes of the first phase of exploration work, economic viability analysis, and availability of funding.

Described below are the five major fields covering the above-mentioned resources (B3, B8, B4, B6, and B21).

B3 Field

The area of production in the B3 field is covered by the mining usufruct agreement signed on April 13th 1994 between Minister of Environment, Natural Resources and Forestry and LOTOS Petrobaltic, as well as licences for crude oil and natural gas production in the sea area of the Republic of Poland, granted to Przedsiębiorstwo Poszukiwań i Eksploatacji Złóż Ropy i Gazu Petrobaltic Sp. z o.o. under Decision No. 108/94 of the Minister of Environment, Natural Resources and Forestry dated July 29th 1994.

The B3 field was discovered and confirmed by drilling in 1981. By 1983, three wells had been drilled in this field and used as a basis for geological documentation of the category C resource. Three additional appraisal wells were drilled in 1992–1993; they served as a basis for the establishment of the current category B and C resources.

Oil production in the B3 field was launched in May 1992 on the B3-6 well. The field currently has 11 production wells. Cumulative production is currently at about 4.22 million cubic meters of oil and 359.6 million Nm3 (normal cubic meters) of gas (June 30th 2010).

In 2008, in view of the gradually increasing content of formation waters and the obligation to meet the requirements of the Helsinki Convention and the new HELCOM Baltic Sea Action Plan (“zero discharge” of separated waters into the Baltic Sea), PPiERiG Petrobaltic began to modify its methods of formation waters management. After separation of petroleum products, waters are pumped to rock mass (Middle Cambrian) together with sea water.

In 2009, total oil production of LOTOS Petrobaltic reached 216.6 thousand cubic meters (174.4 thousand tonnes). In the period January–September 2010, production reached 150.8 thousand cubic meters (121.4 thousand tonnes) in the B3 field and 38.2 thousand cubic meters (30.96 thousand tonnes) in the B8 field, giving the total of 189 thousand cubic meters (152.4 thousand tonnes).

B8 Field

The B8 field is covered by the mining usufruct agreement signed on September 5th 2006 between Minister of Environment and LOTOS Petrobaltic, and amended with Annex No. 1 of October 26th 2009, as well as licences for crude oil and natural gas production in the territorial sea of the Republic of Poland, granted to Przedsiębiorstwo Poszukiwań i Eksploatacji Złóż Ropy i Gazu Petrobaltic Sp. z o.o. under Decision No. 1/2006 of the Minister of Environment dated September 5th 2006, as amended by decision of the Minister of Environment No. DGiKGE-4470-69/4579/09/MO of October 26th 2009.

The B8 field was discovered and confirmed by drilling in 1983. Based on exploration work, documentation establishing category C oil and gas resources was prepared in 2004 and approved by the Minister of Environment. Four additional appraisal wells were drilled in 2005–2006 and used in analyses forming a basis for verification of category C resources, as described in Annex No. 1 to the documentation, approved by decision of the Minister of Environment in 2009.

Production from the B8 field was commenced on B8-2 well. Subsequently, additional wells were drilled and used for production – B8-3K, B8-4Kbis, and B8-Z1bis (initially designed for injection but later used as a production well given significant oil flow).

Having obtained the necessary decisions and modifications to the licence in 2009, the company drilled another well (B8-Z2) in June 2010 to be used for injections of formation waters.

Formation waters are pumped together with crude oil and then separated and discharged to the Baltic Sea. The content of petroleum substances in separated water did not exceed 15 ppm – in line with the requirements of the MARPOL 73/78 Convention.

Total production in 2007–2010 is presented in the table below.

Crude oil/natural gas production from the B8 field in 2007–2010.

Table 14 Production from the B8 field in 2007 – 2010

The B8 field Crude oil [t] Natural gas [Nm3] 2006 49,987 6,037,210 2007 4,074 470,343 2008 84,971 11,022,153 2009 18,283 2,200,999 2010 (Q1)* 30,967 3,773,024 Source: LOTOS Petrobaltic SA

* In Q2 and Q3 2010, no production activities were carried out on the B8 field.

B4 Field

Two natural gas fields, B4 and B6, are located in the Baltic Sea, 70 – 90 km off Polish coast. These fields are situated in the vicinity of the B3 field, where oil is produced. The extreme point (No. 4) of the mining zone established for the B4 field (55o44‟56”N; 17o59‟42”E) is located about 15 km from the border of Poland's exclusive economic zone (within its area) and just over 100 km from the nearest land to the north (territory of Sweden) – 108 km to the island of Öland and 128 km to Gotland.

The B4 field was first documented in early 1980s and its initial geological resources, established by Decision No. KZK/012/M/4887/84/85 of the President of Central Office of Geology dated January 24th 1985, comprised:

- 3,900 million cubic meters of gas, of which 2,689.7 million cubic meters were recoverable resources.

The current resources in the B4 field are documented based on 2D re-interpretations of geophysical surveys from the 1980s and results of drilling works retained in the archives, as well as new exploration wells.

Licence No. 6/2007 for natural gasoline gas production in the B4 field was granted by the Minister of Environment on May 11th 2007. The licence established the volume of commercial (recoverable) resources as at December 31st 2002 at 1,972.40 million cubic meters of natural (gasoline) gas in category C. The volume of non-commercial resources total 714.20 million cubic meters, and the resources utilisation rate was established at 100%. Te licence was granted for 25 years. By Decision No. DGiKGe-4770-51/5164/08/MO of the Minister of Environment, on August 14th 2008 licence No. 6/2007 of May 11th 2007 for natural gasoline gas production from the B4 field was amended by including the following provisions in Section 7: “activities under this licence shall commence not later than within 84 months from the date the licence is granted".

B6 Field

Licence No. 2/2006 for natural gas condensate production in the B6 field was granted by the Minister of Environment on November 7th 2006. The licence established the volume of commercial resources as at December 31st 2003 at 1,792.85 million cubic meters of natural gas. At the request of LOTOS Petrobaltic, the licence was amended by decision of the Minister of Environment No. DGiKGe-4770-52/5363/08/MO dated August 29th 2008 in the part referring to the extension of the licence for 26 years, i.e. until the end of 2032. In

59 addition, the time for commencement of the licensed activities was extended to 96 weeks, i.e. until November 2014.

Geological and deposit analyses in B4 and B6 fields were performed in different periods from 1981 to 2003. Results obtained from different exploration wells were in line with the production conditions defined at that time.

There is no final concept for the construction of transmission lines from B4 and B6 gas fields, the reason being the proximity to the B3 field producing oil and gas.

B21 Field

B21 is a long-term project, appraised with an exploration well.

This field has resources classified as contingent by LOTOS Petrobaltic. In category 2C, these resources include 0.379 million tonnes of crude oil and 2,368 billion cubic meters of natural gas.

LOTOS Petrobaltic intends is to design a more precise and comprehensive appraisal method for this field, based on further analyses.

Norway – the Norwegian Continental Shelf

The activities of LOTOS Petrobaltic in the Norwegian Continental Shelf are a part of a long-term strategy for the acquisition of additional crude oil resources and cooperation with world-class teams of experts in the field.

LOTOS Exploration & Production Norge AS (LOTOS EPN) was established in October 2007. The company currently employs 12 persons. LOTOS EPN holds a 20% interest in the YME field ( licences No. 316, 316 B, 316DS, 316CS), 20% interest in licence No. PL455 and PL515, 10% interest in licence No. PL497, 25% interest in licence No. PL498, and 25% interest in licence No. PL503. In accordance with the strategy for LOTOS EPN, the company plans to produce oil at 500,000 tonnes/year (10,000 barrels/day) in 2012.

Figure 2 Activities of LOTOS Petrobaltic in the Norwegian Continental Shelf

Source: the Issuer. 60

LOTOS EPN is managed by a group of highly qualified experts with many years of experience and a proven track record in oil projects in Norway and around the world. In line with the plan for 2010, the company‟s operations are focused on the YME field project, as described in more detail in Section 5.2.2 of the Registration Document.

Since 2000, LOTOS Petrobaltic has been investing in Lithuania. On June 16th 2000, a newly established Lithuania-based company Naftos Gavyba was used to acquire an 80.94% stake of the Lithuanian oil company AB Geonafta, the only oil production company in Lithuania (together with its related companies). The consortium paid LTL 52m (approximately USD 13m) for the stake of over 80%.

Despite holding a minority interest of 40.59%, LOTOS Petrobaltic is currently the major shareholder in AB Geonafta.

Downstream Segment

Financial results and market position of the LOTOS Group are dependent upon the Issuer‟s performance. Grupa LOTOS S.A. is the second largest producer and marketer of refined products in Poland. Production activities of Grupa LOTOS consist in managing the second largest refinery in Poland, whose annual crude oil distillation capacity as at the end of December 2009 amounted to 6m tonnes. The implementation of the 10+ Programme, described in Section 5.2.1 of the Registration Document, increased the Gdańsk refinery‟s throughput capacity. The current annual capacity is estimated at approximately 8m tonnes and is expected to reach 10.5m tonnes after completion of the 10+ Programme.

The following significant production units operate within the refinery: a) Atmospheric distillation units – used to prepare feedstock for further process units through desalination, crude oil stabilisation which yields unstabilised gasoline, and fractioning of stabilised crude oil into gasoline, kerosene, light, medium and heavy diesel oil, and atmospheric residue. b) Merox units – used to manufacture aviation fuel for turbine and jet engines. The feedstock for these units is kerosene fraction obtained through atmospheric distillation. The aim of the Merox process, commonly referred to as sweetening, is the conversion of mercaptans contained in kerosene fraction into disulphides, which remain in the kerosene fraction. c) Gasoline hydrotreating unit – used to desulphurise, stabilise, and fraction the gasoline from an atmospheric distillation unit. The hydrotreater prepares feedstock for the reforming unit (naphta) and isomerisation unit (light gasoline). d) Light gasoline isomerisation unit – used to increase the octane number of light gasoline. The product of isomerisation is known as isomerisate, with a research octane number (RON) of around 89. Isomerizate is a high-octane-number component for the production of motor gasolines, which is used to decrease the content of benzene and aromatic compounds in gasolines. e) Naphta reforming units – used to increase the octane number of gasoline feedstock and obtain reformate, a high-octane number component used in blending gasolines. f) Diesel hydrodesulphurisation unit – used for reducing the sulphur content in middle distillate obtained in the process of atmospheric distillation. Diesel oil desulphurisation is required under the applicable laws, which set the maximum admissible sulphur content in diesel oil at 10 ppm.

61 g) Hydrocracking unit – used to process vacuum distillates and furfurol extracts into fuel components. The resulting components, with the minimum sulphur contents, undergo blending or further treatment. Under the 10+ Programme, hydrocracking will be supported by a new mild hydrocracker (MHC) (Inst. 930). h) Hydrogen generation unit – operates based on the steam reforming process, in which hydrocarbons (from methane to hexanes) react with steam in the presence of a catalyst and yield hydrogen and carbon dioxide. The hydrogen-rich gas is purified in the Pressure Swing Absorption (PSA) system, generating hydrogen of 99.99% purity.

Table 15 Key operating data of the Gdańsk refinery

2007 2008 2009 Installed refining capacity thousand tonnes 6,000 6,000 6,000 Crude oil processed thousand tonnes 6,156.5 6,203 5,461.6 Other feedstock processed thousand tonnes 1,081.5 1,311 1,705.9 Distillation capacity utilisation 102.6% 103.4% 99.8%* * Capacity utilisation was computed taking into consideration the actual number of days of the refinery’s operation (overhaul shutdown in spring 2009). Source: the Issuer.

The main products of crude oil distillation at the Gdańsk refinery are gasolines, diesel oil, aviation fuel, light fuel oil and heavy fuel oil.

Table 16 Key production data for the Gdańsk refinery

2007 2008 2009 Gasolines thousand tonnes 1,346.2 1,245.5 1,282.3 Diesel oil thousand tonnes 2,606.6 2,920.5 3,224.7 Light fuel oil thousand tonnes 344.2 335.7 386.4 Aviation fuel thousand tonnes 440.0 494.3 370.2 Bunker oil thousand tonnes 264.4 241.8 5.3 LPG thousand tonnes 51.0 60.0 55.5 Heavy fuel oils thousand tonnes 787.9 785.7 560.4 Heavy components thousand tonnes 898.6 830.3 785.7 Other thousand tonnes 530.6 597.0 440.0 Total thousand tonnes 7,269.5 7,510.8 7,110.5 Source: the Issuer.

The restructuring performed in recent years has brought about a dynamic development of the Group‟s sales capabilities, designed to increase sales revenue in individual business segments and thus to expand the LOTOS Group‟s market shares and improve sales margins. The organisational structure thus created determines the structure of the distribution channels used by the Issuer: It cooperates mainly with its subsidiaries. Currently, within the structures of the LOTOS Group, the following trading or production-and- trading companies operate in individual segments of the petroleum product market: LOTOS Paliwa, LOTOS Oil, LOTOS Asfalt, LOTOS Tank and LOTOS Parafiny. The restructuring of the LOTOS Group carried out in 62 recent years streamlined and clarified the division of responsibilities among individual trading companies with a view to optimising revenue and expenses at the Group level.

The highest sales growth dynamics in domestic sales was seen in the case of diesel oil and aviation fuel. Two other product groups with high shares in domestic sales were gasolines and bitumens. Motor fuels (gasolines and diesel oil) were mainly sold to international corporations, institutional customers and service station operators. Sales of diesel oil have been on the rise for several years now, which is to a large extent attributable to the development of road transport and diesel engine technologies.

In 2009, the Issuer sold aviation fuel in Poland through two distribution channels: at the Gdańsk airport, where a state-of-the-art handling terminal with the supporting infrastructure was launched in June 2009, and wholesale channel.

Bitumens were sold domestically mainly to companies involved in the construction and modernisation of road surfaces. In 2007–2009, LOTOS Asfalt modernised road tanker loading terminals in Gdańsk, Jasło and Czechowice, and expanded storage capacity in Gdańsk and Jasło.

Fast-paced development of trading activities and growth in sales volumes necessitated ongoing improvements in the logistics system and creation of an efficient distribution system that would meet customer expectations.

Continual optimisation of the operated service station network, based on economic criteria, enabled the LOTOS Group to materially strengthen its position and share in the domestic fuel market.

In 2007–2009 and H1 2010, the LOTOS Group gradually moved towards increased use of own fuel depots and handling terminals, which included establishment of tax warehouses on the sites of the Jasło and Czechowice storage depots, and acquisition of a storage depot in Rypin from LOTOS Gaz (a subsidiary). The Jasło and Czechowice tanks, repaired as needed, were used on a regular basis. A number of CAPEX projects were completed, as part of which a new tank with a capacity of 32 thousand cubic metres was placed in service in Czechowice, and 11 new tanks were built in Gdańsk under the 10+ Programme, including:

 three tanks with a capacity of 32,000 cubic metres (diesel oil)

 two tanks with a capacity of 20,000 cubic metres (raw gasoline).

The number of third-party storage facilities used by the Group, as well as the volume and type of fuels distributed by third-party operators (including OLPP and TanQuid) were adjusted taking into account market demand and new sources of supply.

Table 17 Capacities of tanks owned by the LOTOS Group

Total capacity Owner Location Product (cubic metres) Light fuel oil 10,000 Diesel oil 171,200 Motor gasolines 110,000 Crude oil 400,000 JET aviation fuel 50,000 Grupa LOTOS Gdańsk refinery Diesel oil components/ 35,000 semi-finished products Gasoline components/ 108,200 semi-finished products Vacuum distillates (semi-finished products) 100,000 Motor gasolines 45,500 LOTOS Diesel oil 133,000 Czechowice Czechowice Light fuel oil 27,200 B100 1,500 Motor gasolines 11,355 LOTOS Jasło Jasło Diesel oil 79,090 Light fuel oil 2,135 Gdańsk Depot – New Motor gasolines 5,000 Terminal Diesel oil 3,000 Piotrków Trybunalski Diesel oil 1,500 Depot B100 / Diesel oil 1,000 Light fuel oil 500 Diesel oil 660

Grupa LOTOS Poznań Depot B100 / Diesel oil 150

Light fuel oil 550 Motor gasolines 400 Diesel oil 700 Rypin Depot B100 / Diesel oil 120 Light fuel oil 400 TOTAL 1,298,310 Source: the Issuer.

Due to restricted access to product pipelines, the majority of the LOTOS Group‟s fuels sold domestically are transported by rail, with rail transport services provided by LOTOS Kolej.

Table 18 Transport services provided by LOTOS Kolej

Transport under licence DELIVERED DELIVERED DELIVERED (tonnes) Dec 31 2007 Dec 31 2008 Dec 31 2009

Intra-Group transport 3,140,282 4,234,738 4,738,239 services - domestic 3,098,040 4,069,281 4,511,820 - international 42,242 165,457 226,419 Transport services contracted by third- 426,230 780,949 1,298,885 parties - domestic 418,832 672,175 852,981 - international 7,398 108,774 445,904 Total 3,566,513 5,015,688 6,037,123

- domestic 3,516,873 4,741,456 5,364,800 - international 49,640 274,232 672,323 Source: the Issuer.

Growing demand for transport services provided to the Group companies and third parties highlighted the need to upgrade the rolling stock owned by LOTOS Kolej by adding new modern electricity-powered TRAXX MS locomotives and by the electrification of the railway siding in Gdańsk. Furthermore, in order to enhance its operating efficiency, LOTOS Kolej implemented the Rail Logistics System (System Logistyki Kolejowej).

Transport by road tankers, also used in the case of domestic sales but to a lesser extent, was provided by the Group‟s subsidiaries based on third-party services. Road transport was relied on mainly for the purposes of distributing fuels and bitumens by LOTOS Paliwa and LOTOS Asfalt Sp. z o.o., respectively.

The LOTOS Group conducts retail sale of fuels through the country-wide service station network operating under the LOTOS brand. The network is managed by LOTOS Paliwa, a subsidiary of the Issuer. Sales of diesel oil and unleaded gasoline 95 have the largest share in the fuel sales structure. LOTOS Paliwa also offers automobile servicing, and advertising and promotion services. Automobile servicing primarily includes car wash and basic automotive service. The company has been gradually increasing the number of service stations offering such services. In order to enhance the competitiveness of the retail network, the Navigator loyalty scheme has been implemented and the product portfolio has been broadened to include premium fuels sold under the Dynamic brand.

LOTOS Paliwa‟s business profile primarily includes:

 management and development of the service station network (including COCO, CODO, DODO and DOFO stations);

 sale of fuels to institutional customers and intermediaries;

 sale of diesel oil from the network of self-service pumps (LOTOS Diesel Service, LDS);

 wholesale and retail sale of light fuel oil.

The LOTOS Group‟s objective as regards the retail network growth is to strengthen its market position in Poland. To this end, the development programme is supplemented with a restructuring process designed to

65 create a uniform retail network and a uniform portfolio of products and services offered in the network. Accordingly, in past years, the network structure has been changing, with the key change consisting in reducing the number of DODO stations and increasing the number of the COCO, CODO and DOFO stations.

Mandatory Stocks and the National Indicative Target

Because of the growing volume of fuels sold by the LOTOS Group, the Company was required to increase the level of mandatory stocks, and the amount of fuel biocomponents introduced to the market, including fuel components and B100 self-contained fuel. The construction and placement in operation of a FAME unit in Czechowice by LOTOS Biopaliwa in May 2008 helped the Group more efficiently fulfil the National Indicative Target, which is becoming more stringent every year. For the purpose of holding mandatory stocks of crude oil, components and final products, the Group used its own storage facilities at maximum capacity. The structure of the mandatory stocks held by the Group allowed it to optimise the available capacities and reduce the overall cost of fulfilling the mandatory stock obligation by providing third parties with services consisting in the building and maintaining of mandatory stocks in the crude oil processing potential.

Strategy for the LOTOS Group

The key elements of the strategy until 2015 are described below.

1. Upstream Segment

In line with the Strategy, the LOTOS Group will embark on more intense activities in order to capitalise on the expected high margins in the production sector in the long term, when compared with the processing sector. The key assumptions for this business area are to increase overall production potential and gain access to more hydrocarbon reserves.

In the upstream segment, the strategic objective is to increase hydrocarbon production, in line with the priorities of Poland‟s energy policy until 2030, through:

 enhanced security of supplies of crude oil for processing at the refinery due to direct access to hydrocarbon deposits;

 larger production of hydrocarbons achieved by implementing programmes for increasing production of crude oil and natural gas from land and off-shore deposits, domestically and abroad.

By 2015, the daily production is planned to reach 24 thousand boe (approximately 1.2m tonnes annually), based on financing with the LOTOS Group‟s own resources.

The activities taken to meet the production target of 1.2m tonnes in 1015 include the development of the B8 field and continued production from the B3 field. For the Norwegian Continental Shelf, the Strategy provides for production from the YME field, as well as exploration within the areas of licences currently held and obtainment of further exploration licences.

The Group will continue its efforts to acquire its own reserves under exploration licences in order to create production potential for the future (and thus exploit the favourable tax environment created by the Norwegian government).

First material effects of the exploratory work, in the form of the Group‟s increased share in proven reserves of crude oil and increased production from the discovered reserves, are not expected until

2016–2020. Accordingly, in order to expand production to 1.2m tonnes in 2015, the Group would also purchase shares in a licence with proven reserves already under development.

With a view to implementing its strategic objective in the upstream segment, the LOTOS Group will seek to raise capital and establish cooperation with partners holding access to crude oil and natural gas deposits, in order to increase its proven recoverable reserves to approx. 330m boe and daily production to 100 thousand boe (i.e., approximately 5m tonnes of crude oil equivalent annually) by 2020.

The Group will look to acquire access to deposits in areas which are characterised by moderate risk and are not of direct interest to major oil companies:

 offshore areas – the Baltic, Norwegian, North and Barents Seas,

 land areas – Poland and Lithuania.

2. Downstream Segment

Trade Area

In the trade area, the strategic objective is to maximise the economic benefits from trading in gasoline, diesel oil and jet fuel through a flexible control of product streams and continued strengthening of the market position. With respect to the sale of the other products, measures will be undertaken to optimise the economic benefits.

The Group‟s quantitative objectives are:

 to reach and maintain the market position with a 30% share in the domestic market of gasolines, diesel oils and light fuel oils,

 to reach sales volume higher by 15% than the refinery‟s fuel production capacity.

As regards the service station network, the LOTOS Group‟s objective is a dynamic growth of the countrywide network of LOTOS service stations with a view to building a fully controlled and highly efficient product sales channel.

This objective will be achieved through:

 development of the CODO and DOFO service station network in the premium and economic segments,

 intensified sales and optimised sales structure.

The development of the distribution network will be based on exploiting the following possibilities:

 organic growth, that is the construction of new stations,

 purchase or lease of stations from independent operators,

 acquisitions, if interesting opportunities to buy service station networks occur on the Polish market.

The quantitative objective is to achieve a 10% share in the domestic retail market within the time horizon of the Strategy, through quantitative and qualitative growth of the station network and growing sales.

In order to maximise the integrated margin, the LOTOS Group will focus on optimum use of assets and coordination of its activities in the four key areas of the supply chain: planning, supplies, production and distribution. If the Group‟s operations in these four areas are harmonised, it will have quicker access to information supporting decision making, and thus will be able to respond more rapidly to the changing market environment.

In the logistics area, the activity will be oriented towards integration of all components of the logistics chain, those held by the Group and those controlled by third parties.

Given its expanded throughput capacities, the LOTOS Group plans to further diversify the directions and sources of crude oil supplies through:

 maintaining the availability of supply sources of crude oil delivered both over pipelines and by sea transport;

 flexible selection of crude oil grades and supply directions with a view to maximising the integrated margin;

 increased activity on the international crude oil market;

 increased share of the Group‟s own production in crude oil supplies.

Operating Area

In the refining area, the LOTOS Group‟s strategic objective is to maintain its high competitiveness in the European peer group and optimising the use of own assets, as well as of assets acquired as part of further growth-related projects.

The conditions for further growth of the LOTOS Group‟s refinery in Gdańsk (“the Refinery”) are driven by:

 the crude processing economics and developments in the crude oil sector in the aftermath of the economic crisis;

 the increasing risk of marketing heavy products;

 the gradual implementation of more stringent environmental and quality requirements and standards;

 the technological configuration which will emerge after the completion of the 10+ Programme; and

 diversification of feedstock for the production of energy carriers.

Having considered these factors and also the need to:

 enhance its operational flexibility;

 maintain energy security with the simultaneous reduction of the cost of energy supplies, and

 mitigate operating risk; the LOTOS Group intends to extend the scope of its operations to include power generation, and thus leverage possible synergies between the refining and the power sectors.

As the Group‟s experience is connected mainly with crude oil processing, the LOTOS Group intends to base its business diversification strategy on developing competences in the power generation area through engaging in cooperation with external partners that enjoy a strong position in the power sector.

The Refinery‟s technological development will be oriented towards a further increase in the conversion ratio and deepening of oil conversion capabilities through further conversion of asphaltene residue from the ROSE process, with due consideration to the existing technological and economic conditions.

The Strategy provides for an option of finding strategic external partners for joint ventures.

3. Financial Strategy

The LOTOS Group will operate based on the principle of self-financing of its business units, which means, among others, that the Group will divest of those operations that prove permanently unprofitable. Where market opportunities allow it, the Group‟s assets will be restructured in order to improve operating efficiency and focus on the core business.

Profitability

The financial strategy‟s objective in terms of profitability will be for the LOTOS Group to achieve the target values of the EBITDA margin and the return on average capital employed (ROACE). It is assumed that at the end of the period covered by the strategy, the ratios would be as follows:

 EBITDA margin of at least 9%,

 ROACE of at least 12%.

Balance Sheet Structure

The objective of the LOTOS Group‟s financial policy is to maintain long-term liquidity, while using an appropriate level of financial leverage to support the achievement of the principal goal of maximising the return on equity attributable to the shareholders. The achievement of the above objectives, in line with the industry practices, will be done by striving to achieve the desired financing structure reflected by the ratio of net interest-bearing debt to equity. On a consolidated basis, the ratio will not exceed 0.4 at the end of the strategy term.

Dividend Policy

Dividend payments will be subordinated to the objective of optimising the financing structure of the LOTOS Group. The amount of dividend to be paid out from profit for the years covered by the strategy is planned at 30% of net profit.

The dividend policy of subsidiary undertakings will be determined by the Management Board of Grupa LOTOS S.A. upon considering their financial standing and development programmes.

4. Capital Expenditure until 2015

The capital expenditure to be incurred to implement the strategy in the years 2011–2015 will be up to PLN 5.7bn.

Table 19 Structure of capital expenditure until 2015

Expenditure Business area 2011-2015 Expenditure structure (in PLNbn) Upstream segment 3.9 68%

Downstream segment, including: 1.8 32%

Operating area 0.8 14%

Trade area 1.0 18%

Group total 5.7 100%

Source: The Issuer.

At present, the LOTOS Group relies mainly on long-term debt instruments to implement its development programmes. Depending on the market conditions, the LOTOS Group may:

 find partners for its investment projects,

 implement projects through Special Purpose Vehicles,

 raise funds on capital markets through its subsidiaries,

 outsource auxiliary production,

 outsource storage capacities,

 sell and lease back selected assets,

 sell non-core assets.

Moreover, to optimise the capital structure or find partners with appropriate resources or experience, involvement of third-party investors in the implementation of the investment projects may also be considered. The level of involvement of such partners in a project will depend on their impact on the operating and trading activities of the LOTOS Group.

5. Key Macroeconomic and Price-Related Assumptions Adopted to Formulate the Main Objectives of the Financial Policy until 2015

Table20 Macroeconomic and price-related assumptions

2011 2012 2013 2014 2015 Dtd Brent (USD/bbl) 76 77 78 78 79 Ural DAF Adamowo (USD/bbl) 74 75 75 76 76 Crack Gasoline 10ppm – Cargoes CIF NWE (USD/t) 120 125 132 139 140 Crack Diesel 10ppm – Cargoes CIF NEW (USD/t) 128 128 125 125 127 Crack Gasoil 0.1% – Cargoes CIF NEW (USD/t) 99 95 96 97 101 Crack Fuel Oil 3.5% – Barges FOB Rotterdam (USD/t) -160 -163 -170 -181 -192 EUR/PLN 3.71 3.71 3.71 3.71 3.71 USD/PLN 3.04 3.04 3.04 3.04 3.04 3M LIBOR USD 1.15% 2.15% 3.00% 3.50% 4.15% 3M WIBOR 4.50% 5.00% 5.50% 5.50% 5.50%

Source: The Issuer.

6. Development Directions until 2020

Following the implementation of the strategic tasks planned for completion by 2015, the LOTOS Group will continue to focus on measures aimed at increasing the Company‟s shareholder value. The development of the upstream segment is expected to have a key role here.

The main objectives to be achieved by 2020 in the upstream segment include:

 increasing access to recoverable hydrocarbon reserves, with an intention to achieve the output of approx. 330m boe (barrel of oil equivalent) in 2020, which is to be achieved through:

 focusing initially on projects that are partially developed or at the final stage of development and, subsequently, on prospective projects (new licenses), which require higher expenditure but offer higher economic benefits,

 continuing production of/exploration for oil and gas in the Baltic Sea (the Polish Shelf),

 continuing exploration/production operations in the North Sea,

 purchasing licenses which make it possible to avoid engaging significant resources (both financial and human),

 continuing operations on the projects where reserves are already developed;

 considering the possibility of commencing exploration/production operations on land in Poland and Lithuania;

 monitoring niche areas which are not of key interest to major oil companies:

 Central Europe, Commonwealth of Independent States,

 North Africa.

Both exploration and production operations may be carried out with the direct participation of:

 the LOTOS Group companies,

 third-party partners.

The major areas of activity outside the upstream sector include:

a. increasing Poland‟s energy security through the development of operations in the area of international trade in crude oil and petroleum products and optimisation of the distribution and logistics system;

b. further improving the economic effectiveness of crude oil processing through the optimal management of heavy residue, ensuring the full utilisation of the Group‟s assets as well technical/technological and commercial conditions;

c. measures undertaken to optimise the power management processes at the Grupa LOTOS‟s refinery through the extension of its connections with other power systems;

d. pursuing modernisation initiatives resulting from the implementation of the Operational Excellence Programme, which are necessary to maintain the Group‟s highly competitive position in the region.

Decisions concerning the planned development-oriented measures will be made based on appropriate feasibility studies, and will be implemented gradually as the LOTOS Group‟s financing capabilities allow it. The Group does not exclude the possibility of entering into arrangements with third parties based on equity involvement or establishing joint ventures with strategic partners.

6.1.2 Information on Significant New Products and/or Services That Have Been Introduced and, to the Extent the Development of New Products or Services Has Been Publicly Disclosed, the Status of Development

The Company conducts its own R&D and implementation work to introduce new products and modernise existing ones, as well as to improve working conditions and production efficiency. The table below presents a list of modernised or new products created as a result of the Issuer‟s own R&D work conducted in 2007– 2009 and as at the Prospectus Date.

Table 21 Products created as a result of the Issuer’s own R&D work as at 2009 2008 2007 Prospectus Date Fuels B-100 diesel oil N LOTOS IFO 380 N LOTOS LPG M LOTOS IFO marine M LOTOS DYNAMIC N oil Eurodiesel oil M LOTOS DYNAMIC N DIESEL LOTOS RED M RG-1 fuel oil N Base oils and lubricants

Turdus Powertec N Hydromil and Hydromil N Kia Formula motor N Synthetic Plus Super hydraulic oils oils 10W40 Marinol RG CD 50 N Lotos Quazar motor N Titanis Super gearbox N marine oil oils oils Transmil Synthetic N gearbox oils Bitumens and other products Road bitumens QUANTILUS T50 oil M MODBIT polymer- M Insulation industrial M plasticizer modified bitumens bitumen QUANTILUS oil Low-oil paraffin N Slack wax M plasticizers MES oil Medium slack wax N plasticizer filtrate

Standard paraffin

Ceresine Source: the Issuer. N - new product M - modernised product

In 2010, the Issuer and LOTOS Parafiny Sp. z o.o. obtained two patents for their inventions (“The method of producing high-melting-point petroleum jelly” and “The method of producing low-melting-point petroleum jelly”).

6.2 Key Markets

6.2.1 The Group’s Key Products, Goods for Resale and Services

Diesel oil, gasoline and bitumens accounted for the largest share of total sales revenue generated by the Group in 2007–2009.

The sales of petroleum products and goods for resale have consistently grown over recent years. The growth rate was particularly marked in the diesel oil category due to a number of factors, including rising popularity of diesel cars. Concurrently a decline was recorded in the other product groups, which was primarily an effect of market developments spurred by the economic crisis. Despite unfavourable market conditions prevailing throughout 2009, total revenue from sales of petroleum products and goods reported for the year by the Issuer‟s Group was more than 12% higher than in 2007 (yet at the same time it was 5% lower than in 2008).

Table 22 Consolidated sales revenue by type of product (in value terms) – historical data

2009 % share 2008 % share 2007 % share

Gasoline 5,079,074 23.84% 5,227,349 23.32% 5,248,461 27.71%

Diesel oil 11,744,142 55.12% 11,107,944 49.55% 8,516,704 44.96%

Light fuel oil 680,649 3.19% 839,813 3.75% 770,844 4.07%

Heavy fuel oil 423,793 1.99% 657,238 2.93% 550,056 2.90%

Aviation fuel 651,875 3.06% 1,154,416 5.15% 881,133 4.65%

Bunker fuel 106,895 0.50% 468,088 2.09% 395,704 2.09%

Bitumens 1,109,204 5.21% 1,093,374 4.88% 868,877 4.59%

Base oils 219,855 1.03% 287,283 1.28% 237,916 1.26%

Lubricants 316,394 1.49% 368,837 1.65% 410,488 2.17%

LPG 299,236 1.40% 492,008 2.19% 474,374 2.50%

Reformate 211,631 0.99% 302,066 1.35% 195,295 1.03%

Other refined products 218,770 1.03% 216,962 0.97% 181,058 0.96%

Total petroleum products and goods for 21,061,518 98.85% 22,215,378 99.11% 18,730,910 98.89% resale

Other goods for resale and materials 130,602 0.62% 99,667 0.43% 115,291 0.60%

Services 113,503 0.53% 102,709 0.46% 96,598 0.51%

Total 21,305,623 100.00% 22,417,754 100.00% 18,942,799 100.0%

Elimination of excise duty and fuel charge (6,984,582) (6,123,016) (5,817,676)

Total 14,321,041 16,294,738 13,125,123

Source: the Issuer.

6.2.2 Key Markets

The LOTOS Group engages in retail sale and wholesale. Refined products are primarily sold to oil companies by the Issuer (wholesale) or by the segment companies whose business profiles comprise trading or trading and production, such as LOTOS Paliwa, LOTOS Oil, LOTOS Asfalt, LOTOS Tank and LOTOS Parafiny.

Domestic sales account for the largest portion of the LOTOS Group‟s sales revenue. The share of domestic sales in total consolidated sales rose from 85% in 2007 to 91% in 2009. The rise has had a favourable overall impact on sales margins recorded by the Group thanks to strong margins at home. Higher domestic sales were possible thanks to the consistently implemented strategy of strengthening the Group‟s market position,

74 underpinned by the development of sales forces and restructuring of trading activities as part of the Group‟s asset base rationalisation.

The tables below show the Group‟s sales revenue by market (2007–2009):

Table 23 Consolidated net sales revenue of the LOTOS Group by market (PLN ‘000)

2009 % share 2008 % share 2007 % share

Domestic sales, 19,402,481 91.1% 18,999,583 84.8% 16,136,657 85.2% including: - products 17,045,097 80.0% 17,799,530 79.4% 15,335,203 81.0% - goods for resale 2,357,384 11.1% 1,200,053 5.4% 801,454 4.2% and materials Export sales, 1,903,142 8.9% 3,418,171 15.2% 2,806,142 14.8% including: - products 1,745,986 8.2% 3,278,749 14.6% 2,729,222 14.4% - goods for resale 157,156 0.7% 139,422 0.6% 76,920 0.4% and materials Total 21,305,623 100.0% 22,417,754 100.0% 18,942,799 100.0% Excise duty, fuel (6,984,582) (6,123,016) (5,817,676) charge Total 14,321,041 16,294,738 13,125,123 Source: audited consolidated financial statements for 2009–2007.

Table 24 Consolidated sales by product groups and markets (thousand tonnes)

Market Product group 2009 % 2008 % 2007 % share share share

Domestic sales Gasoline 1,146 15.09% 1,123 14.87% 1,121 15.77%

Diesel oil 3,678 48.41% 2,968 39.33% 2,513 35.34%

Light fuel oil 330 4.35% 339 4.49% 351 4.94%

Heavy fuel oil 123 1.61% 140 1.85% 145 2.05%

Aviation fuel 144 1.89% 86 1.14% 103 1.44%

Bunker fuel 33 0.43% 22 0.29% 19 0.27%

Lubricants 57 0.74% 63 0.83% 74 1.04%

Base oils 12 0.16% 13 0.18% 16 0.23%

Bitumens 617 8.11% 571 7.56% 594 8.35%

LPG 144 1.90% 189 2.51% 187 2.63%

Other petroleum 94 1.24% 87 1.16% 91 1.28% products

Market Product group 2009 % 2008 % 2007 % share share share

Total domestic 6,378 83.93% 5,601 74.20% 5,214 73.34% sales

Export sales Gasoline 165 2.17% 216 2.86% 255 3.59%

Diesel oil 67 0.89% 54 0.72% 41 0.59%

Heavy fuel oil 307 4.04% 514 6.81% 481 6.76%

Aviation fuel 221 2.91% 406 5.38% 339 4.77%

Bunker fuel 31 0.41% 214 2.84% 251 3.53%

Lubricants 12 0.15% 15 0.19% 13 0.18%

Base oils 94 1.23% 85 1.12% 93 1.30%

Bitumens 182 2.4% 269 3.57% 305 4.29%

Reformate 112 1.47% 151 2.01% 98 1.37%

Other petroleum 30 0.39% 23 0.31% 20 0.28% products Total export sales 1,221 16.07% 1,947 25.80% 1,896 26.67%

TOTAL 7,599 100.00 7,549 100.00% 7,110 100.00 Source: Directors’ Reports on the Group’s operations for 2007–2009. % %

The highest sales growth dynamics in domestic sales was seen in the case of diesel oil and aviation fuel. Two other product groups with high shares in domestic sales were gasolines and bitumens.

Motor fuels (gasolines and diesel oil) were mainly sold to international corporations, institutional customers and service station operators. Sales of diesel oil have been on the rise for several years now, which is to a large extent attributable to the development of road transport and diesel engine technologies. Continual adaptation of the fuel depot network used by the Group, based on economic criteria, helped consolidate the Group‟s position and increase its share in the domestic fuel market.

Bitumens were sold domestically mainly to companies involved in the construction and modernisation of road surfaces.

6.2.2.1 Domestic Markets

In 2007–2009, the largest share of the Issuer‟s domestic sales were sales to customers in the Province of Gdańsk. This naturally followed from the fact that the Group‟s production facilities are located in this region, and the LOTOS brand is widely recognised there. The Group‟s sales in the Province of Katowice account for slightly less than 20%. The region is an industrial one and densely populated, which drives demand for fuel. The aggregate share of the Province of Poznań and the Province of Warsaw exceeds 20% of total domestic sales. The two regions are home to more than one fourth of the LOTOS Group‟s service stations.

Table 25 Sales of gasoline and diesel oil by region Region 2009 2008 2007 Province of Gdańsk 31% 34% 27% Province of Katowice 18% 16% 18% Province of Poznań 12% 11% 12% Province of Warsaw 11% 12% 12% Province of Łódź 8% 8% 8% Province of Wrocław 7% 6% 6% Province of Bydgoszcz 2% 3% 3% Province of Olsztyn 2% 3% 3% Province of Szczecin 2% 2% 3% Other 7% 7% 8% Total domestic sales 100% 100% 100% Source: the Issuer.

Within the LOTOS Group, LOTOS Paliwa is in charge of fuel distribution through a network of service stations. The service stations of LOTOS Paliwa‟s retail network operate under the following business models:

 company owned dealer operated (CODO) – stations owned by LOTOS Paliwa and operated by a Manager,  dealer-owned franchise-operated stations (DOFO) covered by the Commercial Partnership Programme, and dealer-owned dealer-operated stations (DODO) selling LOTOS products on the basis of concluded agreements but owned by third parties. LOTOS Paliwa‟s strategic objective is to achieve dynamic growth of the country-wide network of LOTOS service stations in order to build a fully controlled and highly effective sale channel for LOTOS products. The quantitative objective provides for reaching a 10% share in the domestic retail market by 2015, through the quantitative and qualitative development of the station network and increased sales.

In 2007–2009, the company continued its efforts in the service station segment, designed to improve efficiency, as well as to enhance competitiveness and management proficiency. The major changes include:

 launch of premium fuels – at the end of 2009, premium fuels under the Dynamic brand were available at all company-owned service stations at which it was technically feasible, i.e. at 139 stations; in 2009, total sales of the Dynamic fuels amounted to 71,345 cubic metres (2008: 47,541 cubic metres), which represented 14.7% of total sales of all fuels excluding LPG (2008: 12.4%);  promotional activities – LOTOS Paliwa‟s marketing activities focused on supporting sales in both retail and institutional segment, with a strong emphasis on the first of those customer groups; the LOTOS brand positioning strategy adopted in 2008 is being consistently implemented and revised to reflect the changing market needs. According to the new strategy, the LOTOS stations are to achieve the status of premium stations by 2012. 2008 saw the launch of the Navigator loyalty scheme; in April 2010 its third edition started. The effect of LOTOS Paliwa‟s marketing activities on the value of the LOTOS brand was assessed in a research conducted by Pentor RI, measuring the effect of product brands on the corporate brand awareness. The LOTOS brand awareness is created in 61.4% by the service stations‟ brand and in 38.6% by the motor oils‟ brand.  service stations located along motorways – at the beginning of 2009, LOTOS Paliwa commenced the lease of six Service Aeras located along the A2 motorway (the Police and Łęka Service Areas) and

the A4 motorway (the Kozłów, Rachowice, Oleśnica and Witowice Service Areas). At the end of March 2010, four service stations were in operation (the Oleśnica and Witowice Service Areas became new additions to the network at the end of April 2010).  In 2010, in order to expand the network of service stations located along the motorways, the company‟s efforts will be focused on tenders, conducted by the General Directorate of National Roads and Motorways (GDDKiA) and/or Licence Holders, for the lease of Service Areas located along the sections of motorways and express ways (S type) which are now being built. At the end of September 2010, the company operated 317 service stations (including 153 CODO, 102 DOFO and 62 DODO stations). At the end of September, the company was a party to 109 partnership agreements, pursuant to which further DOFO stations will be launched. As a result of termination of agreements with dealers operating DODO stations, the number of such stations is shrinking. Selected DODO stations are moving to the Commercial Partnership Programme as envisaged in the company‟s strategy. The other stations will continue operating under the current business model until their agreements expire, are terminated or the stations move to the B2B segment.

Table 26 Number of LOTOS stations in 2007–2010 Sep 30 2010 Dec 31 2009 Dec 31 2008 Dec 31 2007 CODO stations 153 144 139 133 DOFO stations (109)* 102 (107)* 98 (92)* 79 (90)* 71 DODO stations 62 85 137 175 Total 317 327 355 379 *Executed partnership agreements. Source: LOTOS Paliwa.

6.2.2.2 Foreign Markets

In 2007–2009, the proportion of export sales to the Issuer‟s total sales revenue declined almost by half. This trend is a consequence of the Group‟s consistent efforts aimed at consolidating the Group‟s position on the Polish market and of the higher profitability of domestic sales.

In 2007–2009, the largest market for the Group‟s export sales was Sweden (20% of total export sales), with growing shares of the Czech Republic (increase in total revenue from export sales from 4% in 2007 to 14% in 2009), Estonia (increase from 9% to 12%), and Finland (a 10% share in total revenue from export sales in 2009).

Table 27 Sales of the LOTOS Group’s products and goods for resale by region (PLN’000) Item 2009 % share 2008 % share 2007 % share Total sales 19,530,568 100% 20,836,945 100% 17,439,610 100% Domestic sales 18,078,742 93% 17,965,188 86% 15,040,541 86% Export sales, including 1,451,826 7% 2,871,757 14% 2,399,069 14% to: Sweden 296,584 20% 842,725 29% 701,873 29% Czech Republic 206,412 14% 142,774 5% 96,221 4% Estonia 175,809 12% 293,311 10% 205,010 9% Finland 147,689 10% 203,243 7% 22,241 1% United Kingdom 115,769 8% 157,803 5% 244,178 10% Denmark 83,981 6% 351,332 12% 227,085 9% Netherlands 80,080 6% 227,342 8% 422,663 18% Other 345,502 24% 653,228 23% 479,797 20% Source: the Issuer.

Jet A-1 aviation fuel, gasoline and heavy fuel oil accounted for the largest share of total export sales revenue in 2009. Major export destinations for the aviation fuel were the countries bordering the Baltic Sea and the Czech Republic. Motor gasoline was sold mainly to Sweden, Latvia and the United Kingdom, and heavy fuel oil – to Norway, the Netherlands and Sweden.

Both in the case of the Issuer and its Group, the major portion of export sales was denominated in the US dollar.

The Issuer boasts a significant competitive advantage over its peers in the region in terms of logistics due to the excellent geographical location. The LOTOS Group has access to a pipeline connecting it directly to the reloading infrastructure of Port Północny (the North Port of Gdańsk). The construction of a new transmission pipeline from the Group‟s refinery to Port Północny was completed in August 2009. It greatly enhanced transmission capacity and, consequently, increased exports thanks to higher production potential. Products for exports are transported to the target market mainly by sea. In 2007, LOTOS Asfalt added transport by sea to the modes of shipment used for distributing bitumens. At present, products are loaded directly from railroad tank cars to tanker ships in the Gdańsk port. Reloading of refined products, including those of the LOTOS Group, is handled by Naftoport, a company operating at the port.

6.2.2.3 Key Customers of the Issuer and Its Group

The following is a list of the key customers of the Issuer‟s Group in the period January–September 2010 along with information on their percentage shares in the consolidated net sales revenue.

Table 28 Key customers of Grupa LOTOS in the period January–September 2010 % share in sales Name and registered office Type of products sold revenue STATOIL POLAND Sp. z o.o. of Warsaw 10.7% gasolines, diesel oil, light fuel oil BP POLSKA S.A. of Kraków 7.9% gasolines, diesel oil, light fuel oil LUKOIL POLSKA Sp. z o.o. of Warsaw 5.7% gasolines, diesel oil SHELL POLSKA Sp. z o.o. of Warsaw 4.5% gasolines, diesel oil Source: the Issuer.

The Group‟s products were primarily purchased by the Polish representative offices of international companies as well as ANWIM S.A., a fuels wholesaler and one of the biggest independent companies operating in the Polish fuel sector.

6.3 Extraordinary Factors Relevant to the Information Provided in Section 6.1 and Section 6.2

In 2007, no extraordinary events with a bearing on the Issuer‟s core business or main markets occurred at the LOTOS Group.

In 2008, the Issuer incurred significant capital expenditure on implementation of the 10+ Programme. In the same year, the Jasło refinery in the south of Poland discontinued processing of crude oil as a result of asset restructuring activities within the Issuer‟s Group.

In the upstream segment 2008 saw the launch of exploration activities by the Issuer‟s subsidiary in Norway, LOTOS E&P Norge AS. Expansion in the upstream segment should increase the Group‟s independence in terms of feedstock supplies and further improve the financial performance and the Company‟s value.

In spring 2009, the scheduled 33-day overhaul shutdown between March 15th and April 17th resulted in a lower utilisation of the Gdańsk refinery‟s capacity. During the shutdown, the planned overhaul work was performed as well as preparatory work to connect the units being built under the 10+ Programme to the existing technological system of the refinery.

The global crisis and the Package of Anti-Crisis Measures adopted by Grupa LOTOS S.A., ensuring implementation of the key investment projects and helping the Company maintain financial liquidity, forced the Company to trim its original investment programme. In 2009, the Package produced savings of PLN 470.1m in the form of suspended or abandoned investment projects and cost savings of PLN 252.5m.

Given the uncertain market situation and limited possibilities of raising financing, the Company‟s Management Board resolved to suspend or postpone certain projects envisaged in the LOTOS Group‟s strategy for the years 2006–2012; the capital expenditure on those projects amounted to approximately PLN 2.1bn.

However, the key investment projects being implemented by the Company, such as the 10+ Programme, the development of the YME field on the Norwegian Continental Shelf, and the planned capital expenditure on the development of fields in the Baltic Sea as part of LOTOS Petrobaltic S.A.‟s development programme, were unaffected.

6.4 Summary of Information Regarding the Extent to Which the Group is Dependent on Technology, Patents, Licences, and Industrial, Commercial or Financial Contracts or New Manufacturing Processes

6.4.1 The Company’s Dependence on Third-Party Technology

The Company‟s business consists in the processing of crude oil and petroleum products, which requires application of state-of-the-art technologies, accessible only to operators with considerable experience in the industry.

The Company has not developed all the technologies it requires to achieve efficiency of crude oil processing enabling it to remain in business. Thus, the Company needs to purchase technologies from business partners – companies with appropriate experience, based all over the world. The Company‟s core business, with the Gdańsk refinery as its central point, is to a significant extent dependent on the acquisition of licences to use state-of-the-art technologies. Grupa LOTOS acquires long-term or indefinite-term licences, usually related to the units of the refinery. The Company protects its interest by acquiring irrevocable licences. The majority of licences were granted under English or Swiss law, or the laws of individual states of the USA.

The Company also acquired and maintains licences for computer software indispensable for efficient management of a large company.

The key licences held by the Company are long-term or indefinite-term irrevocable licences for the use of technological solutions employed in the units of the Gdańsk refinery, including in particular:

- licence for the HDS unit;

- licence for the hydrocracking unit;

- licence for the ROSE process;

- licence for the isocracking process;

- licence for the Merox process.

The Company uses a number of IT technologies to manage the core areas of its operations. Grupa LOTOS holds licences for the software used at the Company. Most agreements executed with software vendors provide for automatic application upgrades and inclusion of new functionalities in the licence scope.

The Company purchases software from recognised foreign and Polish suppliers. The main system for managing the Company‟s activities was implemented by SAP, with the support from SAP Polska, Asseco, IMG Polska and IBM Polska as subcontractors. The Company implemented modules which are of vital importance for the core areas, including: financial accounting, property, plant and equipment, management accounting, risk management, supplies management, production planning and settlement, SAP fuel industry- specific solution, sales and distribution, elements of the quality assurance system, repairs management, investment project management, SAP NetWeaver Integration Platform, strategic management, data warehouse, document circulation, elements of logistic management, corporate portal and central repositories.

In addition, the Company holds licences for other software, primarily for Microsoft software used pursuant to Enterprise Agreement concluded for three-year periods, as well as software developed by other companies:

ISCG, Vemco, Trend Micro, Landmark Graphics, ManageEngine, Koma Nord Sp. z o.o., Adobe, Quest Software and other.

In both core and auxiliary activities, the Company relies on technical support, supply of upgrades and extension of functionalities. Grupa LOTOS purchases such services as part of regular cooperation with the same IT service providers who ensure continued operation of the software.

6.4.2 Intellectual Property Rights Owned by the Company

The Company pursues an active policy of protecting the trademarks employed in all areas of its operations. Presently in Poland the Company has 166 registered word marks and 153 registered word-and-graphic and three-dimensional marks in a large number of categories. The Company is consistently acquiring protection for its trademarks in other countries where it operates.

Thanks to promotional activities and the Company‟s repute, the intellectual property rights represent a major asset whose value is growing. The Company‟s easily recognisable graphic and word marks create positive associations with Grupa LOTOS among the end customers. This is of particular importance in view of the Company‟s aspirations regarding its share in the Polish retail fuel market.

The Company promotes its brand through various activities, particularly cultural initiatives (in Pomerania Grupa LOTOS is a recognised patron of culture), as well as sports initiatives. The Company is a sponsor of the speedway and basketball teams (the LOTOS name is included in the teams‟ names), and is the chief sponsor of Polski Związek Narciarski (the Polish Ski Association).

The following logotype, being a part of the corporate visual identity system, is the Company‟s key word and graphics mark:

The so-called LOTOS “tao” is a part of the logotype and is used a separate graphic mark as well:

The Company‟s right to the above marks expires in 2013 but the Company has the possibility of extending its validity.

The table below shows the remaining key trademarks owned by the Company:

No. Type Description 1 Word mark LOTOS 2 Word mark Grupa LOTOS 3 Word mark, word-and-graphic mark LOTOS Paliwa 4 Word mark, word-and-graphic mark LOTOS Oil 5 Word mark, word-and-graphic mark LOTOS Gaz 6 Word mark, word-and-graphic mark LOTOS Biopaliwa 7 Word mark, word-and-graphic mark LOTOS Kolej 8 Word mark, word-and-graphic mark LOTOS Parafiny 9 Word mark, word-and-graphic mark LOTOS Asfalt 10 Word-and-graphic mark Word and graphics mark “Grupa LOTOS” (yellow background) 11 Graphic mark Tao LOTOS (yellow background) 12 Word-and-graphic mark LOTOS Dynamic 13 Word-and-graphic mark LOTOS Navigator 14 Word-and-graphic mark Thermal Control 15 Word-and-graphic mark Marks relating to the range of LOTOS oils

The Company particularly protects the trademarks relating to its name and logotype, names of the subsidiary companies combined with the LOTOS logotype, product lines and loyalty schemes.

The Company holds the rights to all the marks employed across the Group, including marks used by the companies of the LOTOS Group under licences granted by the Company. This solution enables the Group to pursue a consistent policy regarding industrial property rights and marketing of certain brands, concurrently achieving economies of scale unachievable for individual companies. Agreements for the use of trademarks are executed with subsidiary companies on arm‟s length terms. Such agreements are concluded for indefinite terms and provide for consideration payable for use of a trademark.

At present, the Company is not a party to any proceedings relating to infringement of its trademarks or third- party claims with respect to the Company‟s breach of other person‟s intellectual property rights.

The Company holds no material patents to inventions which significantly affect its operations.

6.4.3 Trade Agreements Executed in the Ordinary Course of Business

Since the operations of the Issuer‟s Group companies involve processing of purchased crude oil and sale of petroleum products, they depend on sale/purchase agreements as well as licences and industrial property rights.

6.4.3.1 Purchase of Feedstock

The Company‟s business involves processing of fossil feedstock, i.e. crude oil, and therefore the Company‟s operations depend on supplies of oil. Grupa LOTOS takes measures to diversify its oil supply sources. In this respect, it is dependent on agreements with foreign suppliers and Polish importers. Extraction of crude oil from

83 the bed of the Baltic Sea by LOTOS Petrobaltic is the only source of domestic supplies of crude oil, but it satisfies only a small portion of the Company‟s requirement for this feedstock.

In view of the foregoing, the Company concluded, in the period covered by the historical information, and concludes on an on-going basis agreements with a view to sourcing the feedstock from various business partners. There are wide discrepancies in the value of individual agreements – the Company seeks to ensure access to crude oil based on long-term agreements and one-off purchase contracts. The supply sources are diversified to some extent as oil is delivered both through an oil pipeline owned by PERN and via the sea route. However, given the quantity of supplies, the transactions and deliveries of key importance are those relating to crude oil transported through pipelines.

Purchase Agreements

Below are presented the key agreements and groups of agreements concluded by the Issuer‟s Group companies for purchases of crude oil and other feedstock and products:

Agreement between Grupa LOTOS S.A. and TOTAL DEUTSCHLAND GmbH

The agreement was entered into on February 1st 2009 between Grupa LOTOS S.A. and TOTAL DEUTSCHLAND GmbH of Berlin, Germany. It provides for the purchase by Grupa LOTOS S.A. of liquid fuels from TOTAL DEUTSCHLAND GmbH. The agreement was executed for a definite term, from February 1st to December 31st 2009, and its estimated value was PLN 563m (VAT excl.). The agreement did not contain any provisions concerning contractual penalties. The other terms and conditions of the agreement did not differ from the standard terms and conditions typically used in this type of agreements.

Agreement between Grupa LOTOS S.A. and Mercuria Energy Trading S.A.

The agreement was entered into on December 4th 2009 between Grupa LOTOS S.A. and Mercuria Energy Trading S.A. It provides for the supply of 18m tonnes of REBCO crude oil to Grupa LOTOS S.A. in the period from January 1st 2010 to December 31st 2014. The supplies are to be delivered through the Druzhba Pipeline or – in certain situations – by sea. As at the agreement date, its value was estimated at PLN 27bn, calculated using the USD mid-exchange rate quoted by the National Bank of Poland for December 4th 2009. The provisions concerning contractual penalties and the other terms and conditions of the agreement do not differ from the standard terms and conditions typically used in this type of agreements.

Agreement between Grupa LOTOS S.A. and Petraco Oil Company Ltd.

The agreement was entered into on October 24th 2006 between Grupa LOTOS S.A. and Petraco Oil Company Ltd. It provides for the purchase by the Company of 9m tonnes of crude oil during the agreement term. i.e. from January 1st 2007 to December 31st 2011. The agreement provides for an option to extend its term for 2012 and subsequent years. Moreover, it also provides for early termination exclusively in the cases specified therein. The terms and conditions of the agreement do not differ from the standard terms and conditions used in this type of agreements.

Agreement between Grupa LOTOS S.A. and NESTE OIL (SUISSE) SA

On December 10th 2008, the Company and Neste Oil (Suisse) SA of Vernier, Switzerland, entered into an agreement concerning purchase of liquid fuels by Grupa LOTOS S.A. from Neste Oil (Suisse) SA. The agreement was executed for a definite term, from January 1st to December 31st 2009, and its estimated value

84 was PLN 624m (VAT excl.). The terms and conditions of the agreement do not differ from the standard terms and conditions typically used in this type of agreements.

Agreements between Grupa LOTOS S.A. and J&S Service and Investment Ltd

The Company entered into agreements providing for purchase of crude oil with J&S Service and Investment Ltd (according to Current Report No. 25/2009 of July 3rd 2009); the total value of the agreements executed in the twelve months preceding the publication date of Current Report exceeded PLN 560m. The largest transaction (in terms of value) concluded between the two companies was the purchase of crude oil for USD 48.8m (i.e. PLN 152.5m, translated at the mid-exchange rate quoted for USD by the National Bank of Poland on July 3rd 2009) from J&S Service and Investment Ltd. The agreement did not provide for any conditions precedent or dies a quo, it did not provide for any contractual penalties, and was executed on standard market terms for this type of transactions.

Agreement between Grupa LOTOS S.A. and Statoil ASA

The framework agreement was entered into on December 16th 2009 between Grupa LOTOS S.A. and Statoil ASA and concerned purchases of crude oil and condensate in the period from January 1st to December 31st 2010. The agreement provided for at least four shipments by sea; the detailed terms and conditions governing shipments were left for the parties to determine in detailed agreements. The value of the agreement as at its execution date was estimated at PLN 494m, as translated at the mid exchange rate of the US dollar quoted by the National Bank of Poland for December 16th 2009.

Other Feedstock

In addition to crude oil, the Issuer and its subsidiaries acquire other feedstock required to produce fuels.

Feedstock for the Production of Biofuels

LOTOS Biopaliwa Sp. z o.o., whose business comprises production of biofuels, acquires large quantities of biomass for its own needs (production activities). LOTOS Biopaliwa sources biomass under long-term agreements with suppliers based in the Republic of Poland, which is a guarantee that the feedstock complies with the requirements set forth in the Act on Biocomponents and Liquid Biofuels of August 25th 2006 (Dz.U. 06.169.1199, as amended). The company‟s production activities depend on the supplies of the feedstock (the biomass), which are currently sufficiently secured under biomass supply agreements concluded with: Zakłady Tłuszczowe Kruszwica S.A., KOMAGRA Sp. z o.o., Zakłady Tłuszczowe Bodaczów Sp. z o.o., Zakłady Chemiczne Organika - Azot S.A., PW AW Bio – Oil Sp. z o.o., Zakłady Tłuszczowe Bielmar Sp. z o.o., and Petrax Sp. z o.o. The price under the agreements is established on the basis of a formula referring to the trading price of rapeseed oil on the Rotterdam exchange. The two largest agreements for annual supplies of raw rapeseed oil to LOTOS Biopaliwa are described below.

- On December 21st 2007, LOTOS Biopaliwa Sp. z o.o. and Zakłady Tłuszczowe Kruszwica S.A. signed an agreement for annual supplies of raw rapeseed oil to LOTOS Biopaliwa Sp. z o.o. The parties agreed that the minimum supply volume would be 12,000 tonnes of raw rapeseed oil in the first annual trading period, that is from August 2007 to July 2008, and 40,000 tonnes in the subsequent annual periods. The purpose of the agreement is to secure the basic feedstock for the FAME unit (producing fatty acid methyl esters) with the annual production capacity of 100 thousand tonnes. The agreement was concluded for a definite term, from December 21st 2007 to July 31st 2012, and provides for contractual penalties for non-performance of the contractual obligations, equal to 10% of the gross value of the supply. Contractual penalty for termination of

85 the agreement is 5% of the total agreement value. In accordance with the agreement, payment of the contractual penalties does not prejudice the right to seek compensation in excess of their amount. The other terms and conditions of the agreement do not differ from the standard terms and conditions used in this type of agreements. The value of the agreement over its term is estimated at PLN 500,000 thousand (VAT exclusive).

- On October 26th 2007, LOTOS Biopaliwa Sp. z o.o. and KOMAGRA Sp. z o.o. signed an agreement for the supply of raw rapeseed oil to LOTOS Biopaliwa Sp. z o.o. It was concluded for five years and provides for contractual penalties of up to 5% of the agreement value. In accordance with the agreement, payment of the contractual penalties does not prejudice the right to seek compensation in excess of their amount. The other terms and conditions of the agreement do not differ from the standard terms and conditions used in this type of agreements. The agreement is deemed significant as its estimated value exceeds 10% of Grupa LOTOS S.A.‟s equity. The value of the agreement over its term is estimated at PLN 500,000 thousand (VAT exclusive).

Natural Gas

On June 16th 2010, the Company and Polskie Górnictwo Naftowe i Gazownictwo S.A. of Warsaw entered into an agreement providing for the supply of natural gas to Grupa LOTOS S.A. starting from December 16th 2011. Under the agreement the natural gas will be supplied to the Company via a high-pressure gas pipeline, thus reducing processing costs of the Gdańsk refinery. The estimated value of the agreement over its five- year term in PLN 2.208m.

6.4.3.2 Sales of Products

Trading activity is one of the core segments of the LOTOS Group‟s operations. The Group companies are dependent on the possibilities of selling their products.

The distribution network is comprised of fuel depots (as described in Section 6.1 of the Registration Document) and a network of service stations managed by LOTOS Paliwa Sp. z o.o. (also described in Section 6.1 of the Registration Document). Additionally, LOTOS Asfalt, LOTOS Oil and LOTOS Parafiny operate through their own distribution networks.

Members of the Issuer‟s Group chiefly enter into annual agreements with large, long-standing customers, and thus established a stable market for their products. This strategy allows the companies to reduce the risk of not being able to sell products an on-going basis, which is a material economic factor in view of the considerable storage costs.

Additionally, the Company and its subsidiaries also conclude numerous one-off contracts for supply of the products both to domestic and foreign customers.

Sale Agreements

Below are presented the key agreements and groups of agreements concluded by the LOTOS Group companies for sale of products obtained through crude oil processing:

Annual Agreement between Grupa LOTOS S.A. and Shell Polska Sp. z o.o.

The agreement was entered into on December 16th 2009 between Grupa LOTOS S.A. and Shell Polska Sp. z o.o. and provides for the sale of liquid fuels in the period from January 1st 2010 to December 31st 2010. The estimated value of the agreement totals PLN 930m. The terms and conditions of the agreement do not differ from the standard terms and conditions typically used in this type of agreements.

Annual Agreement between Grupa LOTOS S.A. and Lukoil Polska Sp. z o.o.

The agreement was entered into on December 22nd 2009 between Grupa LOTOS S.A. and Lukoil Polska Sp. z o.o. and provides for the sale of liquid fuels in the period from January 1st 2010 to December 31st 2010. The estimated value of the agreement totals PLN 1.35bn. The terms and conditions of the agreement do not differ from the standard terms and conditions typically used in this type of agreements.

Annual Agreement between Grupa LOTOS S.A. and BP Polska Sp. z o.o.

The agreement was entered into on December 31st 2009 between Grupa LOTOS S.A. and BP Polska Sp. z o.o. and provides for the sale of liquid fuels in the period from January 1st 2010 to December 31st 2010. The estimated value of the agreement totals PLN 2.4bn. The terms and conditions of the agreement do not differ from the standard terms and conditions typically used in this type of agreements.

Agreement between LOTOS Paliwa and Anwim Sp. z o.o.

On July 23rd 2007, LOTOS Paliwa and Anwim Sp. z o.o. entered into an agreement on sale of liquid fuels by LOTOS Paliwa to Anwim. The agreement was concluded for a definite term, and its value exceeded PLN 616m in the 12 consecutive months in 2009 and 2010. The terms and conditions of the agreement do not differ from the standard terms and conditions typically used in this type of agreements.

Agreement between LOTOS Paliwa and Pol-Miedź Trans Sp. z o.o.

LOTOS Paliwa cooperates with Pol-Miedź Trans Sp. z o.o. under an agreement dated November 4th 2005. On November 27th 2009, the expiry date of the agreement was set at December 1st 2012. The agreement concerns sales of petroleum products by LOTOS Paliwa. The value of transactions executed under the agreement from December 1st 2009 to December 1st 2012 is estimated at PLN 654.5m. The agreement contains standard term and conditions typically used in this type of agreements.

Agreement between Grupa LOTOS and Mitsubishi International GmbH

Agreement concluded on November 15th 2010 with Mitsubishi International GmbH, concerning the sale of xylene fraction.

The supplies of xylene fraction under the agreement will commence not earlier than May 15th 2012 and not later than November 15th 2012. The agreement was concluded for a definite term of 42 month as from the date of the first supply under the agreement. Each party has the right to renounce the agreement within the six months following the commencement of supplies if any of the circumstances strictly defined in the agreement occurs. The estimated value of the agreement (VAT exclusive) over its entire term is PLN 805.3m. The agreement does not provide for any contractual penalties; each party may seek claims up to the agreement value. The other terms and conditions of the agreement do not differ from the standard terms and conditions typically used in this type of agreements.

The agreement was concluded in order to further diversify Grupa LOTOS S.A.‟s product portfolio and reduce the contents of aromatic hydrocarbons in the pool of gasoline components of the Grupa LOTOS S.A.‟s refinery in Gdańsk, through partial redirecting of the product of the catalytic reforming unit (reformate) for further processing at the xylene fraction separation unit. Currently, surplus quantities of reformate are exported. The production and sale of xylene fraction, which is feedstock for petrochemical production, will ensure a sustainably higher level of sales margin than exports of reformate.

6.4.4 Financing Agreements Entered into in the Ordinary Course of Business

Members of the Issuer‟s Group conduct production and trading activities, but they are not actively engaged in any operations on the financing market. However, partly due to the implementation of the 10+ Programme, the financing of Grupa LOTOS S.A.‟s operations, including the funding of day-to-day business, is a key element of its business. The Company funds its day-to-day operations using internally generated funds and external financing. In this respect, Grupa LOTOS S.A. has entered into cooperation with a wide range of banks, thus diversifying funding sources among a larger number of financing entities. The Company‟s operations are currently dependent on external financing, but there have been no signs of potential problems in obtaining such financing.

The LOTOS Group companies also use, albeit to a lesser extent, operating leases as a source of financing. They are mainly used to finance the acquisition of movables (vehicles and hardware). LOTOS Kolej Sp. z o.o. relies on leases as a method of financing to acquire engines necessary to satisfy the increasing demand for freight transport from the LOTOS Group companies and external parties.

Financing Agreements

Key agreements for the financing of the operations of the Issuer‟s Group companies (other than those relating to the 10+ Programme) include:

Agreement between Grupa LOTOS S.A. and Bank Polska Kasa Opieki S.A.

The agreement was entered into on July 21st 2009 between Grupa LOTOS S.A. and Bank Polska Kasa Opieki S.A. of Warsaw. It provides for a revolving credit facility of PLN 100,000,000 until June 30th 2010.The agreement was extended by way of an annex until July 31st 2011, and the facility amount was raised to PLN 150,000,000. The credit services under the agreement include issuance of guarantees and letters of credit.

Agreement between Grupa LOTOS S.A. and Powszechna Kasa Oszczędności Bank Polski S.A.

The agreement, providing for a PLN 250,000,000 multi-purpose credit facility, was entered into on June 26th 2009 between Grupa LOTOS S.A. and Powszechna Kasa Oszczędności Bank Polski S.A. of Warsaw. The facility may be used in the form of an overdraft facility, a revolving working-capital facility, guarantees and letters of credit. It was made available until September 6th 2010.

Financing Agreements Executed by LOTOS Petrobaltic S.A.

On May 19th 2009, LOTOS Petrobaltic S.A. executed two credit facility agreements with Nordea Bank Polska S.A. – a PLN 100,000,000 framework agreement for a revolving working-capital facility, bank guarantees and letters of credit, and a PLN 50,000,000 agreement for an overdraft working-capital facility. The facilities are secured with assignment of LOTOS Petrobaltic S.A.‟s claims against Grupa LOTOS S.A. relating to payments 88 for crude oil supplies. The other terms and conditions of the agreements do not differ from the standard terms and conditions typically used in this type of agreements.

Agreements Executed by LOTOS Kolej with Nordea Finance Polska S.A. and Millenium Leasing Sp z o.o.

LOTOS Kolej, the Issuer‟s subsidiary, entered into lease agreements to finance the acquisition of ten TRAXX F 140 DE engines (10 separate agreements, one for each engine). The value of six agreements executed on September 30th 2009 with Nordea Finance Polska S.A. totals approximately EUR 3.1m (VAT exclusive). The value of four agreements executed on December 30th 2009 with Millenium Leasing Sp. z o.o. totals approximately EUR 2.8m (VAT exclusive).

The engines will be supplied in 2011. Until then LOTOS Kolej will pay the cost of financing prepayments.

After the end of the lease term, LOTOS Kolej has the right to purchase the engines from the lessors. The other terms and conditions of the agreements do not differ from the standard terms and conditions used in this type of agreements.

Insurance Policies

There are a number of factors that led the LOTOS Group to implement a long-term strategy of securing a comprehensive insurance cover.

The Company‟s business is based on non-current assets of a significant value, such as production units at the Gdańsk refinery, which are essential for its ability to process crude oil. In addition, those assets secure the credit facility advanced to the Company for implementation of the 10+ Programme. Therefore, they require appropriate insurance against all risks which may cause a reduction in their value.

Crude oil and petroleum products are highly flammable and potentially explosive. Even though state-of-the-art technologies and safety measures are used while processing such materials, the risk of fire, explosion or other event leading to significant losses is still higher than in the case of other production plants.

Furthermore, as the LOTOS Group‟s companies process and trade in crude oil and petroleum products, their operations pose greater threats to the environment. Such threats are related to possible failures of process units or means of transport, or other events causing a release of environmental contaminants. Under Polish law, in the event of environmental contamination, not only is the company obliged to remedy the damage, which potentially involves significant expenditure, but is also required to pay large pecuniary penalties.

The Gdańsk refinery, owned by the Company, is the largest production plant in Gdańsk and the second largest refinery in Poland. As its operations are considered strategic for Poland and it processes flammable materials and explosives, it may become the target for terrorist attacks.

The LOTOS Group‟s companies regularly transport crude oil or petroleum products using their own or third parties‟ means of transport. Where the risk of material or product loss is borne by a Group company, such materials or products are insured up to their full value.

In view of the above, Grupa LOTOS and its subsidiaries hold a number of insurance policies against a wide range of events which may cause financial losses.

The insurance policies currently held by the LOTOS Group companies include:

Grupa LOTOS

Insurance policies held by the LOTOS Group as at the Prospectus Date include:  Material damage, machine breakdown and business interruption (loss of profit) insurance issued by a consortium of two insurance companies: PZU S.A. and STU Ergo Hestia S.A. The sum insured is EUR 1,277,177,796 for property, PLN 690,000,000 for inventories, PLN 3,000,000 for employees‟ personal assets, and USD 383,760,000 and PLN 14,737,980.06 for loss of profit. The premium was set at the prevailing market rate, and the settlements are made on the basis of annual annexes. The current policy term ends on November 30th 2010.  Business liability insurance, comprising the primary policy issued by a consortium of two insurance companies, PZU S.A. and STU Ergo Hestia S.A., with the sum insured of PLN 10,000,000, and an umbrella policy issued by another consortium of two insurance companies, CHARTIS Europe S.A., Polish Branch, and STU Ergo Hestia S.A., up to the amount of USD 25,000,000.00. The policies are effective until January 31st 2012 and January 31st 2011, respectively. The premium was set at the prevailing market rate, for two years in the case of the primary insurance and for one year in the case of the umbrella policy. The primary policy extends additionally to LOTOS Serwis sp. z o.o., LOTOS Asfalt sp. z o.o., LOTOS Straż sp. z o.o., LOTOS Paliwa sp z o.o., LOTOS Oil S.A., LOTOS Kolej sp. z o.o., LOTOS Lab sp. z o.o., LOTOS Gaz S.A., LOTOS Ochrona sp. z o.o., LOTOS Parafiny sp. z o.o., LOTOS Park Technologiczny sp. z o.o., LOTOS Jasło S.A., LOTOS Czechowice S.A., LOTOS Tank sp. z o.o., RCEkoenergia sp. z o.o., LOTOS Biopaliwa sp. z o.o. The umbrella policy extends additionally to LOTOS Serwis sp. z o.o., LOTOS Asfalt sp. z o.o., LOTOS Straż sp. z o.o., LOTOS Paliwa sp z o.o., LOTOS Oil S.A., LOTOS Kolej sp. z o.o., LOTOS Lab sp. z o.o., LOTOS Gaz S.A., LOTOS Ochrona sp. z o.o., LOTOS Parafiny sp. z o.o., LOTOS Park Technologiczny sp. z o.o., LOTOS Jasło S.A., LOTOS Czechowice S.A., LOTOS Tank sp. z o.o., and LOTOS Biopaliwa sp. z o.o.  Third party liability insurance related to aviation fuel, taken out with CHARTIS Europe S.A., Polish Branch. The sum insured is USD 50,000,000.00. The premium was set at the prevailing market rate and is payable in two instalments, The policy is effective until January 31st 2012.  Terrorism insurance, issued by a consortium of two insurance companies, PZU S.A. and STU Ergo Hestia S.A. The total sum insured is EUR 1,448,086,349 with respect to property damage and USD 383,760,000 with respect to loss of profit. The premium was set at the prevailing market rate and is payable in two instalments, The policy is effective until March 31st 2011.  Domestic cargo insurance (covering transport of goods in Poland), issued by a consortium of three insurance companies, AVIVA Commercial Union, TU Allianz S.A. and HDI-Gerling Polska TU S.A. The sum insured is PLN 9,588,874,797.00. The premium was set at the prevailing market rate, and the settlements are made on the basis of annual annexes. The current policy term ends on December 30th 2010. The policy extends additionally to the following companies of the LOTOS Group: LOTOS Asfalt sp. z o.o., LOTOS Paliwa sp z o.o., LOTOS Oil S.A., LOTOS Gaz S.A, LOTOS Parafiny sp. z o.o., LOTOS Jasło S.A., LOTOS Tank sp. z o.o., and LOTOS Biopaliwa sp. z o.o.  International cargo insurance (covering transport of goods outside of Poland), issued by a consortium of four insurance companies, TUiR Warta, STU Ergo Hestia S.A., PZU S.A., and T.U. Allianz S.A. Shipments by sea are each time covered by a separate insurance and the sum insured is not fixed; the maximum sum insured is USD 20,000,000 per shipment. The premium amount is agreed upon for each shipment separately. The agreement is a framework agreement. It was concluded for a definite term, until March 31st 2011.

 Property insurance for assets in pipelines located in Poland, issued by a consortium of four insurance companies, TUiR Warta, STU Ergo Hestia S.A., PZU S.A., and T.U. Allianz S.A. The agreement is settled on a quarterly basis, based on transmission volumes, therefore the sum insured is not fixed. The total annual sum insured is approximately PLN 12,980,860,000.00 per annum. The premium is calculated on the basis of the sum insured, at the prevailing market rates. The policy is effective until March 31st 2011.  Insurance against fire and other acts of god for inventories kept at storage depots, issued by a consortium of three insurance companies, TUiR Warta, STU Ergo Hestia S.A., and PZU S.A. The sum insured is PLN 1,572,734,909. The premium rate was agreed on market terms, and the final premium amount will be established at the end of the insurance term, taking into account the balance of inventories over the insurance term. The policy is effective until November 30th 2010.  Terrorism insurance with respect to the 10+ Programme, issued by a consortium of two insurance companies, STU Ergo Hestia S.A and PZU S.A. for assets valued at EUR 1,042,000,000. The sum insured is EUR 50,000,000. The premium was agreed on market terms. The policy is effective until December 31st 2010.  Marine cargo insurance with respect to the 10+ Programme, issued by a consortium of three insurance companies, TUiR Warta, STU Ergo Hestia S.A., and PZU S.A. The planned total sum insured for all shipments is EUR 626,230,000.00. The policy extends additionally to the suppliers and contractors under the 10+ Programme: Technip Italy Sp.A., Techip Polska sp. z o.o., Technip KTI Sp. A., KTI Poland S.A., Fluor, the suppliers of the named Insureds, and financing institutions/banks. The premium was set at the prevailing market rate. The policy was extended under annex of September 9th 2008 and is effective until June 30th 2011.  Management Board members TPL insurance taken out at TU Allianz S.A. The sum insured is PLN 160,000,000, plus additional PLN 500,000 for costs of litigation connected with the Management Board members‟ liability. The premium was set for this particular policy at the prevailing market rate. The policy is effective until May 31st 2011.  Erection all risk insurance covering the 10+ Programme area, issued by a consortium of two insurance companies, STU Ergo Hestia S.A., and PZU S.A. With the project value estimated at EUR 1,042,000,000, the sum insured is EUR 10,000,000 per occurrence, and EUR 5,000,000 per occurrence involving contamination, spillage, or pollution, subject to a cap of EUR 10,000,000 in total. The premium was set for this particular policy at the prevailing market rate. The policy is effective until December 31st 2010.

LOTOS Petrobaltic

LOTOS Petrobaltic, a subsidiary of Grupa LOTOS, operates in the upstream segment, which is important for the Group and very capital-intensive. Furthermore, as LOTOS Petrobaltic conducts its operations in the Baltic Sea, it is exposed to natural disaster risks. Therefore, the company maintains large insurance policies, which are considered material to the Group. Key policies held by the company as at the Prospectus Date include:

 TPL Insurance relating to the B3 offshore mine and all installed assets/equipment owned by Petrobaltic, taken out with TUiR Warta S.A. The sum insured is USD 10,000,000. The policy is effective until February 28th 2011. The premium was set at the prevailing market rate.  TPL Insurance relating to the operation of the Baltic Beta drilling platform, taken out with TUiR Warta S.A. The sum insured is USD 40,000,000. The insurance covers the whole drilling platform and all 91

assets/equipment installed on it and owned by the insuring party. The policy is effective until February 20th 2011. The premium was set at the prevailing market rate.  Property insurance against marine risks for the Baltic Beta platform, all of its equipment and component parts. The sum insured is USD 17,600,000,and an additional policy for USD 4,400,000 covers expenses. The policies were issued by TUiR Warta S.A. and are effective until February 28th 2011. The premiums were set at the prevailing market rates.  TPL Insurance relating to the Petrobaltic drilling platform, taken out with TUiR Warta S.A. The sum insured is USD 40,000,000. The insurance covers the whole drilling platform and all assets/equipment installed on it and owned by the insuring party. The policy is effective until February 20th 2011. The premium was set at the prevailing market rate.  Property insurance against marine risks for the Petrobaltic platform, all of its equipment and component parts. The sum insured is USD 20,000,000, and an additional policy for USD 5,000,000 covers expenses. The policies were issued by TUiR Warta S.A. and are effective until February 28th 2011. The premiums were set at the prevailing market rates.  Property insurance against marine risks for the M/T Bazalt ship. The sum insured is PLN 6,000,000, and an additional policy for up to PLN 1,500,000 covers expenses. The policies were issued by TUiR Warta S.A. and are effective until February 28th 2011. The premiums were set at the prevailing market rates.  Property insurance against marine risks for the M/T Granit ship. The sum insured is PLN 6,000,000, and an additional policy for up to PLN 1,500,000 covers expenses. The policies were issued by TUiR Warta S.A. and are effective until February 28th 2011. The premiums were set at the prevailing market rates.  TPL insurance relating to the operation of the M/T Bazalt and M/T Granit ships, taken out with TUiR Warta S.A. Both policies provide for insurance according to the Rules of The West of England Ship Owners Mutual for 2010, up to the amount defined in the Rules, plus an umbrella policy against war risks up to USD 400,000,000. Both policies are effective until February 20th 2011. The premiums were set at the prevailing market rates.

6.4.5 Significant Logistics Agreement

Deliveries to the Gdańsk refinery and liquid gas sold by the Company are transported by sea or land. Land transport includes transport via pipelines, transport by road, and rail transport.

Rail Transport

Rail transport, as a key means of fuel distribution from the Gdańsk refinery to storage depots located in Poland, is a material element of the Issuer‟s Group logistic operations. It is conducted by Grupa LOTOS‟ subsidiary, LOTOS Kolej Sp. z o.o., a dynamically growing rail carrier providing national and international rail transport services. Cooperation between Grupa LOTOS and LOTOS Kolej is based on an agreement for the provision of transport and other rail-freight related services concluded on August 10th 2009. The agreement was executed for a definite term from August 10th 2009 to December 31st 2019, and its estimated value is PLN 2,129m (VAT excl.). The estimated maximum value of the contractual penalties payable by LOTOS Kolej Sp. z o.o. if it fails to meet its obligations under the agreement is equal to the estimated value of the agreement. In addition, the agreement gives Grupa LOTOS S.A. the right to seek compensation in excess of the contractual penalties. The other terms and conditions of the agreement do not differ from the standard terms and conditions typically used in this type of agreements. 92

Road Transport

The LOTOS Group companies selling fuels rely to a significant extent on road transport. Most often, fuels are loaded to the vehicles provided by buyers using loading equipment located at the Gdańsk refinery or storage depots. LOTOS Paliwa Sp. z o.o. and LOTOS Asfalt Sp. z o.o., subsidiaries of Grupa LOTOS, use road transport to deliver their products to final consumers or, in the case of LOTOS Paliwa Sp. z o.o., to the service stations. For that purpose, they have established long-term cooperation with a number of carriers. As the road transport market in Poland is well developed, enabling the companies to use the services of many carriers, the existing framework agreements are not material to the Company and its subsidiaries‟ businesses.

Transport by Pipelines

Crude oil required by the Company to conduct its operations is transported chiefly by pipelines, which is the most cost-effective method for transporting large quantities of the feedstock to the refinery. Additionally, it makes it possible to relocate the supplies from the Gdańsk refinery to large storage depots.

Agreement with Przedsiębiorstwo Eksploatacji Rurociągów Naftowych Przyjaźń S.A. of Płock Concerning Pipeline Transport of Crude Oil for the Gdańsk Refinery to PERN Storage Depots in Adamowo, Dated November 27th 1997

Transport of crude oil from the countries east of Poland to the Gdańsk refinery is conducted under the agreement with Przedsiębiorstwo Eksploatacji Rurociągów Naftowych Przyjaźń S.A. of Płock concluded on November 27th 1997. The agreement was executed for an indefinite term and may be terminated by either party upon three years‟ notice. The transmission fee is calculated as the product of the transmission rate and the number of tonnes of transmitted oil. Transmission tariffs are based on market prices and are subject to annual inflation indexation. The agreement does not provide for contractual penalties. The other terms and conditions of the agreement do not differ from the market terms used in this type of agreements.

The average annual value of the services provided under the agreement in the historical period until this Prospectus approval date is approximately PLN 68,000,000 (VAT inclusive).

Other Agreements with PERN Przyjaźń S.A.

The Company has also entered into other agreements with PERN Przyjaźń S.A. on July 24th 2008, the Company concluded an agreement with PERN concerning transmission of the Company‟s crude oil to the Park Magazynowy Góra storage depots. The agreement expires on December 31st 2010 and may not be terminated before that date. It provides for pipeline transport of crude oil from Adamowo (situated on the Eastern border of Poland) to the Park Magazynowy Góra storage depots. The agreement does not provide for contractual penalties. Consideration for PERN Przyjaźń S.A.‟s services is calculated as the product of the volumes of transmitted oil and the rate specified in the agreement. The rate was agreed in line with the prevailing market terms and is subject to annual indexation with the consumer price index published by the Polish Central Statistics Office. The other terms and conditions of the agreement do not differ from the market terms used in this type of agreements. The average annual value of the services provided under the agreement in the historical period until this Prospectus approval date is approximately PLN 1,500,000 (VAT inclusive).

On December 31st 2009, the Company and PERN entered into an agreement on the transmission of crude oil from the Park Magazynowy Góra storage depots to the Gdańsk refinery, expiring on December 31st 2014, with no option to terminate it prior to that date. The agreement does not provide for contractual penalties. It is 93 performed on the basis of quarterly and monthly transmission plans. Consideration for PERN Przyjaźń S.A.‟s services is calculated based on a rate per tonne of transmitted oil and the number of tonnes transmitted. Additionally, at the end of each month PERN Przyjaźń S.A. is entitled to consideration for oil stored in the pipelines. The rates were agreed in line with the prevailing market terms and are subject to annual indexation with the consumer price index published by the Polish Central Statistics Office. The other terms and conditions of the agreement do not differ from the market terms used in this type of agreements.

The Company has not ordered any transmission services under the agreement yet, therefore the value of the services provided under the agreement as at this Prospectus approval date is PLN 0.

Sea Transport

Sea transport is conducted by carriers contracted by the Company, or by purchasers, who use their own ships or ships provided by third parties. Since every transport is covered by a separate agreement, there are no agreements on which the Company‟s operations are dependent in the long term.

Agreement of April 15th 2005 with Przedsiębiorstwo Przeładunku Paliw Płynnych Naftoport Sp. z o.o. of Gdańsk

Crude oil and petroleum products transported by sea are handled at Port Północny of Gdańsk. Handling services are provided under an agreement with Przedsiębiorstwo Przeładunku Paliw Płynnych Naftoport Sp. z o.o. of Gdańsk concluded on April 15th 2005. Naftoport‟s crude oil handling capacity reserved for the Company and specified in the agreement satisfies the Company‟s needs. Also, looking at Naftoport‟s total handling capacity, it may be expected that the same capacity will be available to the Company in the future. The agreement expires on December 31st 2025 and provides for early termination only in the specified cases. Consideration for Naftoport‟s handling services comprises a fixed annual guarantee fee for maintaining capacity to provide the services to the Company, and a handling fee calculated on the basis of the services actually provided. The fee rates are defined in the US dollar and are subject to annual indexation with 50% of the industrial product sold, as published by the U.S. Bureau of Labor Statistics at the US Department of Labor for the previous calendar year.

The average annual value of the services under the agreement in the historical period until 2009 was approximately PLN 6,130,000 (VAT inclusive). The value of the services under the agreement in 2010 until this Prospectus approval date is approximately PLN 7,600,000 (VAT inclusive). The increase in 2010 follows from the acquisition by Naftoport of Przedsiębiorstwo Przeładunkowo-Składowe Port Północny sp. z o.o., which had also provided services (of a more limited scale) to the Company in the previous years. In 2010 the services were provided by Naftoport.

Storage of Inventories

Under the Act on Stocks of Crude Oil, Petroleum Products and Natural Gas, and the Rules to Be Followed in the Event of a Threat to National Fuel Security or a Disruption on the Petroleum Market, dated February 16th 2007 (Dz.U. of 2007, No. 52, item 343, as amended), the Company is obliged to maintain mandatory stocks of fuels or feedstock required to produce fuel. To meet this statutory requirement, the Company, in addition to using its own storage facilities, enters into agreements with third parties providing for the storage of mandatory stocks.

Agreement with PERN Przyjaźń S.A. on the Storage of Mandatory Stocks of Fuels, dated February 25th 2009

On February 25th 2009, the Company entered into an agreement on the storage of mandatory stocks of fuel with Przedsiębiorstwo Eksploatacji Rurociągów Naftowych Przyjaźń S.A. of Płock. The agreement was extended two times and now expires on December 31st 2010. Agreements with Przedsiębiorstwo Eksploatacji Rurociągów Naftowych Przyjaźń S.A. of Płock do not contain provisions concerning contractual penalties.

Agreement with OLPP Sp. z o.o. of September 15th 2005

On September 15th 2005, the Company concluded an agreement on guaranteed storage capacity, storage of mandatory stocks of liquid fuels, and other related activities with Operator Logistyczny Paliw Płynnych Sp. z o.o. of Płock. Under the agreement OLPP Sp. z o.o. provides storage capacities against consideration. The fee rates specified in the agreement are based on market rates. The turnover between the Issuer and OLPP amounted to PLN 8,382 thousand in 2009, and PLN 8,590 thousand in the period January 1st – September 30th 2010.

Agreement with OLPP Sp. z o.o. of January 4th 2010

On January 4th 2010, the Company entered into an agreement with Operator Logistyczny Paliw Płynnych Sp. z o.o. of Płock on building and maintenance of stocks of liquid fuel at certain storage depots. Under the agreement OLPP Sp. z o.o. is obliged to build and maintain stocks of liquid fuel at the Company‟s request, against consideration. The fee rates specified in the agreement are based on market rates. The agreement was concluded for an indefinite term and does not provide for contractual penalties. The turnover between the Issuer and OLPP in the period from the agreement execution date to September 30th 2010 amounted to PLN 2,160 thousand.

Agreement with OLPP Sp. z o.o. of July 26th 2010

On July 26th 2010, the Company entered into another agreement with Operator Logistyczny Paliw Płynnych Sp. z o.o. of Płock, concerning building and maintenance of liquid fuel stocks at certain storage depots other than the storage depots specified in the agreement of January 4th 2010. Under the agreement OLPP Sp. z o.o. is obliged to build and maintain stocks of liquid fuel at the Company‟s request, against consideration. The fee rates specified in the agreement are based on market rates. The agreement was concluded for an indefinite term. The turnover between the Issuer and OLPP in the period from July 26th to September 30th 2010 amounted to PLN 888 thousand.

6.5 Basis for any Statements Made by the Issuer Regarding Its Competitive Position

In implementing its strategy and the adopted segmental management model, the LOTOS Group relies on analyses of the competitive environment provided by the management personnel and the Management Board of Grupa LOTOS S.A., as well as data published by competitors from the oil and energy sector (websites, stock exchange reports and specialist publications in the media). The Issuer also uses sector reports prepared by independent analysts of the stock market. The Company has access to up-to-date statistical data published by reliable sources (the Energy Development Agency (Agencja Rozwoju Energii) and the Polish Chamber of

Liquid Fuels (Polska Izba Paliw Płynnych)) which provide guidance on the position of the Issuer‟s Group on the Polish fuel market.

7 Organisational Structure

7.1 Description of the Group and the Role of the Issuer in the Group

The LOTOS Group is a vertically integrated oil company, whose core business is oil production and processing as well as trading in petroleum products. The companies of the LOTOS Group supply the market with lead-free gasoline, diesel oils, motor oils and industrial oils, fuel oils, aviation fuel, bitumens and other products.

As at the Prospectus Date, the LOTOS Group comprised, apart from Grupa LOTOS S.A. (the parent company, managing the refinery in Gdańsk), 17 direct subsidiaries as well as indirect subsidiaries, including companies of the LOTOS Czechowice Group, the LOTOS Jasło Group, and the LOTOS Petrobaltic (an oil and gas production company) Group.

Figure 3 Structure of the LOTOS Group

Grupa LOTOS S.A.

LOTOS Paliwa Sp. z o.o. 100% LOTOS Czechowice S.A. LOTOS Jasło S.A. LOTOS Petrobaltic S.A. LOTOS Asfalt Sp. z o.o. 97.54 % 98.03% 99.32 % 100%

LOTOS Oil S.A. RCEkoenergia Sp. z o.o. Miliana Shipping Company Ltd. 100% PLASTEKOL Organizacja 100% Odzysku S.A. 99.9% LOTOS Parafiny Sp. z o.o. 95.5% 0.1% LOTOS Biopaliwa Sp. z o.o. Aphrodite Offshore Services N.V. 100% 100% 100% LOTOS Tank Sp. z o.o. 100% ENERGOBALTIC Sp. z o.o. 100% LOTOS Kolej Sp. z o.o. AB Geonafta 100% 40.59% UAB LOTOS Baltija LOTOS Exploration and Production Norge AS 100% 100% KRAK GAZ Sp. z o.o. LOTOS Gaz S.A. in bankruptcy 100% by liquidation 100% LOTOS Ekoenergia Sp. z o.o. 100% LOTOS Straż Sp. z o.o. 100%

LOTOS Lab Sp. z o.o. 100% LOTOS Serwis Sp. z o.o. 100% LOTOS Ochrona Sp. z o.o. 100%

LOTOS Park Technologiczny Sp. z o.o. 100% Source: the Issuer (as at the date of this Prospectus).

7.2 List of the Issuer’s Material Subsidiaries as at the Prospectus Date

Direct subsidiaries (in the case of most of the companies the percentage share in the share capital is equal to the percentage share in the total vote at the General Shareholders Meeting):  LOTOS Paliwa Sp. z o.o. of Gdańsk, Poland – 100%  LOTOS Gaz S.A. of Mława, Poland – 100%

 LOTOS Oil S.A. of Gdańsk, Poland – 100%  LOTOS Asfalt Sp. z o.o. of Gdańsk, Poland – 100%  LOTOS Parafiny Sp. z o.o. of Jasło, Poland – 100%  LOTOS Ekoenergia Sp. z o.o. of Gdańsk, Poland – 100%  LOTOS Kolej Sp. z o.o. of Gdańsk, Poland – 100%  LOTOS Serwis Sp. z o.o. of Gdańsk, Poland – 100%  LOTOS Lab Sp. z o.o. of Gdańsk, Poland – 100%  LOTOS Straż Sp. z o.o. of Gdańsk, Poland – 100%  LOTOS Ochrona Sp. z o.o. of Gdańsk, Poland – 100%  LOTOS Park Technologiczny Sp. z o.o. of Jasło, Poland – 100%  LOTOS Tank Sp. z o.o. of Gdańsk, Poland – 100%  LOTOS Czechowice S.A. of Czechowice-Dziedzice, Poland – 97.55%1  LOTOS Jasło S.A. of Jasło, Poland – 98.08%2  LOTOS Petrobaltic S.A. of Gdańsk, Poland – 99.32%  UAB LOTOS Baltija of Vilnius, Lithuania – 100%

Indirect subsidiaries:  RCEkoenergia Sp. z o.o. of Czechowice-Dziedzice, Poland – 99,995% of shares owned by LOTOS Czechowice S.A. (0,005% of shares owned by Grupa LOTOS S.A.)  LOTOS Biopaliwa Sp. z o.o. of Czechowice-Dziedzice, Poland – 99,995% of shares owned by LOTOS Czechowice S.A. (0,005% of shares owned by Grupa LOTOS S.A.)  PLASTEKOL Organizacja Odzysku S.A. of Jasło, Poland – 95.5% of shares owned by LOTOS Jasło S.A.  LOTOS Exploration and Production Norge AS of Stavanger, Norway – 100% of shares owned by LOTOS Petrobaltic S.A.  Miliana Shipping Company Ltd. of Nicosia, the Republic of Cyprus – 99.9% of shares owned by LOTOS Petrobaltic S.A.  Aphrodite Offshore Services N.V. of Curaçao, the Netherlands Antilles – 100% of shares owned by LOTOS Petrobaltic S.A.  KRAK-GAZ Sp. z o.o. w upadłości likwidacyjnej (in bankruptcy by liquidation) of Kraków, Poland – 100% of shares owned by LOTOS Gaz S.A. (as the company was declared bankrupt and its assets are being liquidated, it has been excluded from consolidation)  Energobaltic Sp. z o.o. of Władysławowo, Poland – 100% of shares owned by LOTOS Petrobaltic S.A.  AB Geonafta of Gargždaj, Lithuania – 40.59% of shares owned by LOTOS Petrobaltic S.A.

1 Grupa LOTOS holds 97.54% of the total vote at the company’s General Shareholders Meeting; with respect to the remaining purchased shares the change of ownership has not been registered in the Share Register yet.

2 Grupa LOTOS holds 98.04% of the total vote at the company’s General Shareholders Meeting; with respect to the remaining purchased shares the change of ownership has not been registered in the Share Register yet.

8 Property, Plant and Equipment

8.1 Significant Property, Plant and Equipment (Existing and Planned), Including Leased Property, and Encumbrances Thereon

8.1.1 Property, Plant and Equipment of the Issuer and its Subsidiaries The table below sets forth property, plant and equipment owned by the Issuer ad its Group as at December 31st 2007, December 31st 2008, December 31st 2009 and September 30th 20101, by asset categories. The only property, plant and equipment deemed significant to the operations of the Issuer‟s Group are the property, plant and equipment of the Issuer and subsidiaries: LOTOS Petrobaltic and LOTOS Paliwa.

1 Grupa LOTOS has been listed on the Warsaw Stock Exchange since 2005, and in line with the applicable laws it publishes consolidated quarterly financial reports. Owing to systemic limitations resulting from the size of the Issuer and its Group, and because the Group’s data is consolidated on a quarterly basis, it is very difficult to generate the figures as at the Prospectus Date. In the event of any significant changes to the value of property, plant and equipment, this Prospectus will be updated accordingly. 99

Table 29 Property, plant and equipment of the Issuer

Grupa LOTOS S.A.

Dec 31 2007 Dec 31 2008 Dec 31 2009 Sep 30 2010 VAT inclusive VAT exclusive VAT inclusive VAT exclusive VAT inclusive VAT exclusive VAT inclusive VAT exclusive 1. Owned land 12,143 12,143 12,143 12,143 12,143 12,143 12,143 12,143 2. Perpetual usufruct right to 165,841 165,939 166,069 166,023 165,841 165,939 166,069 166,023 land 3. Buildings and structures 1,169,271 924,456 1,195,364 941,634 1,169 271 924,456 1,195,364 941,634 4. Plant and equipment 912,890 434,054 942,655 480,634 912,890 434,054 942,655 480,634 5. Vehicles 6,623 737 5,148 111 6,623 737 5,148 111 6. Other tangible assets 84,078 35,778 97,596 64,142 84,078 35,778 97,596 64,142 7. Tangible assets under 405,519 1,992,024 2,016,182 5,105,343 405,519 1,992,024 2,016,182 5,105,343 construction 8. Prepayments for tangible 766,004 1,194,489 1,194,489 150,699 766,004 1,194,489 1,194,489 150,699 assets under construction 9. TOTAL 3,522,369 4,759,620 5,629,646 6,920,729 3,522,369 4,759,620 5,629,646 6,920,729 10. owned 3,358,185 4,595,720 5,465,557 6,757,048 3,358,185 4,595,720 5,465,557 6,757,048 11. held under lease and 164,184 163,900 164,089 163,681 164,184 163,900 164,089 163,681 tenancy contracts (balance- sheet items) 12. off-balance sheet items 10 10,964 10,818 13,817 Source: the Issuer.

Table 30 Property, plant and equipment of the Issuer’s Group

LOTOS Group

Dec 31 2007 Dec 31 2008 Dec 31 2009 Sep 30 2010 VAT inclusive VAT exclusive VAT inclusive VAT exclusive VAT inclusive VAT exclusive VAT inclusive VAT exclusive 1. Owned land 145,842 160,803 161,208 163,323 145,842 160,803 161,208 177,023 2. Perpetual usufruct right to land 239,030 230,514 239,277 232,546 239,030 230,514 239,277 244,182 3. Buildings and structures 2,096,147 1,705,246 2,181,906 1,931,190 2,096,147 1,705,246 2,181,906 3,073,139 4. Plant and equipment 1,232,100 616,571 1,305,173 771,728 1,232,100 616,571 1,305,173 2,584,575 5. Vehicles 308,722 169,410 320,380 247,600 308,722 169,410 320,380 456,501 6. Other tangible assets 163,459 66,054 185,457 92,242 163,459 66,054 185,457 300,897 7. Tangible assets under construction 634,764 2,747,460 2,788,049 6,086,780 634,764 2,747,460 2,788,049 5,335,068 8. Prepayments for tangible assets 781,780 1,200,713 1,200,713 153,536 781,780 1,200,713 1,200,713 53,054 under construction TOTAL 5,601,844 6,896,771 8,382,163 9,678,945 5,601,844 6,896,771 8,382,163 12,224,439 owned 5,413,733 6,713,627 8,196,351 9,409,955 5,413,733 6,713,627 8,196,351 12,111,726 held under lease and tenancy 188,111 183,144 185,812 268,990 188,111 183,144 185,812 112,713 contracts (balance-sheet items) off-balance sheet items 80,596 280,378 286.023 464,756 Source: the Issuer.

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8.1.2 Description of Significant Items of Property, Plant and Equipment of the Issuer and Its Subsidiaries

Significant property, plant and equipment of the Issuer include production units described in Section 8.1.2.1 of the Registration Document and properties described in Section 8.1.2.2. of the Registration Document.

8.1.2.1 Description of Significant Production Units of the Issuer and Its Subsidiaries

Significant production units of the Issuer, comprising groups of tangible assets owned by the Issuer, are located at the Issuer‟s plant in Gdańsk. The structure of the LOTOS Group‟s production is based on seven complexes:

 Crude Oil Distillation Complex – comprises crude oil distillation units (Inst. 100 and Inst. 900), Merox aviation fuel units (Inst. 300 and Inst. 310) as well as unit for propane deasphalting of vacuum residue (Inst. 1100) and integrated crude oil distillation unit – CDU/VDU (Inst. 120) constructed under the 10+ Programme;

 Fuel Complex – comprises units for processing of atmospheric fractions, such as: gasoline hydrotreating and separation unit (Inst. 200), LPG separation unit (Inst. 700), light gasoline isomerisation unit (Inst. 350), naphtha reforming units (Inst. 410 and Inst. 440), diesel oil hydrodesulphurisation units (Inst. 500 and Inst. 520), and fuel gas system (Inst. 3750);

 Lube Oil Complex – comprises units for solvent production of base oils, slack waxes and special products, including: furfurol extraction unit (Inst.1200), solvent dewaxing unit (Inst. 1300), oil hydrorefining unit (Inst. 1400), a part of storage tank park (Inst. 2000) and fuel oil system (Inst. 3700);

 Hydrocracker Complex – comprises a hydrocracking unit (Inst. 150). A mild hydrocracking unit (Inst. 930), constructed under the 10+ Programme, will be added to the complex;

 Hydrogen and Sulphur Production Complex – comprises the following hydrogen and sulphur units: hydrogen generation unit (Inst. 250), hydrogen recovery unit (Inst. 260), amine washing and amine regeneration unit (Inst. 650), sulphur production units (Inst. 810, Inst. 820, Inst. 830) and sour water stripper unit (Inst. 860). Under the 10+ Programme, the complex was provided with hydrogen generation unit (Inst. 270) and amine sulphur recovery unit (ASR), allowing for amine regeneration (Inst. 9850), sour water stripping (Inst. 9860), sulphur production (Inst. 9800, Inst. 9810, Inst. 9820) and LPG washing (Inst. 9700);

 Utility Production Complex – comprises all units supporting core production through production and distribution of utilities, i.e.: CHP plant (Inst. 2700), condensate collection unit (Inst. 2750), water preparation facility (Inst. 2900, Inst. 2930, Inst. 2950), cooling water system (Inst. 3000, Inst. 3010, Inst. 3050), nitrogen generation unit (Inst. 3200, Inst. 3210), compressed air generation unit (Inst. 3100), central heating system (Inst. 2800) and wastewater treatment plant;

 Blending and Loading Complex – comprises crude oil tank park (Inst. 1800), a part of storage tank park (Inst. 2000), Port-Refinery transmission pipeline system and a system of facilities for loading railway and road tankers.

Production units comprised in the above described complexes, which the Issuer deems significant, include:

a) atmospheric distillation unit (Inst. 100) used for the preparation of feedstock for further process units through desalination, crude oil stabilisation which yields unstabilised gasoline, and fractioning of stabilised crude oil into gasoline, kerosene, light, medium and heavy diesel oil and atmospheric residue. b) Merox units (Inst. 300, Inst. 310) used for the production of aviation fuel for turbine and jet engines. Kerosene fraction obtained through atmospheric distillation serves as feedstock for these units. The aim of the Merox process, commonly referred to as sweetening, is the conversion of mercaptans contained in kerosene fraction into disulphides, which remain in the kerosene fraction. c) gasoline hydrotreating unit (Inst. 200) used for desulphurisation, stabilisation and fractioninig of the gasoline from the atmospheric distillation unit (Inst. 100). The hydrotreater prepares feedstock for the reforming unit (naphta) and isomerisation unit (light gasoline). d) light gasoline isomerisation unit (Inst. 350) used to increase the octane number of light gasoline. The product of the isomerisation process is known as isomerizate, with a research octane number of approx. 89. Isomerizate is a high-octane-number component for the production of motor gasolines, which is used to decrease the content of benzene and aromatic compounds in gasolines. e) naphtha reforming units (Inst. 410, Inst. 440) are used to increase the octane number of gasoline feedstock and obtain reformate, a high-octane number component used in blending gasolines. f) diesel hydrodesulphurisation unit (Inst. 500) is used for reducing the sulphur content in middle distillate obtained in the process of atmospheric distillation. Diesel oil desulphurisation is required under the applicable laws, which set the maximum admissible sulphur content in diesel oil at 10 ppm. g) hydrocracking unit (Inst. 150) is used for processing of vacuum distillates and furfurol extracts into fuel components. The resulting components, with the minimum sulphur contents, undergo blending or further treatment. Under the 10+ Programme, hydrocracking will be supported by a new mild hydrocracker (MHC) (Inst. 930). h) hydrogen generation unit (Inst. 250) operating based on the steam reforming process, in which hydrocarbons (from methane to hexanes) react with steam in the presence of a catalyst and yield hydrogen and carbon dioxide. The hydrogen-rich gas is purified in the Pressure Swing Absorption (PSA) system, generating hydrogen of 99.99% purity.

Apart from the above listed units, significant items of property, plant and equipment of the Issuer‟s Group include assets which form part of the service stations network of LOTOS Paliwa, described in Section 6.2.2.1 of the Registration Document, and assets of the B3 Offshore Mine owned by LOTOS Petrobaltic, described in Section 6.1.1 of the Registration Document, which comprises facilities for crude oil production and transport, including: 11 oil production wells with wellheads, Baltic Beta platform, and crude oil transmission systems, such as submarine and onshore pipelines.

As at September 30th 2010, the total book value of property, plant and equipment comprising significant production units of the Issuer, service station network and the B3 Offshore Mine, amounted to PLN 1,255,998,167.41. The value of particular production units is presented in table No. 32.

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Table 31 Groups of assets deemed significant items of property, plant and equipment of the Issuer’s Group as at September 30th 2010

Initial value Sep 30 2010

Significant production units of the LOTOS 901,404,545.96 465,651,390.76 Group, including: Inst. 100 168,426,085.42 116,731,748.04 Inst. 200 25,547,162.22 15,428,156.78 Inst. 300 626,263.00 349,305.24 Inst. 310 12,535,249.43 10,660,099.19 Inst. 440 68,219,634.73 29,885,717.30 Inst. 410 56,914,037.54 28,728,898.97 Inst. 500 7,741,926.65 3,071,284.81 Inst. 350 81,167,677.85 42,632,143.50 Inst. 150 394,235,729.81 180,156,704.90 Inst. 250 85,990,779.31 38,007,332.03 Network of Company owned service stations 837,128,410.91 636.267.420.70 B3 Offshore Mine 277,874,064.50 154,079,355.95 Total 2,016,407,021.37 1,255,998,167.41

Source: the Issuer.

8.1.2.2 Overview of Significant Properties (Items of Property, Plant and Equipment) of the Issuer and Its Subsidiaries

The total area of the Group‟s properties classified as items of property, plant and equipment is 510.1086,93 ha, including: (i) land owned by the Issuer or its subsidiaries with the total area of 39.1136,55 ha, (ii) land held by the Issuer or its subsidiaries in perpetual usufruct with the total area of 470.2914,38 ha, and (iii) properties held by the Issuer or its subsidiaries on the basis of other agreements under which it is possible to classify them as items of property, plant and equipment with the total area of 0.7036 ha.

The total area of the Issuer‟s properties classified as items of property, plant and equipment is 360.9588 ha, including: (i) land owned by the Issuer with the total area of 27.1530 ha, (ii) land held by the Issuer in perpetual usufruct with the total area of 333.8058 ha, and (iii) properties held by the Issuer on the basis of other agreements under which it is possible to classify them as items of property, plant and equipment with the total area of 0.1304 ha.

Eleven of the properties, located in Gdańsk and covering a total area of 347.2866 ha, are considered to be of special importance to the Issuer on account of the activities conducted, as well as the type of production facilities, industrial units or structures of material importance to the Company‟s operations erected, on each of them (including the storage facilities, flares, valve stations, wastewater treatment plants, transmission pipelines, switchgear stations and railway tracks). The Issuer owns 20.1528 ha of the significant properties and holds 327.1338 ha of the significant properties in perpetual usufruct, established over five of the properties until the end of 2089 and over two of them – until June 2096.

In some cases, the described use of the properties by the Issuer or by its subsidiaries is inconsistent with their intended use specified in the land register/land and mortgage register, however in such cases the use of the 104 properties is – as a rule – consistent with their intended use under the applicable local zoning plan or, if there is no such plan, the study of conditions and directions of spatial development (zoning study).

The table below contains details of the properties significant to the Issuer, including their location, lot numbers, numbers of the relevant entries in the land and mortgage register, area, intended use, actual current use, legal title under which they are held, encumbrances and reasons for considering them significant to the Issuer.

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Table 32 The Issuer’s key properties

Legal title under Intended use which property is No. of entry in the specified in the Reason for considering held, and basis No. Location Lot No. Land and Mortgage Area land register/the Actual present use Encumbrances the property significant to on which it was Register land and the Issuer‟s operations acquired mortgage register

OWNED PROPERTIES

146/4 146/5 150/1 152 Entry No. 184/2 GD1G/00039616/6 in 184/3 the Land and Ownership title; 186/1 roads, ditches, Mortgage Register acquired under Site for the extension of 186/2 other maintained by the sale agreement the Issuer‟s industrial ul. Benzynowa, (division of lot 13.8456 ha undeveloped land, Undeveloped none 1. District Court for of July 25th 1997 areas (extension of the Gdańsk, Poland No. 186 into arable land property Gdańsk-Północ of (Notary Deed tank park) lot No. 186/1 Gdańsk, III Land and Rep. A No. and lot No. Mortgage Register 8483/1997 ) 186/2 has not Division been

disclosed in the land and mortgage register yet) Entry No. Ownership title; Site for the extension of ul. Płońska, 2.5600 ha arable land, GD1G/00038936/8 in Undeveloped acquired under none the Issuer‟s industrial 2. Gdańsk, Poland 145/1 grassland, ditches the Land and property sale agreement areas

Mortgage Register of July 25th 1997

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maintained by the (Notary Deed District Court for Rep. A No. Gdańsk-Północ of 8482/1997 ) Gdańsk, III Land and Mortgage Register Division Aggregate capped contractual mortgage (hipoteka łączna Entry No. kaucyjna) for USD GD1G/00076537/9 in 2,625,000,000.00, Developed property Ownership title; Site of the flare and the Land and roads, wooded established to Przejazdowo, (flare, road with acquired under protection area Mortgage Register and shrubbed secure a credit Pruszcz Gdański 5/12 access to the sale agreement surrounding the flare, maintained by the 3.7075 ha land, grassland, facility, interest, 3. municipality, 5/15 refinery), no buildings of November 4th directly related to the District Court for pastures, arable fees, costs, Poland 5/16 or facilities have been 1996 (Notary Issuer‟s production Gdańsk-Północ of land, ditches expenses and disclosed in the land Deed Rep. A No. activities Gdańsk, III Land and other liabilities to and mortgage register 11633/1996 ) Mortgage Register Société Générale Division S.A. (the Polish branch, with registered office in Warsaw)

4. Przejazdowo, 89/1 Entry No. GD1G/000 0.0397 ha arable land Developed property Ownership title; Aggregate capped Site of the water main

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Pruszcz Gdański 99804/9 in the Land (M3 gate valve station acquired under contractual gate valve station municipality, and Mortgage for the water pipes sale agreement mortgage Poland Register maintained running from the of March 15th (hipoteka łączna by the District Court retention tank to the 1991 (Notary kaucyjna) for USD for Gdańsk-Północ of wastewater treatment Deed Rep No. 2,625,000,000.00, Gdańsk, III Land and plant, gate valve box) 1911/1991) established to Mortgage Register secure a credit Division facility, interest, fees, costs, expenses and other liabilities to Société Générale S.A. (the Polish branch, with registered office in Warsaw)

PROPERTIES HELD IN PERPETUAL USUFRUCT

75/11 Property entered According to the Core area of the Perpetual Easement in the ul. Elbląska, ul. 75/16 under No. GD1G/ land register: refinery with buildings usufruct right form of a right of Part of the property (Lot 237.2767 ha Sztutowska 75/17 46060/5 in the Land industrial area; and a flood control valid until way and a right of No. 75/51) is the site of

5. and ul. 75/22 and Mortgage according to the dike; December 5th transit against a the Issuer‟s key

Benzynowa, 75/23 Register maintained land and Lot No. 75/51: core 2089; the fee, established production facilities

Gdańsk, Poland 75/26 by the District Court of mortgage register: production buildings property is under the 75/41 Gdańsk, X Land and roads, (including the central owned by the agreement of July

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75/42 Mortgage Register miscellaneous control house, social State Treasury 19th 2004, on a 75/45 Division areas, industrial facilities, workshop part of Lot No. 75/46 areas building, garages, Perpetual 75/51 and a part of 75/48 utility building, loading usufruct right Lot No. 75/45, for 75/49 building, office acquired under the benefit of 75/50 building, fire brigade the governor‟s present and future 75/51 building, canteen decisions perpetual building, gaseous a) No. G.VII usufructuaries or chlorine storage 7222/228/91 of owners of facility and other), Lot June 10th 1991, a) Lot No. 183/7 No. 75/11 is an b) No. G.VII (Entry in the Land internal road 7222/279/91 of and Mortgage June 28th 1991, Register No. c) Notary Deed 19264/7), b) Lot Rep. A No. No. 183/10 (Entry 10655/1998 of in the Land and September 8th Mortgage Register 1998 – exchange No.5377/0), c) Lot agreement No. 184/7 (Entry in d) Notary Deed the Land and Rep. A No. Mortgage Register 5905/1997 of No. 40065), d) Lot May 28th 1997 No. 146/7 (Entry in the Land and Mortgage Register

109

No. 50936), e) Lot No. 183/9 (Entry in the Land and Mortgage Register No. 95526/8), f) Lot No. 146/8,184/6 and Lot No. 184/8 (Entry in the Land and Mortgage Register No. 84601/8). Blanket ceiling mortgage (hipoteka łączna kaucyjna) up to USD 2,625,000,000.00, established to secure a credit facility, interest, fees, costs, expenses etc. ul. Benzynowa, 198/2 Entry No. 16.3700 ha industrial areas, Developed property Perpetual Blanket security Site of the wastewater 6. ul. Elbląska, 198/3 GD1G/00046154/1 in roads (Lot No. 198/2 – site usufruct right (deposit) mortgage treatment plant

110

Gdańsk, Poland 198/4 the Land and of workshop halls, valid until for USD Mortgage Register liquid waste and December 5th 2,625,000,000.00, maintained by the water pumping 2089, acquired established to District Court for stations, pump under the secure a credit Gdańsk-Północ of houses, wastewater Governor‟s facility, interest, Gdańsk, III Land and treatment plant, filter Decision No. fees, costs, Mortgage Register station, tanks, office G.VII7222/279/91 expenses and Division and industrial of June 28th other liabilities to buildings etc.; lots 1991; Société Générale Nos. 198/3 and 198/4 the property is S.A. (the Polish are site of a road) owned by the branch, with State Treasury registered office in Warsaw)

Entry No. Perpetual Aggregate capped 5/3 GD1G/00066139/6 in usufruct right contractual 5/13 the Land and valid until mortgage Przejazdowo, 5/14 ditches, Developed property Mortgage Register December 5th (hipoteka łączna Part of the property is the Pruszcz Gdański 7/4 grassland, roads, (site of pump houses, maintained by the 35.0484 ha 2089, acquired kaucyjna) for USD site of a water intake 7. municipality, 7/5 other developed transformer stations, District Court for under Governor‟s 2,625,000,000.00, retention tank Poland 11/2 areas meter chamber, Gdańsk-Północ of Decision No. established to 103/4 retention tank etc.) Gdańsk, III Land and G.VII/7222/70/95 secure a credit 103/5 Mortgage Register of February 28th facility, interest, 103/6 Division 1995; fees, costs,

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the property is expenses and owned by the other liabilities to State Treasury Société Générale S.A. (the Polish branch, with registered office in Warsaw)

Cadastral The property is Aggregate capped district 301 S: Blanket ceiling owned by the contractual Area located at 174,170/3, mortgage) up to PLN State Treasury; mortgage Site for the extension of arable land, ul. Elbląska, ul. 306/2, 306/3, Property entered 2,625,000,000.00 perpetual (hipoteka łączna the Company‟s facilities; permanent Michałki, ul. Cadastral under No. GD1 USD, established to usufruct right kaucyjna) up to site of a railway station, grassland, Połęże, ul. district: 115: G/00066346/0 in the secure a credit valid until PLN railway tracks, a ditches, Sitowie, ul. Osty, 193, 206/1, Land and Mortgage facility, interest, fees, December 5th 2,625,000,000.00 transmission pipeline, industrial areas, ul. Gdańskiego 206/2, 232, Register maintained 35.9209 ha costs, expenses and 2089, acquired USD, established gate valve stations, 8. railroad areas, Kolejarza, ul. 239/1,239/2, by District Court of other liabilities to under the to secure a credit switchgear stations, pastures, roads, Rzęsna and ul. 239/3,317, Gdańsk, X Land and Société Générale governor‟s facility, interest, directly related to the residential areas, Kutnowska, 318/1, 318/3, Mortgage Register S.A. (the Polish Decision No. fees, expenses Issuer‟s production other developed Gdańsk, Poland. 318/4,318/5, Division branch, with G.VII/7222/71/95 and other liabilities activities areas Address: ul. 318/6, 227, registered office in of February 28th to Société

Michałki 25 319, 262 Warsaw) 1995, amended Générale S.A. (the Cadastral by Decision No. Polish branch, with district: 116 G.VII.7222/71/95 registered office in

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76/7, 77/12, of June 1st 1995; Warsaw) 77/14, 77/15 the property is 105, 154/12, partly leased to 156 – 218 LOTOS Kolej Sp. 220/3, 220/4, z o.o. 220/5, 220/6, 220/7, 220/8 221, 222, 224, 223, Cadastral district 300S: 150/4, 320/4 Cadastral district: 268S: 2/1 Entry No. Developed property Perpetual Aggregate capped Developed property, site GD1G/00032372/4 in industrial areas, (gate valve station, usufruct right contractual of plant and equipment Irrigation fields the Land and urbanised areas; and Rd-3 and Rd-4 valid until June mortgage used in the operation of and ul. Mortgage Register other switchgear stations); 2nd 2096, (hipoteka łączna fuel transmission 3/82 0.1074 ha 9. Kutnowska, maintained by the undeveloped no buildings or acquired under kaucyjna) for USD pipelines connecting 15/3 Gdańsk, Poland District Court for areas facilities are disclosed Decision of the 2,625,000,000.00, Port Północny (the North Gdańsk-Północ of in the land and Gdańsk District established to Port of Gdańsk) with the Gdańsk, III Land and mortgage register Authority‟s Head secure a credit Issuer‟s facilities Mortgage Register No. G.G.2- facility, interest,

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Division 7224/568/97/KB, fees, costs, dated June 2nd expenses and 1997; other liabilities to the property is Société Générale owned by the S.A. (the Polish State Treasury branch, with registered office in Warsaw) Perpetual Aggregate capped usufruct right contractual valid until April mortgage Entry No. 28th 2096, (hipoteka łączna Site of plant and GD1G/00082263/2 in acquired under kaucyjna) for USD equipment for operation the Land and Decision of the 2,625,000,000.00, Port Północny of fuel pipelines, site of a Mortgage Register Developed property Gdańsk District established to (the North Port of transmission pipeline, 16 maintained by the 1.8223 ha. (switchgear stations, Authority‟s Head secure a credit Gdańsk), industrial areas gate valve stations and 10. 17 District Court for control rooms) No. G.G2- facility, interest, Gdańsk, Poland switchgear stations 19 Gdańsk-Północ of 7224/442/97/DK, fees, costs,

Gdańsk, III Land and Decision No. expenses and

Mortgage Register G.G.2- other liabilities to

Division 7224/443/97/DK Société Générale

and Decision No. S.A. (the Polish G.G.2- branch, with 7224/441/97/DK, registered office in dated April 28th Warsaw)

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1997; the property is owned by the State Treasury

Entry No. Perpetual GD1G/00219941/9 in usufruct right the Land and valid until Mortgage Register December 5th other areas maintained by the 2089, acquired Embankment, intended as sites 11. 167/5 District Court for 0.5881 ha embankment under sale none Embankment used for Gdańsk, Poland for transport Gdańsk-Północ of agreement of products dispatch facilities Gdańsk, III Land and December 14th Mortgage Register 2009 (Notary Division Deed Rep. A No. 11909/2009) Source: the Issuer.

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8.1.3 Encumbrances on Items of Property, Plant and Equipment of the Issuer and Its Subsidiary Companies As at the dates specified below, the LOTOS Group‟s property plant and equipment were encumbered with the following amounts:

- December 31st 2007: PLN 707,804.86 thousand; the Issuer‟s property, plant and equipment was not encumbered as at that date;

- December 31st 2008: PLN 16,293,034.96 thousand, including PLN 15,549,450.00 thousand* on the Issuer‟s property, plant and equipment;

- December 31st 2009: PLN 15,954,078.58 thousand, including PLN 14,964,075.00 thousand** on the Issuer‟s property, plant and equipment;

- September 30th 2010: PLN 16,182,250.05 thousand, including PLN 15,356,250.00 thousand *** on the Issuer‟s property, plant and equipment.

* The value of encumbrances on the Issuer’s property, plant and equipment as at December 31st 2008 was calculated using the mid USD/PLN exchange rate of the Polish National Bank, amounting to PLN 2.9618;

** The value of encumbrances on the Issuer’s property, plant and equipment as at December 31st 2009 was calculated using the mid USD/PLN exchange rate of the Polish National Bank, amounting to PLN 2.8503;

*** The value of encumbrances on the Issuer’s property, plant and equipment as at September 30th 2010 was calculated using the mid USD/PLN exchange rate of the Polish National Bank, amounting to PLN 2.9250.

Encumbrances on the Issuer’s Property, Plant and Equipment

The Issuer‟s property, plant and equipment was encumbered in connection with the execution by the Issuer, on June 27th 2008, of a credit facility agreement for the financing of the refinery extension as part of the 10+ Programme, under which Société Générale S.A. (the Polish branch) was appointed as the Senior Security Agent. The Issuer‟s property with a total area of 336.57 ha was encumbered with aggregate capped contractual mortgage (hipoteka łączna kaucyjna) for up to USD 2,625,000,000, for the benefit of Société Générale S.A. (the Polish branch), with respect to the claims arising under the agreement.

Apart from the encumbrances specified above, a right of way and a right of transit was established on the Issuer‟s significant properties.

The above credit facility agreement is additionally secured with an agreement, entered into by the Issuer and Société Générale S.A. (the Polish branch) on June 27th 2008, concerning a pledge over a set of movables, under which the Issuer‟s movable property, plant and equipment, including significant production units described in Section II.1 above, were encumbered up to a maximum security amount of USD 2,625,000,000. Pursuant to a decision of August 25th 2008, the pledge was entered in the Pledge Register maintained by the District Court for Gdańsk – Północ of Gdańsk, IX Commercial Division. The security over the items of property, plant and equipment will be valid until the Issuer repays its entire liabilities under the credit facility agreement of June 27th 2008.

Encumbrances on the Property, Plant and Equipment of the Issuer’s Subsidiary Companies

The property, plant and equipment of the Issuer‟s subsidiary companies were encumbered with the following amounts:

- as at December 31st 2007: PLN 707,804.86 thousand, including PLN 566,111.26 thousand on the property, plant and equipment of LOTOS Paliwa;

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- as at December 31st 2008: PLN 743,584.96 thousand, including PLN 566,111.26 thousand on the property, plant and equipment of LOTOS Paliwa;

- as at December 31st 2009: PLN 990,003.83 thousand, including PLN 566,111.26 thousand on the property, plant and equipment of LOTOS Paliwa;

- as at September 30th 2010: PLN 1,012,141.09 thousand, including PLN 594,111.26 thousand on the property, plant and equipment of LOTOS Paliwa.

Encumbrances on the Property, Plant and Equipment of LOTOS Paliwa significant items of LOTOS Paliwa‟s property, plant and equipment described in Section 6.2.2.1 of the Registration Document were encumbered in connection with the execution of credit facility agreements described below.

In connection with the execution, on December 16th 2004, of a credit facility agreement with Bank Polska Kasa Opieki S.A. and PKO Bank Polski S.A., described in Section 22.3 of the Registration Document, an aggregate capped contractual mortgage (hipoteka łączna kaucyjna) for PLN 255,000,000 was established over LOTOS Paliwa‟s properties, including properties considered to be significant items of LOTOS Paliwa‟s property, plant and equipment described in Section 22.3 of the Registration Document, for the benefit of each of the banks. Moreover, a registered pledge was established over movable items of property, plant and equipment of LOTOS Paliwa (including significant movable items of property, plant and equipment located on the properties encumbered with the mortgage) up to a maximum amount of PLN 5,100,895.29, as additional security for claims under the agreement.

In connection with the execution, on January 8th 2010, of an agreement with Powszechna Kasa Oszczędności Bank Polski S.A. and Bank Polski Polska Kasa Opieki S.A., LOTOS Paliwa established, for the benefit of each of the banks, a blanket ordinary mortgage (hipoteka łączna zwykła) of PLN 20,000,000, and an aggregate capped contractual mortgage (hipoteka łączna kaucyjna) for up to PLN 8,000,000, over properties considered to be significant items of LOTOS Paliwa‟s property, plant and equipment which are associated with 11 (eleven) service stations. In addition, pursuant to the agreement, a registered pledge was established over significant movable items of property, plant and equipment associated with the above stated service stations, for the amount up to PLN 60,000,000. The above multiple security is provided to secure claims arising under an investment credit facility agreement of November 24th 2009, entered into by LOTOS Paliwa with Powszechna Kasa Oszczędności Bank Polski S.A., and an investment credit facility agreement of December 31st 2009, entered into by LOTOS Paliwa and Bank Polska Kasa Opieki S.A., each described in Section 22.3 of the Registration Document.

In connection with the execution, on March 4th 2002, of a credit facility agreement with Kredyt Bank S.A., described in Section 22.3 of the Registration Document, ordinary mortgages (hipoteki zwykłe) were established over the properties of LOTOS Paliwa, including properties considered to be significant items of LOTOS Paliwa‟s property, plant and equipment, for the amount of PLN 61,079,961.07.

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8.1.4 The Issuer’s Planned Significant Property, Plant and Equipment

As at September 30th 20101, construction of the following significant units forming economically organised groups of property, plant and equipment was still in progress: a) crude distillation unit/vacuum distillation unit - CDU/VDU – integrated crude oil atmospheric/vacuum distillation unit with the annual capacity of 4.5m tonnes, used to prepare feedstock for further process units through desalination, crude oil stabilisation which yields unstabilised gasoline, and fractioning of stabilised crude oil. The unit will make it possible to increase the nominal crude oil throughput capacity of the refinery in Gdańsk from 6m to 10.5m tonnes per annum; b) mild hydrocracking unit (MHC) – increasing the depth of conversion of heavier fractions of crude oil, which will result in a larger share of white products, mainly diesel oil and aviation fuels, in the product structure; c) residuum oil supercritical extraction unit (ROSE) – separating crude oil vacuum residue into lighter DAO fraction (De-Asphalted Oil) and heavier fraction (asphalt component). DAO will be used as feedstock in the new MHC unit producing fuel components: mainly diesel oil, aviation fuel, and (to a lesser extent) raw gasoline. The asphalt component will be managed effectively.

The units are expected to be commissioned in H2 2011. As the investment project is still in progress, it is not possible to estimate all costs of construction of these units.

Costs of outlays made as at September 30th 2010 and the amount of the expected capital expenditure after June 30th 2010, including the currency in which the cost was or will be incurred, are presented in the following table. Capital expenditure actually made is designated as “actual”, and the planned expenditure is designated as “forecast” for the period October 2010 – September 2011 (expected time of completion of the 10+ Programme).

The final amount of all expenditure made by the Issuer will be used to determine the initial value of the constructed property, plant and equipment.

Table 33 Capital expenditure actually made and planned to be incurred to construct significant production units of the Issuer

Actual as Forecast Oct Total at 2010 - Sep (PLN ‘000) Sep 30 2011** 2010*

CDU/VDU 821,670 7,851 829,521

MHC 2,017,307 57,475 2,074,782

ROSE 396,038 62,917 458,955

* translated at the mid exchange rates as at the end of the month (for particular transactions) ** translated at the exchange rates approved for the Issuer’s 2011 Budget, i.e. EUR/PLN: 3.9944 USD/PLN: 2.8873

Source: the Issuer.

In connection with the YME Project, in the near future LOTOS EPN plans to acquire property, plant and equipment representing 20% of the units constructed under the Project, described in more detail in Section 5.2.2 of the Registration Document, including injection and production wells, wellheads, subsea pumps, subsea connections, loading system, and certain components of the platform equipment.

Table 34 Capital expenditure on the YME Project (NOK ‘000)

2008 2009 Jan 1–Sep 30 2010 Capital expenditure on YME project 1,023,417 600,532 389,955 Internal sources of financing 100.00% 77.97% 56.26% External sources of financing 0.00% 22.03% 43.74% Source: the Issuer.

No material investment projects other than the 10+ Programme and the YME Project are being implemented by the Issuer's Group.

8.2 Environmental Aspects and Requirements with Potential Impact on the Use of Property, Plant and Equipment by the Issuer

8.2.1 Regulatory Environment of the Issuer's Group

The operations of the Issuer's Group companies h,ave environmental impact. Therefore they are subject to specific legal obligations arising from a number of regulations which define the principles of use of individual components of the natural environment. The Environmental Protection Law is the main act of law that sets forth the rights and duties of the Issuer and the Group companies as regards their environmental impact. Other laws relevant to the Issuer‟s and the Group‟s environmental compliance include in particular: (a) Waste Act, defining the principles of waste management, (b) Water Law, governing water and wastewater management, (c) Act on the Prevention and Remedying of Environmental Damage, defining rules governing responsibility for environmental damage, (d) Environmental Information Act, defining the environmental aspects of investment processes, (e) Emissions Trading Act, governing trading in greenhouse gas emission allowances, and (f) REACH Regulation, defining the principles of registration of chemicals placed on the market in the EU, as well secondary legislation issued thereunder.

In addition, the activities of LOTOS Petrobaltic are subject to a number of Polish and international regulations applying to businesses affecting the marine environment, specifically including certain regulations regarding the responsibility for the pollution of sea water and damage to marine species. These include in particular the Act on the Prevention of Marine Pollution from Ships of March 16th 1995, in conjunction with the International Convention for the Prevention of Pollution from Ships (London, November 2nd 1973); Convention on the Protection of the Marine

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Environment of the Baltic Sea Area (Helsinki, April 9th 1992); and Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter (Moscow, Washington, London and Mexico City, December 29th 1972).

8.2.1.1 The Environmental Protection Law

The Environmental Protection Law contains detailed provisions on: (a) issuing permits to conduct activities which may affect the natural environment, (b) financing environmental protection (in particular environmental charges and administrative pecuniary penalties for environmental non-compliance), and (c) principles of civil, penal, and administrative liability for breach of environmental regulations.

In particular, entities pursuing business activities involving any use of the natural environment are required to obtain certain permits defining the conditions of such activities. As a rule, these permits apply to the specific emission sources – such as permits for gas or dust emission into the air, waste permits, as well as water and wastewater permits, and more specifically water-law permits required for water abstraction and wastewater discharge to water or ground, or permits to discharge any substances classified as particularly harmful to the water environment to any third-party sewerage system – the so-called sectoral permits.

However, if the type or scale of operation of any installation used by an entity as part of its business activities may be a source of serious pollution of any environmental component or the natural environment as a whole, such entity may be required to obtain an integrated environmental permit – covering all emissions from a given installation in a single document, and not limited to one emission source as in the case of sectoral permits. The integrated environmental permit defines the conditions for use of the environment in relation to total emissions from a unit (one permit defines conditions for air emissions, waste production, as well as water abstraction and wastewater discharge), with the exception of discharges of substances harmful to the water environment to a third-party sewerage system.

The Environmental Protection Law and secondary legislation issued thereunder contain very specific provisions on dust and gas emissions into the air, in particular the conditions and limits of such emissions from industrial units. It should be noted that at the level of the Community law, the draft of a new directive on industrial emissions (IED Directive), which introduces stricter rules and conditions for emitting dust and gas into the air (especially from large combustion plants – installations with a rated thermal input of 50 MW or more), is at the last stage of the legislative procedure. Certain provisions of the IED Directive are still being discussed, specifically those relating to transitional periods and adaptation measures for high-emission installations. The Directive will be implemented within the national legal framework by all EU Member States after it is adopted by the European Parliament and the Council.

Under the Environmental Protection Law, any entity using the environment must pay environmental charges, including charges for the emission of pollutants generated in connection with its operations. If the maximum emission levels are exceeded or provisions of the applicable permits are not respected, the competent environmental protection authorities will impose administrative pecuniary penalties.

The environmental regulations provide for the following three types of liability for environmental violations and damage to the natural environment: (a) civil liability (obligation to remedy the damage by restoring the previous condition of the environment or payment of compensation), (b) administrative liability (decisions imposing specific obligations or pecuniary penalties on the entity, or even discontinuing its operations), and (c) penal liability of persons managing the entity (in the form of imprisonment, restriction of liberty, arrest, or fine).

8.2.1.2 The Waste Act and the Water Law

Both Acts contain detailed provisions on waste, water and wastewater management. The Water Law specifically regulates and defines (a) the principles of water absorption and use, as well as discharge of wastewater, including 120 rainwater, (b) maximum content of pollutants in wastewater, and (c) the principles of discharge of wastewater to sewerage systems, including wastewater containing substances particularly harmful to the water environment. In addition, the Water Law defines the conditions that must be met to obtain water-law permits required to use water and discharge wastewater to ground and waters. The Waste Act contains requirements relating to waste production and management, and specifically the conditions that must be met to obtain waste permits and the scope of responsibilities of waste producers relating to proper waste management. As the new Framework Waste Directive (Directive 2008/98/EC of the European Parliament and of the Council on waste) needs to be implemented into Polish law, the current Waste Act will be replaced by a new regulation specifically defining the conditions of classification of certain substances and materials as waste and introducing new waste management principles.

8.2.1.3 The Act on the Prevention and Remedying of Environmental Damage

The Act on the Prevention and Remedying of Environmental Damage defines the scope of responsibility for damage to the Earth‟s surface, water, and protected species or habitats. Under the Act, the perpetrator of any such damage is required to implement corrective actions to remedy this damage. The scope of remedial measures and time frame for their completion is agreed with the competent environmental protection authority by way of an administrative decision. Pollution of the Earth‟s surface caused before April 30th 2007 is one exception to this rule. In this case, responsibility for land reclamation works lies with the holder of the land. A holder of the land is defined as the property owner, and if another entity is disclosed in the Land and Building Register kept pursuant to the Geodesy and Cartography Law as the holder of the land – as the entity disclosed as the holder (for instance, perpetual usufructuary). If land reclamation works are performed by any entity that did not cause the environmental damage, this entity may lodge claims under the civil law against the perpetrator of the damage for return of land reclamation costs. Any such proceedings are subject to the general provisions of the Polish Civil Code.

8.2.1.4 The Environmental Information Act

Under the Environmental Information Act, in the case of certain investment projects that involve potential significant environmental impact (including in particular any projects significantly affecting Natura 2000 sites), environmental impact assessment (EIA) proceedings may be required. The proceedings are concluded with the issue by the competent authority of a decision on the environmental conditions for approval of the project. Obtaining a decision on the environmental conditions is prerequisite for obtaining investment decisions required to implement the project (including in particular a building permit or a licence for exploration/appraisal of minerals). Investment decisions must not be contrary to the corresponding decisions on the environmental conditions. A decision on the environmental conditions may impose certain obligations on the investor in relation to the prevention, limitation, or monitoring of environmental impact.

8.2.1.5 The Emissions Trading Act

The greenhouse gas emissions trading in the second trading period 2008–2012 is governed by the Emissions Trading Act implementing the provisions of Directive 2003/87/EC of the European Parliament and of the Council of October 13th 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community (the “ETS Scheme”). The types of installations covered by the ETS are defined in the provisions implementing the Emissions Trading Act. The number of allowances allocated to specific installations is defined in the National

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Allocation Plan II, adopted by Regulation of the Polish Council of Ministers, as agreed with the European Commission. Any entity that emits carbon dioxide into the air and participates in the ETS may use its allowances to cover its own emissions, sell them to third parties, or keep them for the upcoming third trading period 2012–2020. The excess emissions penalty is EUR 100 per one required ETS allowance.

It must be noted that under Directive 2009/29/EC of the European Parliament and of the Council amending the ETS Directive, so as to improve and extend the EU greenhouse gas emissions allowance trading scheme, the rules governing the ETS system will change in the next (third) trading period (2012–2020). It applies especially to the rules of emission allowances allocation. After 2012, the basic way for obtaining allowances will be auctioning (purchase of required allowances at an auction). Only in special cases, specified under the ETS Directive and the implementation regulations, and exclusively within predefined time windows, operators of the installations covered by the scheme will be entitled to obtain a pool of emission allowances free of charge. The key principle adopted for the ETS in 2005–2012, that is the obligation of operators to demonstrate that the quantities of emission allowances they hold are sufficient to cover their actual GHG emissions from installations covered by the ETS, will remain unchanged.

8.2.1.6 The REACH Regulation

Under Regulation (EC) No 1907/2006 of the European Parliament and of the Council the registration, evaluation, authorisation and restriction of chemicals (REACH), establishing a European Chemicals Agency, any manufacturer or importer of any substance or chemical in quantities of 1 tonne or more per year is required to (a) analyse the chemical risks relating to the use of the substance, and (b) submit a registration to the European Chemicals Agency (ECHA) in Helsinki. As a rule, no substances covered by the REACH Regulation may be manufactured in or imported to the EU after June 1st 2008 unless so registered. Transitional provisions on the trading in unregistered phase-in substances (already manufactured in or imported to the EU) is one exception to this rule, provided that such substances were pre-registered by potential registrants within the time period starting on June 1st 2008 and ending on December 1st 2008. Entities that have pre-registered their phase-in substances are entitled to the extended time for registration (2010–2018), and the exact timing of registration and scope of information provided will depend on the tonnage of the substance and the risk to the environment or human health.

Under the REACH Regulation, no unregistered substance may be introduced to the EU market. Financial sanctions will be imposed on any manufacturer or importer of any unregistered substance.

Table 35 Acts of law with potential impact on the use by the Issuer of its property, plant and equipment

The Environmental Protection Law The Environmental Protection Law of April 27th 2001 (Dz.U. No. 62, item 627); consolidated text of January 23rd 2008 (Dz.U. No. 25, item 150, as amended)

The Waste Act The Waste Act of April 27th 2001 (Dz.U. No. 62, item 628), consolidated text of February 1st 2007 (Dz.U. No. 39, item 251, as amended)

The Water Law The Water Law of July 18th 2001 (Dz.U. No. 115, item 1229); consolidated text of November 18th 2005 (Dz.U. No. 239, item 2019, as amended)

The Act on the Prevention and Remedying The Act on the Prevention and Remedying of Environmental

122 of Environmental Damage Damage of April 13th 2007 (Dz.U. No. 75, item 493, as amended)

The Environmental Information Act The Act on Access to Information on the Environment and Its Protection, Public Participation of the Public in Environmental Protection and on Environmental Impact Assessments of October 3rd 2008 (Dz.U. No. 199, item 1227, as amended)

The Emissions Trading Act Act on Trading in Allowances for Emissions into the Air of Greenhouse Gases and Other Substances of December 22nd 2004 (Dz.U. No. 281, item 2784, as amended)

The REACH Regulation Regulation (EC) No 1907/2006 of the European Parliament and of the Council of December 18th 2006 concerning the registration, evaluation, authorisation and restriction of chemicals (REACH), establishing a European Chemicals Agency, amending Directive 1999/45/EC and repealing Council Regulation (EEC) No 793/93 and Commission Regulation (EC) No 1488/94 as well as Council Directive 76/769/EEC and Commission Directives 91/155/EEC, 93/67/EEC, 93/105/EC and 2000/21/EC (OJ L 396 of December 30th 2006 and Corrigendum in OJ L 136 of May 29th 2007)

ETS The Community greenhouse gas emission allowance trading scheme

ETS Directive Directive 2003/87/EC of the European Parliament and of the Council of October 13th 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC (OJ L 275/32 of October 25th 2003, as amended)

National Allocation Plan II National Allocation Plan for CO2 allowances for the trading period 2008–2012 (Dz.U. of 2008 No. 202, item 1240)

Source: the Issuer.

8.2.2 The Issuer’s Business in the Context of Environmental Protection Requirements

Environmental Protection

The business activities conducted by the Issuer and its subsidiaries may have a substantial impact on the natural environment. The installations, units and equipment used by the individual companies are, in particular, the sources of gas and dust emissions into the air. In the course of their business activities the companies produce

123 waste, use water and discharge wastewater. In the Issuer‟s opinion, the business activities of the Issuer and its subsidiaries conducted within the Issuer‟s Group comply with the applicable environmental protection laws, including the terms and conditions of any environmental permits granted to the companies, assuming reasonable use of natural resources.

Environmental Permits

The Issuer and its subsidiaries have obtained environmental permits to conduct their production and operational activities. The Issuer holds an integrated permit relating to the installations of its combined heat and power plant and oil refinery. Following the amendments to the terms and conditions of the integrated permit made on June 22nd 2009, the permit currently covers the environmental conditions for conducting business activity with use of installations and equipment after completion of all investment projects related to the expansion and upgrade of the Issuer‟s installations in connection with the 10+ Programme at the Gdańsk refinery. The Issuer also holds sectoral permits for abstraction of underground and surface water from the Motława river as well as sectoral permits relating to the environmental impact of the fuel depots located in Jasło, Czechowice-Dziedzice, Poznań, Rypin and Piotrków Trybunalski.

LOTOS Asfalt holds two integrated permits relating to its production operations in Gdańsk and Jasło. The company also holds the required permits to discharge substances particularly harmful to the water environment to a third- party sewerage system. Other companies, i.e. LOTOS Czechowice, LOTOS Jasło, LOTOS Parafiny, LOTOS Petrobaltic, LOTOS Oil and LOTOS Paliwa, hold sectoral permits relating to the production and management of waste as well as water and wastewater management. LOTOS Paliwa is in the process of obtaining wastewater discharge decisions for a few service stations.

All the permits remain valid. The companies monitor on an on going basis the compliance of their activities with the terms and conditions of the permits and, if there is a need to amend the relevant terms and conditions or obtain a new permit, apply for such amendment or for a new permit in a timely manner.

Use of the Natural Environment

At the premises of the Issuer or its subsidiaries, there are sources of organised and unorganised emissions into the air. The Issuer gradually reduces the amount of pollutants emitted. Over the last three years, the Issuer reduced the amount of sulphur dioxide, nitrogen dioxide, carbon dioxide and dust (sulphur dioxide emissions were reduced from 4,808 thousand tonnes in 2007 to 4,170 thousand tonnes in 2009; nitrogen dioxide emissions – from 1,583 thousand tonnes in 2007 to 1,132 thousand tonnes in 2009; carbon dioxide emissions – from 1,153 thousand tonnes in 2007 to 1,121 thousand tonnes in 2009; and dust emissions – from 282 thousand tonnes in 2007 to 220 thousand tonnes in 2009).

The terms and conditions for the discharge of dust and gases into the air from emission sources situated at the premises of the companies‟ plants are specified by the relevant permits and the applicable laws. Neither the Issuer nor its subsidiaries emit pollutant amounts exceeding the applicable norms. The instances of slightly exceeded limits of air emissions from the installations of LOTOS Asfalt, which occurred in the last two years, were of a one- off nature – the penalties charged were cancelled in accordance with the applicable regulations as their amount did not exceed the threshold specified by the applicable regulations.

The Issuer and its subsidiaries use water for sanitary and industrial purposes. The water used by the Issuer is drawn from the Motława river. The Company may also draw deep water. The conditions and parameters for drawing water are specified by the valid permits. The water used by the Issuer‟s subsidiaries is drawn from deep

124 water or surface water intakes or pursuant to water supply agreements concluded substantially only with the Issuer‟s Group companies.

The Issuer‟s sanitary and industrial wastewater, after being treated at the Issuer‟s water treatment plant, is discharged to the Martwa Wisła river in compliance with the terms and conditions of the applicable permit. Treated rainwater and treated drainage water is discharged to the Rozwójka Canal in compliance with the terms and conditions of the relevant permit. The Issuer‟s subsidiaries discharge wastewater to the water environment on the terms and conditions specified in the relevant permits or to third-party sewerage systems, mainly those operated by the Issuer‟s Group companies. Currently, reservoir water produced during LOTOS Petrobaltic‟s production operations is discharged, after treatment, to the sea environment; however, in line with the company‟s investment objectives, LOTOS Petrobaltic will begin pumping reservoir water to the B3 reservoir‟s well starting from the end of 2010.

The Issuer and the Issuer‟s Group companies produce hazardous and non-hazardous waste. All waste produced by the companies is disposed of to third parties which hold licences to conduct business in the area of waste management. Only LOTOS Jasło neutralises some of its waste by depositing it on its own dump of neutral and non-hazardous waste. The Issuer does not have any own waste dumps.

Participation in the Emissions Trading Scheme

The Issuer participates in the European Union CO2 Emissions Trading Scheme. In the current, second trading period covering the years 2008–2012, the Company was granted sufficient amount of allowances to cover its actual CO2 emissions in 2008–2010. However, in the subsequent years, following the upgrade and extension of the installations at the Gdańsk refinery carried out by the Issuer under the 10+ Programme, the CO2 emissions from the Issuer‟s installations will increase compared to the emissions used to calculate the current allowances. In light of the analyses performed by the Issuer, the upgrade and changes in the operation of the installations of its combined heat and power plant and refinery may increase the Issuer‟s requirement by approx. 1,500 thousand allowances in each trading year of the scheme. The Issuer applied for the allocation of additional allowances for the subsequent years of the 2008-2012 trading period. The proceedings are pending. As at the Prospectus date, no decision on this matter has been issued.

Registration of Substances under the REACH Regulation

The Issuer, LOTOS Asfalt and LOTOS Parafiny market chemical substances which are subject to the registration requirement under the REACH Regulation. The companies have obtained a pre-registration for their substances and prepare the documentation required for the proper registration in line with the deadlines specified by the REACH Regulation.

Environmental Charges

The Issuer and its subsidiaries calculate and remit environmental charges. In the case of the Issuer, the annual charges are estimated at PLN 2,000,000. For the other companies, the annual charges range from several to several dozen thousand złoty company.

Liability for Violation of Environmental Protection Laws

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Inspections carried out at the premises of the Issuer and the Issuer‟s Group companies by environmental protection authorities did not identify any significant violations of the environmental protection laws. Minor irregularities found during the inspections were corrected on an on going basis. In the last two years, neither the Issuer nor its [subsidiaries] incurred any penalties for the breach of the terms and conditions of their environmental permits.

To the Issuer‟s best knowledge, no contamination of land surface or ground water which would require the implementation of any reclamation or remedial measures occurred at the premises to which the Issuer holds legal title. There were also no uncontrolled leakages from the Port-Refinery despatch pipeline in the last two years. The remedial measures undertaken by the Issuer in the previous years, relating to the contamination of land and water caused by pipeline failures, were carried out in accordance with the arrangements made with the competent environmental protection authorities. The damage caused by uncontrolled leakages of substances to the environment was repaired. In the case of other Group companies, only LOTOS Jasło has confirmed data concerning contamination of land surface at its plant‟s premises. The results of the 2007 environmental survey showed concentrations of substances harmful to the environment at the company‟s premises, which exceeded the applicable norms. LOTOS Jasło prepared the timetable of remedial measures for the years 2008–2013 and took steps to remove the contamination. According to the analyses performed by the company, the estimated cost of remedial measures ranges from PLN 900,000 to PLN 1,200,000.

No civil or criminal proceedings relating to the violation of the norms of the environmental protection law were instigated in the last two years or is pending against the Issuer or any of the Issuer‟s Group companies.

Pro-Environmental Investment Projects

In 2008, the Issuer‟s expenditure on pro-environmental investment projects amounted to approx. PLN 224,723 thousand. The Issuer completed a project enabling anti-theft and environmental monitoring of the Port-Refinery pipeline, and continued projects designed to construct diesel desulphurisation units, and to expand and upgrade a wastewater treatment plant. The Issuer also commenced the process of introducing a computer-based system for visualising and optimising energy consumption.

In 2009, the Issuer‟s outlays on environmental projects amounted to approximately PLN 138,818 thousand. The construction of a diesel desulphurisation unit and the implementation of the computer-based system for visualising and optimising energy consumption were completed. The Issuer also continued the process of replacing the existing burners on the 2700K2/K3 boilers with low-emission ones, and the process of air-tight sealing of the wastewater treatment plant‟s tanks.

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9 Operational and Financial Review

9.1 Financial Standing in the Period Covered by the Historical Financial Information

The assessment of the financial standing of the LOTOS Group was performed based on the audited annual consolidated financial statements for the 12 months ended December 31st 2007, December 31st 2008 and December 31st 2009, prepared in accordance with the IFRS, and the unaudited quarterly financial statements for the third quarter of 2010 (together with comparative data).

Table 36 Consolidated statement of comprehensive income (PLNm)

LOTOS Group 2007 2008 2009 Sales revenue 13,125.1 16,294.7 14,321.1 Cost of sales (11,368.6) (15,315.0) (12,775.8) Gross profit 1,756.5 979.7 1,545.3 Impairment losses on goodwill (21.5) (12.6) 0.0 Selling costs (697.5) (737.3) (726.4) General and administrative expenses (313.5 (316.8) (332.7) Other operating income 1.9 29.8 74.3 Other operating expenses (92.2) (88.6) (140.7) Operating profit/(loss) 713.7 (145.8) 419.8 Finance income 307.3 802 954.9 Finance expenses (38.7) (464.6) (303.9) Interest in investments in associated undertakings 22.2 26.5 8 Loss of control over subsidiary 0 0.0 30.6 Pre-tax profit/(loss) 1,004.5 (503.7) 1,109.6 Income tax (190.4) 114.3 (197.8) Net profit/(loss) from continuing operations 814.1 (389.4) 911.8 - attributable to owners of the parent 777.2 (453.5) 900.8 - attributable to non-controlling interests 36.9 64.1 11.0

Exchange differences on translating foreign operations and (3.9) 26.8 16 other comprehensive income

Total comprehensive income 810.2 (362.6) 928.7 - attributable to owners of the parent 773.3 (426.7) 908.1

- attributable to non-controlling interests 36 64.1 20.6

Source: the Issuer; the above data includes retrospective presentation adjustments introduced in 2009 and 2010 to ensure comparability of financial information.

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Sales revenue of the LOTOS Group was driven mainly by the volume and structure of sales, prices of products on world markets, and the exchange rate of the US dollar. The volume of sales of petroleum products and goods in the LOTOS Group in 2007–2009 is presented in the table below.

Table 37 Consolidated sales of products (thousand tonnes)

LOTOS Group 2007 2008 2009

Gasolines 1,377 1,339 1,312

Reformate 98 151 112

Diesel oil 2,555 3,023 3,746

Bunker fuel 270 236 63

Light fuel oil 351 339 330

Aviation fuel 441 492 365

LPG 187 189 144

Heavy fuel oils 626 653 430

Bitumens 899 840 799

Other refined products and goods 306 287 298

Total 7,110 7,549 7,599 Source: the Issuer:

The volume of sales grew slightly over the years under review. The year-on-year growth rate was 6.2% in 2008 and 0.7% in 2009. In total, the sales volume rose by 6.9% in the period. There was a substantial change in the structure of sales in favour of middle-distillate fractions. The sales volume of diesel oils grew visibly: in 2008 it increased by 468,000 tonnes (+18.3% year-on-year), and in 2009 by further 723,000 tonnes (+23.9% year-to- year). The total increase in sales of diesel oils in the period was 46.6%. The share of diesel oils in the total sales volume expanded from 35.9% in 2007 to 49.3% in 2009. The largest decrease was seen in the case of heavy fuel oil and bitumens, bunker fuel, aviation fuel and gasolines.

Table 38 Structure of consolidated sales (%)

LOTOS Group 2007 2008 2009 Gasolines 19.4% 17.7% 17.3% Reformate 1.4% 2.0% 1.5% Diesel oil 35.9% 40.01% 49.3% Bunker fuel 3.8% 3.1% 0.8% Light fuel oil 4.9% 4.5% 4.3% Aviation fuel 6.2% 6.5% 4.8% LPG 2.6% 2.5% 1.9% Heavy fuel oils 8.8% 8.7% 5.7% Bitumens 12.7% 11.1% 10.5% Other refined products and goods 4.3% 3.8% 3.9%

Total 100.0% 100.0% 100.0%

Source: the Issuer.

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Average market prices of key refined products in 2007–2009 are presented below. 2008 saw a strong growth in prices as compared with 2007. Average prices in 2009 were lower than in 2007 and 2008.

Table 39 Prices of key refined products (USD/tonne)

2007 2008 2009 Gasolines 708.94 852.13 590.61 Diesel oil 675.81 955.55 542.64 Light fuel oil 642.07 929.27 524.11 Aviation fuel 711.62 1.006.06 567.04 Heavy fuel oil 338.99 459.88 345.70 Source: the Issuer.

The average annual USD exchange rate, which stood at PLN 2.77/USD 1 in 2007, decreased by 13.0% in 2008 to PLN 2.41/USD 1, to climb up to PLN 3.12/USD 1 in 2009, that is by 12.6% over the 2007 figure.

Driven by the aforementioned factors, that is changes in the sales volume and structure, prices of refining products, and exchange rates, the average selling price at the LOTOS Group in 2007–2009 was as follows: PLN 1,846 per tonne in 2007, PLN 2,159/tonne in 2008 and PLN 1,885 per tonne in 2009.

Despite the unfavourable macroeconomic developments related to the low refining margin, low Brent/Ural differential, and a scheduled overhaul shutdown, in 2009 the LOTOS Group reported an operating profit of PLN 419.8m, up by PLN 565.6m compared with 2008 and down by PLN 293.9m compared with 2007. The table below presents average refining margin, crack margins on key refined products and Brent/Ural differential in 2007–2009.

Table 40 Margins on key refined products

2007 2008 2009 Refining margin [USD/bbl] 5.80 7.18 2.94 Crack margin on gasoline [USD/tonne] 158.92 113.15 122.04 Crack margin on diesel oil [USD/tonne] 125.79 216.57 74.07 Crack margin on light fuel oil [USD/tonne] 92.05 190.29 55.54 Crack margin on aviation fuel [USD/tonne] 161.60 267.08 98.47 Crack margin on heavy fuel oil [USD/tonne] -211.03 -279.10 -122.87 Brent/Ural differential [USD/bbl] 3.23 2.43 0.52 Source: the Issuer.

In 2009, the LOTOS Group recorded net finance income of PLN 651.0m, which means an improvement of PLN 1,035.4m on net finance expenses recorded in 2008 and of PLN 382.4m on net finance income in 2007. The 2009 level of net finance income is primarily attributable to foreign exchange gains of PLN 634.7m, generated mainly by revaluation of foreign-currency loans and borrowings.

In 2009, the LOTOS Group‟s net profit from continuing operations amounted to PLN 911.8m, while net profit attributable to owners of the parent reached PLN 900.8m, compared with the net losses of PLN 389.4m and PLN 453.5m, respectively, recorded in 2008 and net profits of PLN 814.1m and PLN 777.2m, respectively, in 2007.

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Table 41 Consolidated statement of financial position

LOTOS Group Dec 31 2007 Dec 31 2008 Dec 31 2009 Assets 9.720,4 12.187,6 15.062,5 Non-current assets 4.508,1 7.102,3 9.930,9 Current assets, including: 5.208,0 5.076,7 5.126,4 Inventories 2.589,3 2.447,2 3.023,1 Receivables 1.542,5 1.564,9 1.668,2 Cash and cash equivalents 925,0 712,8 362,1 Assets held for sale 4,3 8,6 5,2 Total equity and liabilities 9.720,4 12.187,6 15.062,5 Share capital 113,7 113,7 129,9 Statutory reserve funds 971,0 971,0 1.311,3 Retained earnings 4.739,0 4.297,8 5.221,5 Translation of foreign operations -7,5 7,0 14,3 Equity attributable to owners of the parent 5.816,2 5.389,5 6.677,0 Equity attributable to non-controlling interests 334,7 396,1 36,8 Total equity 6.150,9 5.785,6 6.713,8 Total liabilities, including: 3.569,5 6.402,0 8.348,7 Non-current loans and borrowings 842,9 3.412,2 4.942,6 Current loans and borrowings 517,2 507,4 758,5

Debt and capital employed Financial debt 1.360,1 3.919,6 5.701,1 Net debt 435,1 3.206,8 5.339,0 Capital employed 6.586,0 8.992,4 12.052,8 Average capital employed 5.859,9 7.789,2 10.522,6

Source: the Issuer.

As at December 31st 2009, the LOTOS Group‟s total assets stood at PLN 15,226.0m, and were higher by PLN 2,906.1m (23.6%) than as at December 31st 2008 and by PLN 5,342.2m (54.1%) than as at December 31st 2007.

Non-current assets grew by PLN 2,563.0m (or 54.9%) in 2008 and by another PLN 2,859.8m (or 39.5%) in 2009, mainly owing to the increase in the Parent Company‟s assets connected with the 10+ Programme, purchase of interests in production licences covering the YME field in the North Sea and the related development expenditure, as well as first-time consolidation of Energobaltic Sp. z o.o.

Over 2008, equity decreased by PLN 365.3m, primarily owing to lower retained earnings. As at December 31st 2009, equity stood at PLN 6,846.2m, up by PLN 928.2m (or 15.7%) on the respective figure as at December 31st 2008, which is mainly attributable to an increase of PLN 923.7m in retained earnings, increase of PLN 340.4m in statutory reserve funds, and increase of PLN 16.2m in the share capital, following the share capital increase at Grupa LOTOS S.A.

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The LOTOS Group‟s liabilities increased by PLN 2,801.4m over 2008 and by PLN 1,977.9m over 2009, primarily as a result of growth in financial debt contracted mainly to finance the execution of the 10+ Programme and maintenance of mandatory stocks.

Table 42 Consolidated statement of cash flows

LOTOS Group 2007 2008 2009 Net cash provided by/(used in) operating activities 157.8 311.7 694.5 Net profit/(loss) from continuing operations 814.1 -389.4 911.8 Depreciation and amortisation 306.2 315.0 284.8 Net interest and dividend paid 0.9 13.0 36.9 Other -76.3 140.2 -419.5

Changes in items of capital employed -887.1 232.9 -119.5 Change in receivables (- increase) -252.7 164.9 -187.5 Change in inventories (- increase) -883.2 141.7 -575.8 Change in liabilities and accruals and deferred income (- decrease) 253.1 -109.2 692.7 Change in provisions (- decrease) -4.3 35.5 -48.9

Net cash provided by/(used in) investing activities -816.4 -2.417.1 -3.339.7 Net cash provided by/(used in) financing activities 513.1 1.963.1 2.155.8

Change in net cash -147.1 -138.8 -487.0 Cash and cash equivalents at end of period 477.1 338.4 -148.6

Source: the Issuer; the above data includes retrospective presentation adjustments introduced in 2009 to ensure comparability of financial information.

As at December 31st 2009, the LOTOS Group‟s cash balance (including debt under overdraft facilities) was negative, at PLN -148.6m, down by PLN 487.0m relative to December 31st 2008 and by PLN 625.7m relative to December 31st 2007.

In 2007–2009, the LOTOS Group reported net cash provided by operating activities of PLN 157.8m in 2007, PLN 311.7m in 2008 and PLN 694.5m in 2009, which means an increase of PLN 536.7m between December 31st 2007 and December 31st 2009.

In 2007–2009, the LOTOS Group reported net cash used in investing activities, which was mostly attributable to the purchase of property, plant and equipment and intangible assets, as well as prepayments for assets under construction.

The year-on-year increase in net cash provided by financing activities over the period was principally driven by higher loans and borrowings. Proceeds from loans and borrowings less repayments and interest stood at PLN 535.0m in 2007, PLN 2,204.8m in 2008 and PLN 1,942.0m in 2009. The high amount of the LOTOS Group‟s net cash provided by financing activities in 2009 also includes a gain on settlement of derivatives in the amount of PLN 216.0m.

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Table 43 Synthetic assessment of the LOTOS Group’s overall financial and economic standing in 2007– 2009

Indicator 2007 2008 2009 Operating profit/(loss) (PLNm) 713.7 -145.8 419.8 Operating margin 5.44% -0.89% 2.93% Net profit/(loss) (PLNm) 814.1 -389.4 911.8 Net margin 6.20% -2.39% 6.37% Return on equity (ROE) 12.96% -6.58% 13.32% Return on assets (ROA) 8.24% -3.16% 5.99% Current ratio 2.21 2.01 1.89 Quick ratio 1.11 1.04 0.77 Average collection period (days) 35.95 29.35 34.11 Average payment period (days) 29.63 23.82 25.51 Capital employed (PLNm) 2,854 2,551 2,407 Capital employed to total assets 28.88% 20.70% 15.81% Debt ratio 36.43% 51.96% 55.04% Debt to equity ratio 57.30% 108.18% 122.40% Source: the Issuer.

An analysis of the above figures and ratios shows that the following changes occurred in 2007–2009:

 A significant decrease in profitability ratios in 2008 due to operating loss and net loss recorded in 2008; the ratios increased in 2009, driven by operating profit and net profit of 2009;

 a deterioration of the current ratio (down by 9.0% between 2007 and 2008 and down by 6.0% between 2008 and 2009) in connection with the fact that current liabilities were growing faster than current assets;

 a significant deterioration of the quick ratio (down by 26.0%) in 2009, in connection with the 23.5% increase in inventories as at the end of 2009, due to higher prices of crude oil and petroleum products at the end of 2009 relative to the end of 2008, higher volumes of mandatory stocks and a reversal by Grupa LOTOS S.A. of an impairment loss on inventories recognised in 2008;

 a decrease in the efficiency ratios in 2008:

- collection period shortened by 6.6 days due to a low (1.4%) increase in average trade receivables with a concurrent high (24.1%) increase in sales revenue,

- payment period shortened to 5.8 days due to average trade payables (up by 8.3%) growing slower than cost of sales (up by 34.7%);

 an increase in the efficiency ratios in 2009:

- collection period lengthened by 4.8 days due to a 2.1% increase in average trade receivables with a concurrent 12.1% decrease in sales revenue,

- average payment period lengthened by 1.7 days due to average trade payables (down by 10.7%) falling slower than cost of sales (down by 16.6%);

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 a decrease in capital employed, by 10.6% in 2008 and by 5.6% in 2009, in connection with a growth of current liabilities (by PLN 172.1m in 2008 and PLN 193.1m in 2009), combined with a fall in current assets by PLN 131.3m in 2008 and their slight (PLN 49.7m) increase in 2009;

 a decline of the share of capital employed in the total assets over the consecutive years of the period;

 higher debt ratios: the debt ratio rose by 15.5 percentage points in 2008 and 3.1 percentage points in 2009, while the debt to equity ratio grew by 50.9 percentage points in 2008 and 14.2 percentage points in 2009, mainly in connection with the fact that the Group‟s debt under bank loans increased by 188.2% in 2008 and 45.5% in 2009.

Table 44 Consolidated statement of comprehensive income (PLNm) –data for the first nine months

LOTOS Group Nine months Nine months ended Sep 30 ended Sep 30 2009 2010 Sales revenue 10,296.5 13,941.5 Cost of sales (9,163.2) (12,455.7) Gross profit 1,133.3 1,485.8 Selling costs (521.1) (630.3) General and administrative expenses (226.3) (277.4) Other operating income 27.6 29.8 Other operating expenses (58.5) (68.6) Operating profit/(loss) 355.0 539.3 Finance income 641.9 202.8 Finance expenses (156.2) (265.2) Pre-tax profit/(loss) 30.8 Corporate income tax 871.5 476.9 Net profit/(loss) from continuing operations (188.8) (47.0) - attributable to owners of the parent 682.7 429.9 - attributable to non-controlling interests 673.5 427.9 Total comprehensive income 9.2 2.0 - attributable to owners of the parent 704.0 431.2 - attributable to non-controlling interests 694.7 429.2 Source: the Issuer; the above data includes retrospective presentation adjustments introduced in 2010 to ensure comparability of financial information.

The LOTOS Group‟s sales revenue in the period January–September 2010 was higher by 35.4% than in the corresponding period of 2009, mainly due to increased prices of petroleum products on the global markets and 14.0% larger sales volumes.

Average prices of key refined products are presented below.

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Table 45 Prices of key refined products (USD/tonne) – data for the first nine months of 2009 and 2010

First nine First nine

months of 2009 months of 2010 Gasolines 558.55 727.11 Diesel oil 512.73 673.63 Light fuel oil 492.99 655.89 Aviation fuel 533.70 702.36 Heavy fuel oil 316.13 434.12 Source: the Issuer.

The LOTOS Group‟s sales volume in the period January–September 2010 amounted to 6,301.6 thousand tonnes, and was higher by 774.5 thousand tonnes (or 14.0%) compared with the corresponding period of 2009. The increase was mostly due to growth in sales volumes of heavy fuel oils (up by 378.8 thousand tonnes), diesel oils (up by 309.4 thousand tonnes), and gasolines (up by 149.1 thousand tonnes), which were partially offset by a drop in sales volume recorded primarily for JET A-1 aviation fuel (down by 99.4 thousand tonnes).

Table 46 Consolidated sales (thousand tonnes) – data for the first nine months of 2009 and 2010

LOTOS Group First nine months of First nine months of

2009 2010 Gasoline 971,1 1,120,2 Diesel oil 2,676,4 2,985,8 JET aviation fuel 303,7 204,3 Light fuel oil 223,9 235,3 Heavy fuel oil 302,4 681,2 Bitumens 586,6 614,3 Other petroleum products 463,0 460,5 Total 5,527,1 6,301,6 Source: the Issuer

In the first nine months of 2010, operating profit rose year on year, driven mainly by a higher volume of sales of products and goods for resale. One of the reasons behind the growth in the volume of sales of products and goods for resale was a 50.4% increase in the volume of crude oil processed by the Gdańsk refinery. The rise in oil throughput in the current reporting period was a result of the operation of the CDU/VDU unit, built as part of the 10+ Programme. Moreover, the throughput in the corresponding period of 2009 was below average due to the 33- day overhaul shutdown at the Gdańsk refinery at the end of Q1 and at the beginning of Q2 2009.

Changes in crack margins on individual refined products, notably a significant rise in the margin on gasoline in Q1 2010 and a rise in the margin on intermediate fractions of oil in Q2 and Q3 2010 compared with the corresponding periods of the previous year, had a positive effect on the operating result for the period January–September 2010. Another factor which contributed to the increase in the operating result for the first three quarters of 2010 relative to the first three quarters of 2009 was the average Brent/Ural differential, which in the analysed period of 2010 amounted to 1.22 USD/bbl, up by 0.63 USD/bbl year on year.

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As a result of significant fluctuations in exchange rates, currency exchange differences (PLN -266.0m) had a negative effect on the operating result of the LOTOS Group for the period January–September 2010. Currency exchange differences from operating activities are connected mainly with the crude oil payments cycle.

The average refining margin, crack margins on key refined products and Brent/Ural differential in the analysed periods are presented below:

Table 47 Margins on key refined products – data for the first nine months of 2009 and 2010

First nine months of First nine months of 2009 2010 Refining margin [USD/bbl] 3.62 3.07 Crack margin on gasoline [USD/tonne] 123.06 141.02 Crack margin on diesel oil [USD/tonne] 77.24 87.54 Crack margin on light fuel oil [USD/tonne] 57.51 69.80 Crack margin on aviation fuel [USD/tonne] 98.21 116.27 Crack margin on heavy fuel oil [USD/tonne] -119.36 -151.98 Brent/Ural differential [USD/bbl] 0.59 1.22 Source: the Issuer.

The Group reported net finance expenses for the period January–September 2010, amounting to PLN -62.4m, of which PLN -203.0m was attributable to negative valuation and settlement of market risk hedging transactions, and the amount of PLN 185.8m represented foreign exchange gains. In the corresponding period of 2009, the Group reported net finance income of PLN 485.7m.

The LOTOS Group recorded net profit from continuing operations for the nine months ended September 30th 2010, in the amount of PLN 429.9m, compared with net profit from continuing operations of PLN 682.7m reported for the first three quarters of 2009. Net profit attributable to owners of the parent reached PLN 427.9m.

Table 48 Consolidated statement of financial position (PLNm) – data as at September 30th 2010

LOTOS Group Dec 31 2009 Sep 30 2010 Assets 15,226.0 17,027.7 Non-current assets 10,094.4 10,738.2 Current assets, including: 5,126.4 6,283.9 Inventories 3,023.1 3,850.5 Receivables 1,668.2 1,935.0 Cash and cash equivalents 362.1 428.1 Assets held for sale 5.2 5.6 Equity and liabilities 15,226.0 17,027.7 Share capital 129.9 129.9 Statutory reserve funds 1,311.3 1,311.3 Retained earnings 5,353.9 5,794.7 Translation of foreign operations 14.3 15.6 Equity attributable to owners of the parent 6,809.4 7,251.5

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LOTOS Group Dec 31 2009 Sep 30 2010 Non-controlling interests 36.8 14.6 Total equity 6,846.2 7,266.1 Liabilities, including: 8,379.8 9,761.6 Non-current loans and borrowings 4,942.6 5,536.6 Current loans and borrowings 758.5 659.3 Source: the Issuer; the above data includes retrospective presentation adjustments introduced in 2009 and 2010 to ensure comparability of financial information.

As at September 30th 2010, the LOTOS Group‟s total assets stood at PLN 17,027.7m, having grown in the first nine months of 2010 by PLN 1,801.7m. Non-current assets increased in the first three quarters of 2010 by PLN 643.8m, mainly on the back of a PLN 651.2m increase in property, plant and equipment (including tangible assets under construction and prepayments for tangible assets under construction), connected primarily with the 10+ Programme implemented at the Parent Company, as well as capital expenditure in the upstream segment.

Inventories rose during the first three quarters of 2010 by PLN 827.4m and amounted to PLN 3,850.5m as at September 30th 2010. The rise was due to an increase in the volumes of mandatory stocks of the Parent Company (by 199.1 thousand cubic metres in the case of fuels and heavy fuel oil, and by 48.6 thousand tones in the case of crude oil), as well as a rise in the prices of crude oil and petroleum products as at the end of Q3 2010 relative to the prices as at the end of 2009. Higher prices of products and higher sales volumes also resulted in a PLN 316.4m increase in trade receivables. As at the end of Q3 2010, current assets stood at PLN 6,283.9 m, having grown by PLN 1,157.5m relative to the end of 2009.

Equity stood at PLN 7,266.1m as at September 30th 2010, having grown by PLN 419.9m in the first nine months of 2010, primarily on the back of higher retained earnings and a decrease of non-controlling interests in connection with Grupa LOTOS‟ acquisition of the residual minority interests in LOTOS Jasło S.A. and LOTOS Czechowice S.A.

The LOTOS Group‟s non-current liabilities increased in the first nine months of 2010 by PLN 530.7m, owing primarily to the PLN 594.0m rise in non-current loans and borrowings, connected chiefly with the execution of the 10+ Programme. In the first three quarters of 2010 the Parent Company‟s debt under non-current foreign currency loans grew by USD 181.2m. As at September 30th 2010, non-current liabilities of the LOTOS Group amounted to PLN 6,191.5m, including interest bearing loans and borrowings in the amount of PLN 5,536.6m and negative valuation of financial instruments of PLN 134.3m.

Current liabilities grew in the first nine months of 2010 by PLN 851.1m and as at the end of September 2010 stood at PLN 3,570.1m. It was mainly the effect of a PLN 781.3m increase in trade payables, accruals and deferred income, and other liabilities, driven in the first place by a 58.1% higher volume and a 67.5% higher value of oil purchased in September 2010 compared with purchases made in December 2009. In the analysed period, other current financial liabilities grew by PLN 137.7m and as at the end of September 2010 totalled PLN 156.8m and were almost exclusively attributable to negative valuation of financial instruments. In the first nine months of 2010 the LOTOS Group‟s current debt decreased by PLN 99.2m.

As at September 30th 2010, the LOTOS Group‟s financial debt stood at PLN 6,196.0m, having grown by PLN 494.9m since the end of 2009. The ratio of financial debt (adjusted for free cash) to equity was 79.4%, i.e. by 1.4 percentage points more than as at December 31st 2009.

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Table 49 Consolidated statement of cash flows (PLNm) – data for the first nine months of 2009 and 2010

LOTOS Group Nine months Nine months ended Sep 30 ended Sep 30 2009 2010 Net cash provided by/(used in) operating activities 655.9 824.7 Net profit/(loss) from continuing operations 682.7 429.9 Depreciation and amortisation 202.4 273.5 Net interest and dividends paid 8.5 39.3 Settlement and valuation of financial instruments (28.4) 202.9 Other (222.4) 105.1 Changes in capital employed 13.1 (226.0) Change in receivables (- increase) (367.1) (316.0) Change in inventories (- increase) (461.0) (827.4) Change in liabilities and accruals and deferred income (- 836.8 911.0 decrease) Change in provisions (- decrease) 4.4 6.4 Net cash provided by/(used in) investing activities (2,806.9) (912.8) Net cash provided by/(used in) financing activities 1,829.4 472.6 Change in net cash (321.9) 376.8 Cash and cash equivalents at end of period 16.5 228.2 Source: the Issuer

As at the end of September 2010, the LOTOS Group‟s cash balance (including debt under overdraft facilities) was PLN 228,2m, and was by PLN 211,7m higher compared with September 30th 2009.

In the analysed period, net cash provided by operating activities of PLN 824.7m was higher by PLN 168.8m than the net operating cash flow recorded in the comparable period. The increase is mainly attributable to adjustments relating to a negative balance of settlement and valuation of financial instruments and foreign exchange gains.

The increase (of PLN 1,894.1m) in net cash from investing activities in the discussed period was mainly attributable to lower (by PLN 1,723.0m) expenditure on the acquisition of property, plant and equipment and intangible assets, as well as lower (by PLN 153.1m) prepayments for tangible assets under construction.

The PLN 1,356.8m year-on-year decrease in net cash provided by financing activities in the period January– September 2010 was mainly attributable to lower (by PLN 1,374.7m) cash inflows under contracted loans and borrowings less repayments and interest paid, as well as negative result of settlement of financial instruments.

9.2 Operating Performance

9.2.1 Factors Materially Affecting Operating Results

The key factors affecting operating performance are rooted in macroeconomic developments and relate primarily to the global prices of crude oil and petroleum products, as well as the relative strength of the American dollar.

The average Brent dtd quotation as at the beginning of the discussed period (i.e. January 2nd 2007) was 58.62 USD/bbl. As at September 30th 2010, the Brent dtd price was 80.96 USD/bbl (up by 38.1% over the beginning of 137

2007). The prices of crude oil fluctuated strongly throughout the discussed periods. Starting from early 2007, the Brent dtd price continued on an upward trajectory, to peak at 144.2 USD/bbl on July 3rd 2008. From then on until the end of 2008, the price was tumbling, to bottom out at 33.66 USD/bbl on December 24th 2008. Over 2009, the prices of crude oil kept on rising again. In the first three quarters of 2010, after significant fluctuations they rose by slightly over 2 USD/bbl. With crude prices on the rise throughout 2007, the remeasurement of the LOTOS Group‟s inventories using the weighted average method translated into a PLN 393.3m increase in the 2007 net operating profit. By contrast, the declines in crude prices seen in H2 2008 eroded the 2008 net operating profit by PLN 612.1m. Additionally, the necessity to adjust the inventories of raw materials and products held at the end of 2008 to reflect their real value at current prices reduced the consolidated net operating profit by PLN 200.9m. On the other hand, the upward trend in the prices of feedstock in 2009 added PLN 448.1m to the 2009 net operating profit. At the same time, the reversal in 2009 of the impairment charge for inventories recognised in 2008 led to an increase in the Group‟s 2009 net operating profit. Considerable exchange rate movements in 2010 and changes in the oil prices brought about a PLN 240.8m decrease in the operating result for the first nine months of 2010.

The period under review (spanning the years 2007–2009 and the first nine months of 2010) witnessed strong volatility in the value of the American dollar. The lowest PLN/USD exchange rate of 2.02 PLN/USD was recorded on July 21st 2008, whereas the highest of 3.90 PLN/USD – on February 18th 2009 (both as quoted by the National Bank of Poland). The mid USD exchange rate quoted by the National Bank of Poland for January 2nd 2007 was 2.88 PLN/USD and was lower than the exchange rate as at the end of the discussed period, i.e. September 30th 2010, of 2.93 PLN/USD. As a result of the sharp depreciation of the Polish złoty in H2 2008, the Group reported net foreign exchange losses on operating activities, which took PLN 319.1m off its 2008 net operating profit. Net foreign exchange differences caused by the fluctuations of exchange rates, allocated to operating activities in 2009, were charged to consolidated cost of sales in the amount of PLN 186.9m. Net foreign exchange differences caused by the fluctuations of exchange rates, allocated to operating activities in the period January–September 2010, were charged to consolidated cost of sales in the amount of PLN 266.0m.

9.2.2 Reasons for Material Changes in Net Sales and Net Sales Revenue

The value of the LOTOS Group‟s sales revenue is a combined result of the volume and structure of sales, the prices of products on global markets and the conditions prevailing on the FX market, especially the USD/PLN exchange rate. As these factors are largely unconnected, their effects may either reinforce or offset one another.

In 2007–2009, the volume of sales was rising gradually, albeit not spectacularly – in 2009, it rose over the corresponding figure for 2007 by less than 7%. A much more crucial factor driving changes in the sales revenue was a shift in the structure of total sales towards a greater share of diesel oils, at the expense of heavy fuel oils, bunker fuel and bitumens. In the first nine months of 2010, the LOTOS Group reported a 14% growth in sales volumes compared with the corresponding period of 2009, which was mainly attributable to the launch of some of the new units constructed under the 10+ Programme (in 2010) and an overhaul shutdown in the first half of 2009.

The prices of key refined products in 2008 were markedly higher than in 2007, but in 2009 they plunged again below the 2007 levels. In 2010, they rose again and approximated the levels seen in 2007. Similarly, in 2008 the annual average PLN/USD exchange rate went up by 13% year on year, but in 2009 the Polish currency sharply depreciated (the dollar gained 29% against the złoty year on year), and ultimately the value of the American currency rose by 13% relative to 2007. In the first nine months of 2010, the average exchange rate of the US dollar fell by 2% relative to 2009 and grew by 10% relative to 2007. A 24% year-on-year increase in sales revenue in 2008 as compared with 2007 was attributable to a rise in the global prices of refined products, higher sales volumes, and a beneficial shift in the structure of sales (towards a greater share of diesel oils). The year 2009

138 brought further improvement in the structure of sales, but the prices of products fell off below the 2007 and 2008 levels. Owing to these reasons, in 2009 the Group‟s sales revenue was down by 12% relative to 2008 and up by 9% relative to 2007. The LOTOS Group‟s sales revenue in the period January–September 2010 improved by 35.4% compared with the corresponding period of 2009, driven by higher prices of petroleum products on global markets and larger sales volumes.

9.2.3 Governmental, Economic, Fiscal, Monetary or Political Policies or Factors that Have Materially Affected, or Could Materially Affect, Directly or Indirectly, the Issuer’s Operations

The operations of the Issuer and its Group have been, or could be, affected by the Polish government‟s policies, especially its strategy for the petroleum industry, as well as its economic, fiscal and monetary policies. Additionally, they have been affected by the directions of EU policies and the corresponding legislation, implemented later into Polish law.

Economic Policy

The economic policy pursued by the government, as well as any revisions of that policy, have a material impact on the level of demand on the domestic market. The operations of the Issuer‟s Group depend on the level of demand on the Polish market, as the main market for its products. The outcome of both ongoing and future economic policy initiatives undertaken by the Polish government may affect the LOTOS Group‟s operations and its financial performance.

Given the logistical advantages resulting from the location of the Group‟s key production assets (Grupa LOTOS‟ Gdańsk refinery), the Group is able to partially offset a possible decline in demand from the domestic market by increasing exports.

Government’s Policy with Regard to Petroleum Industry

The operations of the Issuer and its Group have been affected by the government‟s policies in the area of biofuels and biocomponents, connected with the transposition in Poland of the provisions of Directive 2009/30/EC of the European Parliament and of the Council of April 23rd 2009 allowing the blending of higher levels of biofuel components into standard fuels (B7, E10). The operations of the Issuer and its Group are also likely to be materially affected by the extent to which the provisions of the energy package, and particularly the provisions of Directive 2009/28/EC relating to sustainable development, will be transposed into Polish law.

Another important factor affecting the operations of the Issuer and its Group is the intention to set higher National Indicative Targets (NITs) for the following years, in a situation where there are no legislative solutions in Poland that would make the achievement of such targets possible. This could result in payment of fines for failure to meet a NIT or in such activities which – while leading to the meeting of a NIT – would be economically harmful.

Another area of governmental policies affecting the operations of Grupa LOTOS and its subsidiaries is related to mandatory stocks and the direction in which the relevant regulations will go. The time when mandatory stocks would start to be taken over from market operators by relevant governmental agencies is unknown, as is the speed of the process, which may span up to ten years.

139 they have been affected by the directions of EU policies and the corresponding legislation, implemented later into Polish law.

Fiscal Policy

The operations of the Issuer and its Group have been materially affected by the government‟s fiscal policy. The tax laws (especially those applicable to social security contributions) – in addition to being complicated and opaque – are also subject to frequent, unpredictable changes. Consequently, their application by tax payers and tax authorities gives rise to many controversies and disputes, which usually need to be resolved by administrative courts. Furthermore, there occur discrepancies in the practice of tax authorities and in judicial decisions given by administrative courts with regard to the tax laws

The Issuer and its subsidiaries are suppliers of goods on which excise duty is charged, although some of them are subject to preferential excise duty rates. In order to claim such preferential rates, the Issuer and its subsidiaries have to fulfil a number of formal conditions in respect of each transaction, which has a material effect on their operations.

Monetary Policy

Poland‟s monetary policy has a material bearing on the international perception of Poland, and thus on the exchange rates between the złoty and other currencies. A large part of transactions made in the course of the Issuer‟s operating activities are denominated in foreign currencies, including purchases of crude oil and other commodities, and thus any movements of the exchange rates between the złoty and other currencies may have a material effect on the Issuer‟s operations and financial performance.

As part of its strategic analyses, Grupa LOTOS keeps track of the directions of EU policies. By analysing both draft and adopted directives, it gains an insight into what the legal environment would probably look like many years in advance, long before EU legislative solutions are implemented into Polish law.

Grupa LOTOS has been engaged in cooperation with state authorities responsible for implementing the government‟s strategies for the petroleum industry. In addition, the Company is one of the entities invited to give their opinions on Polish draft and existing laws governing the areas in which it is interested, notably the laws relating to mandatory stocks of oil and fuels, as well as biocomponents and biofuels. Such opinions are drawn up either directly by Grupa LOTOS or by organisations of which it is member.

For a discussion of factors that could affect the operations of the Issuer and its subsidiaries, see also Chapter II of this Prospectus – Risk Factors.

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10 Capital Resources

The operating and financial review of the LOTOS Group was performed on the basis of financial information sourced from: – the audited consolidated financial statements for the 2007 financial year, prepared in accordance with the International Accounting Standards, – the audited consolidated financial statements for the 2008 financial year, prepared in accordance with the International Accounting Standards, – the audited consolidated financial statements for the 2009 financial year, prepared in accordance with the International Accounting Standards, – the semi-annual consolidated financial statements for H1 2010 prepared in accordance with the International Accounting Standards, reviewed by an Auditor.

10.1 Information Concerning Capital Sources

In the period from December 31st 2007 to September 30th 2010, equity attributable to owners of Grupa LOTOS increased, primarily driven by retained earnings and movements in the statutory reserve funds following from the acquisition by Grupa LOTOS of minority stakes in LOTOS Petrobaltic, LOTOS Czechowice and LOTOS Jasło from the State Treasury in 2009.

In connection with the resolution of June 30th 2009 adopted by the Issuer‟s General Shareholders Meeting the Company‟s share capital was increased from PLN 113,700 thousand to PLN 129,873 thousand. The shares issued as part of the share capital increase are to be introduced to public trading on the basis of this Prospectus.

Concurrently, in the period from December 31st 2007 to September 30th 2010, the share of equity attributable to owners of the parent in the LOTOS Group‟s total equity and liabilities decreased from 60.2% as at the end of 2007 to 42.6%. The change was attributable to a rise in loans used to finance the investment projects implemented as part of the 10+ Programme, recognised under non-current liabilities. Non-current liabilities attributable to loans and borrowings grew from PLN 842,943 thousand as at the end of 2007 to PLN 3,412,245 thousand as at the end of 2008, PLN 4,942,590 thousand as at the end of 2009 and PLN 5,536,610 thousand as at September 30th 2010. The gradually rising debt was a result of disbursement of subsequent tranches of a credit facility to finance the 10+ Programme.

The key factor to determine the structure of the LOTOS Group‟s liabilities in the discussed period was the increase in debt connected with the 10+ Programme.

The table below presents the sources of financing of the LOTOS Group‟s assets.

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Table 50 The LOTOS Group’s financing sources as at the end of 2007, 2008, 2009 and as at September 30th 2010

Dec 31 2007 Dec 31 2008 Dec 31 2009 Sep 30 2010

PLN „000 structure PLN „000 structure PLN „000 structure PLN „000 structure

I. Equity attributable to owners of the parent 5,948,618 60.2% 5,521,925 44.8% 6,809,393 44.7% 7,251,508 42.6%

1. Share capital 113,700 1.2% 113,700 0.9% 129,873 0.9% 129,873 0.8% 2. Translation of foreign operations -7,458 -0.1% 7,060 0.1% 14,277 0.1% 15,605 0.1% 3. Statutory reserve funds 970,951 9.8% 970,951 7.9% 1,311,348 8.6% 1,311,348 7.7% 4. Retained earnings 4,871,425 49.3% 4,430,214 36.0% 5,353,895 35.2% 5,794,682 34.0% II. Non-controlling interests 334,691 3.4% 396,078 3.2% 36,752 0.2% 14,582 0.1% III. Non-current liabilities 1,246,704 12.6% 3,876,053 31.5% 5,660,777 37.2% 6,191,538 36.4%

1. Loans and borrowings 842,943 8.5% 3,412,245 27.7% 4,942,590 32.5% 5,536,610 32.5% 2. Non-current provisions 208,594 2.1% 267,903 2.2% 275,057 1.8% 282,866 1.7% 3. Deferred tax liabilities 185,844 1.9% 10,411 0.1% 90,611 0.6% 107,885 0.6% 4. Other financial liabilities 629 0.0% 176,387 1.4% 300,389 2.0% 224,264 1.3% 5. Accruals and deferred income and other liabilities 8,694 0.1% 9,107 0.1% 52,130 0.3% 39,913 0.2% III. Current liabilities 2,353,817 23.8% 2,525,893 20.5% 2,719,030 17.9% 3,570,068 21.0%

1. Trade and other payables 1,737,005 17.6% 1,886,440 15.3% 1,890,654 12.4% 2,671,843 15.7% 2. Current tax payable 20,446 0.2% 8,069 0.1% 11,867 0.1% 14,563 0.1% 3. Loans and borrowings 517,193 5.2% 507,360 4.1% 758,481 5.0% 659,348 3.9% 4. Bonds 0.0% 0.0% 0.0% 30,000 0.2% 5. Current provisions 74,268 0.8% 80,470 0.7% 38,897 0.3% 37,536 0.2% 6. Other financial liabilities 4,905 0.0% 43,554 0.4% 19,131 0.1% 156,778 0.9% Total equity and liabilities 9,883,830 100.0% 12,319,949 100.0% 15,225,952 100.0% 17,027,696 100.0% Source: the Issuer; the above data includes retrospective presentation adjustments introduced in 2009 and 2010 to ensure comparability of financial information.

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10.2 Explanation of the Sources and Amounts of and a Description of Cash Flows

In 2007–2009, the Company reported a negative balance of cash used in operating activities. In 2007 and 2008, net cash used in operating activities was similar and amounted to PLN -147,061 thousand and PLN -138,751 thousand, respectively. In 2009, the Company reported negative net cash flows of PLN -486,988 thousand.

This situation is attributable to the investment projects implemented as part of the 10+ Programme, described in detail in this Prospectus, and related expenditure on purchase of oil processing units (e.g. HDS, CDU/VDU and other units). The changes in cash flows also result from exchange rate fluctuations between the złoty and the major currencies, namely the US dollar and the euro.

In 2008, the Issuer‟s cash position was also adversely affected by a net loss of PLN 389m following from remeasurement of foreign currency-denominated loans contracted at the time of a decline of the złoty against the US dollar.

Table 51 The LOTOS Group’s cash flows in 2007–2009

2007 2008 2009 PLN „000 PLN „000 PLN „000 Cash flows from operating activities 157,830 311,670 694,498 Net profit/loss 814,147 -389,415 911,812 Share in net profit of subordinated undertakings accounted for -22,276 -26,551 -8,227 with the equity method Depreciation and amortisation 306,224 315,012 284,793 Foreign exchange gains/losses 4,091 366,730 -455,858 Settlement of financial instruments -31,632 238,166 -216,047 Change in provisions, inventories, receivables, liabilities and -905,113 188,052 -100,357 prepayments and accrued income Income tax paid 33,344 -422,980 10,505 Other -40,955 42,656 267,877

Cash flows from investing activities -816,440 -2,417,112 -3,339,669

Cash provided by investing activities 250,361 59,825 8,747 Cash used in investing activities -1,050,282 -2,478,535 -3,331,245 Acquisition of non-current assets -368,681 -1,699,582 -3,072,664 Tangible assets under construction -681,601 -778,953 -258,581 Other -16,519 1,598 -17,171

Cash flows from financing activities 513,145 1,963,145 2,155,844

Increase in loans 579,791 2,352,749 2,263,790 Repayment of loans -23,217 -86,449 -195,696 Interest paid -21,603 -61,517 -126,067 Settlement of financial instruments 31,632 -238,166 216,047 Other -53,458 -3,472 -2,230

Effect of exchange rate fluctuations on cash held -1,596 3,546 2,339

Change in net cash -147,061 -138,751 -486,988

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Source: the Issuer; the above data includes retrospective presentation adjustments introduced in 2009 and 2010 to ensure comparability of financial information.

Table 52 The LOTOS Group’s cash flows for the first nine months of 2009 and 2010

Nine Nine months months ended Sep 30 ended Sep 2009 30 2010 PLN „000 PLN „000 Cash flows from operating activities 655,852 824,750 Net profit/loss 682,726 429,857 Depreciation and amortisation 202,369 273,453 Foreign exchange gains/losses (330,540) 99,113 Settlement and valuation of financial instruments (28,406) 202,933 Change in provisions, inventories, receivables, liabilities and prepayments 26,806 (228,267) and accrued income Income tax paid (66,546) (81.421) Other 169,443 129,082 Cash flows from investing activities (2,806,861) (912,795) 4,711 11,614 Cash provided by investing activities

Cash used in investing activities (2,811,572) (924,409) Cash flows from financing activities 1,829,397 472,598 1,920,694 913,904 Increase in loans

Repayment of loans (126,145) (257,109) Interest paid (96,211) (80,331) Settlement of financial instruments 132,732 (120,096) Other (1,673) 16,230 Effect of exchange rate fluctuations on cash held (294) (7,721)

Change in net cash (321,906) 376,832 Source: the Issuer.

10.3 Information on the Borrowing Requirements and Funding Structure

In the period from 2007 to this Prospectus approval date, the proportion of equity to total equity and liabilities of the LOTOS Group was decreasing. As at the end of 2007, it stood to 60.2%, to fall to 44.8% and 44.7% in the subsequent year. As at September 30th 2010 it was 42.6%.

An analysis of the external capital in the period from 2007 to September 30th 2010 shows a change in the proportion of non-current and current liabilities. As at December 31st 2007, the share of non-current liabilities in total equity and liabilities amounted to 12.6%, while the share of current liabilities was 23.8%. Over 2008 the share of non-current liabilities grew to 31.5%, while the share of current liabilities shrank to 20.5%. As at September 30th 2010, the share of non-current liabilities increased to 36.4%, and the share of current liabilities was 21.0%. The change in the financing structure followed from the draw-down of successive loan tranches to finance investment projects under the 10+ Programme.

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In the period from December 31st 2009 to September 30th 2010, the Group recorded an increase in trade payables, whose share in total equity and liabilities went up from 12.4% to 15.7%. The increase was attributable mainly to the 77.4% larger volume and the 111.6% higher value of oil purchased in September 2010 compared to the purchases of oil in December 2009.

As at the Prospectus Date, the LOTOS Group had access to credit facilities allowing it to maintain financial liquidity and finance its investment projects (described in detail in Section 5.2 of the Registration Document). In connection with the 10+ Programme, the Company entered into a credit facility agreement (described in detail in Section 22.2 of the Registration Document) with the repayment schedule spanning the years 2011–2021. As at the Prospectus Date, the Company had not made any firm decisions concerning implementation of new projects that would necessitate increasing the debt level.

10.4 Restrictions on the Use of Capital Resources that Could Affect, Directly or Indirectly, the Issuer’s Operations

As at the Prospectus Date, there were no restrictions on the use of capital resources that could affect the Issuer‟s operations.

10.5 Information Regarding the Anticipated Sources of Funds Required to Fulfil Commitments Referred to in Sections 5.2.3 and 8.1

As at the Prospectus Date, the Company expects that the investment commitments described in Section 5.2.3. and 8.1 of the Registration Document will be financed with internally generated funds and external capital obtained under the credit facility agreements already concluded by the LOTOS Group.

11 Research and Development, Patents and Licences

11.1 R&D and Implementation Work

The Issuer commissions R&D services to specialist research institutes, R&D organisations and higher education institutions, such as Instytut Nafty i Gazu (Oil and Gas Institute) in Kraków, Instytut Paliw i Energii Odnawialnej (Institute for Fuels and Renewable Energy) in Warsaw, Gdańsk University of Technology and Warsaw University of Technology. The table below presents the expenditure on R&D and implementation work carried out by the Issuer in 2007–2009 and until September 30th 2010.

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Table 53 R&D expenditure incurred by the Issuer

PLN „000 Sep 30 2010 2009 2008 2007 Environmental protection 508 670 967 649 Fuels 88 1,170 1,530 3,050 Base oils and lubricants 69 260 300 430 Bitumens and other products 98 516 500 830 Total 763 2,616 3,297 5,608 Source: the Issuer.

The Issuer carried out R&D and implementation work so as to confirm the expected quality and/or determine the possible applications of the products offered by the Issuer and its Group, as well as to ensure compliance with legal regulations in force.

The scope of R&D work carried out in individual areas is as follows:

Environmental Protection Research work was aimed at:  examining soil, atmosphere and underground water environment related to the Company‟s operations;  examining soil, atmosphere and underground water environment;  reducing adverse environmental impact;  ensuring compliance with legal requirements.

Fuels R&D work comprised:  emission tests of diesel oils;  examination of stability and suitability for long-term storage of petroleum products;  microbiological tests of petroleum products;  tests related to light fuel oil markers;  tests related to corrosion of production units;  development of production technology for CITY diesel oil;  composition of a set of additives to light fuel oil;  pilot tests of biofuels;  engine tests of gasolines produced by Grupa LOTOS S.A.;  tests of methyl esters of rapeseed oil as a component of diesel oil;  tests related to development of the production technology for premium (Dynamic) fuels;  development of conditions for conducting life cycle assessments (LCA);  tests of various crude oil types to evaluate suitability for processing,

Base Oils and Lubricants The Issuer produces lubricants and owns lubricant production technology. Research work was conducted principally in the following four areas:  adaptation of existing products or launch of new products compliant with the revised quality standards;  cost optimisation and identification of new raw materials;  adjustment of quality parameters to individual customer needs (various quality specifications in various geographical regions);

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 oil services and research in oil performance qualities with a view to attracting new clients or obtaining special approvals for oils to be used in various industries (including mining industry, railway sector, armed forces, etc.) where special procedures are applied for using lubricants. Research activities were conducted at national research institutes, research laboratories run by a producer of additives, and independent laboratories selected by the authority competent for issuing approvals. In 2007–2009, 188 approvals for new oils were issued or extended for a subsequent period; in H1 2010, 15 approvals were obtained. In 2007–2009, 65 new or modified base oils and lubricants were launched. Bitumens The Issuer carried out a range of R&D activities with respect to application and quality enhancement of bitumens to be used in modern road surface technologies in Poland and other European countries. Furthermore, the Issuer conducted R&D work with a view to obtaining special technical approvals, as well as standardisation work to allow lawful use of its products. The outcome of the research work included:  optimisation of industrial bitumen production;  confirmation of the quality of bitumens modified to comply with the requirements of the new EN 14023 European standard, produced in accordance with the Issuer‟s technology;  tests of the Starczanowo-Podstolice section of national road No. 92 (constructed using high stiffness module bitumen-aggregate mix binder course based on bitumen 20/30 produced in accordance with the Issuer‟s technology);  assessment of performance properties of bitumen concretes containing bitumens 35/50 produced in accordance with the Issuer‟s technology;  development of draft bitumen standards (applicable to modified, paving-grade and industrial bitumens) and bitumen binders as part of the work of the Technical Committee 222 – Bitumen Subcommittee;  preparation of recipes for aggregate-bitumen mixes based on paving-grade bitumens produced using the Issuer‟s technology;  determination of resistance of AC 16 W bitumen concrete, designed to comply with the WT-2 requirements applicable to binder courses based on bitumens produced using the Issuer‟s technology, to permanent deformation in accordance with the PN-EN 12697-22 standard.

Other Products: Oil Plasticizers The Issuer produces oil plasticizers and owns the technology for the production of standard DAE and RAE oil plasticizers and new-generation TDAE and MES oil plasticizers. The conducted research work was aimed at developing new-generation and RAE plasticizers manufacturing technology. Additionally, the purpose of the research activities was to obtain EU-compliant certificates and quality approvals. Slack wax and paraffins The Issuer produces slack wax and owns slack wax production technology. Slack wax supplied by the Issuer includes light, medium and heavy slack wax, medium slack wax low-oil paraffin and medium slack wax paraffin filtrate. In the period under review, the Issuer developed production technologies for medium slack wax low-oil paraffin and medium slack wax paraffin filtrate. In 2007–2009, the Issuer introduced 26 new or modified products in the categories of bitumens and other products.

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11.2 Licences Granted to the LOTOS Group Companies

The obligation to obtain a licence for business activities of specified types is stipulated in the Act on Freedom of Economic Activity dated July 2nd 2004. Pursuant to Art. 46.1 of that Act, a licence is required for conducting business activity comprising: 1) exploration for and appraisal of mineral deposits, extraction of minerals from deposits, non-tank storage of substances and waste matter in rock mass, including in underground worked-out caverns; 2) manufacturing of and trade in explosives, weapons and ammunition, as well as products and technologies designed for military and police purposes; 3) production/generation, processing, storage, transmission, distribution of and trade in fuels and energy; 4) protection of persons and property; 5) broadcasting of radio and television programmes; 6) air transport; 7) management and operation of a casino.

The detailed scope of and conditions governing a licensed business activity are specified under separate acts. A licence is granted, refused, amended, revoked or limited by way of an administrative decision. In a licence, the licensing body may define special conditions for conducting the business activity covered by the licence. The licensing body has the power to, inter alia: carry out inspections relating to the licensed activity, request removal of identified irregularities, withdraw a licence, or change its scope.

Licences Granted under the Energy Law of April 10th 1997

Pursuant to Art. 32 of the Energy Law, a licence is required for conducting business activities comprising: 1) fuel or energy production; 2) storage of gas fuels in storage facilities, liquefying of natural gas and regasification of liquefied natural gas (LNG) in LNG units, as well as storage of liquid fuels, with the exception of: local storage of liquefied gas in facilities with a flow capacity below 1 MJ/s and storage of liquid fuels in retail trade; 3) transmission and distribution of fuels and energy, with the exception of: distribution of gas fuels in a network with a flow capacity below 1 MJ/s and transmission and distribution of heat if the total power contracted by customers does not exceed 5 MW; 4) trade in fuels and energy.

A licence is granted by the President of the Energy Regulatory Office after the applicant fulfils the conditions stipulated in applicable legal regulations. A licence is granted for a definite term, no shorter than 10 years and no longer than 50 years. An energy company may apply for the extension of a licence not later than 18 months before its expiry. An energy company which has been granted a licence makes annual payments to the state budget, charged to the company‟s operating expenses.

Licence Granted under the Act on Protection of Persons and Property of August 22nd 1997

Pursuant to the provisions of the Act on Protection of Persons and Property, commencement of business activity comprising protection of persons and property requires a licence. A licence defines: the scope of activity and forms of service provision, place of business, licence validity term, and geographical area of the activity. The Minister of Internal Affairs and Administration is the body competent for granting and refusing a licence, limiting the scope of

148 activity or forms of services, and withdrawing a licence for business activity comprising protection of persons and property. The Minister issues a decision upon consultation with the relevant Provincial Police Chief.

Licences Granted under the Geology and Mining Law of February 4th 1994

Pursuant to the provisions of the Geology and Mining Law, a licence is required for conducting business activities comprising: exploration for and appraisal of mineral deposits, extraction of minerals from deposits, non-tank storage of substances and waste matter in rock mass, including in underground worked-out caverns. A licence is granted for a definite term, no shorter than 3 years and no longer than 50 years, unless the applicant has applied for a shorter validity period. A licence defines the geographical location of the activity covered by the licence.

The minister competent for environmental matters grants licences for exploration for, appraisal and extraction of key minerals (as defined in the Law) in the territory of the Republic of Poland, including the sea area.

A licence should specify: the type of the licensed activity and the manner in which it is to be conducted; the area within which it is to be conducted, and the validity period. A licence for exploration for and appraisal of mineral deposits should additionally specify: the objective, scope, type and timetable of geological work and required accuracy of geological appraisal. A licence for extraction of minerals should also delimit the mining area and mining land, as well as define the recoverable reserves of the mineral and the minimum level of their exploitation.

It should be noted that the withdrawal or expiry of a licence does not release the licensee from the requirement to fulfil its obligations relating to environmental protection and mine abandonment.

11.2.1 Licences Granted to the Issuer

In connection with its business activity, Grupa LOTOS S.A. of Gdańsk is obliged to obtain licences required under law. The licences stipulate the conditions of conducting the licensed activity and impose specific obligations on the licensee. The conditions refer not only to the licensed activity, but also its discontinuation upon the expiry or withdrawal of the licence.

Table 54 Licences granted to the Issuer

Issue date, number, Licensing No. amendments, if Type Validity term Licensed activity authority any (numbers, issue dates) Oct 10 2006 The licensee‟s business activity No. MPC/159/ comprising storage of: motor President 612/W/1/2006/A gasolines other than aviation From of the LK gasolines, aviation fuels, diesel Storage of liquid Oct 15 2006 1. Energy Amended under: oils, light fuel oils, heavy fuel fuels to Regulatory - Decision No. oils, liquefied gas in tanks Oct 15 2016 Office MPC/159A/612/ adapted to hold such fuel and W/1/2007/ALK located on the premises of the of Mar 12 2007 fuel depot in ul. Elbląska 135,

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Issue date, number, Licensing No. amendments, if Type Validity term Licensed activity authority any (numbers, issue dates) - Decision No. Gdańsk, Poland MPC/159B/612/ W/1/2009/ALK of Apr 20 2009 Sep 5 2001 No. OEE/298/ 612/W/2/2001/ AS Amended under: Business activity comprising President - Decision No. From sale of electricity to customers of the OEE/298A/612/ Trade in Sep 10 2001 located within the limits of the 2. Energy W/1/2003/MS electricity to City of Gdańsk, on the Regulatory of Jun 30 2003 Sep 1 2021 licensee‟s premises and in their Office - Decision No. immediate vicinity OEE/298- ZTO/612/W/OG D/2010/BP of Jul 12 2010 Business activity comprising President Aug 21 2007 transmission and distribution of From of the No. PCC/1131/ Transmission heat over three heat networks Sep 1 2008 3. Energy 612/W/OGD/ and distribution within the limits of the City of to Regulatory 2007/KK of heat Gdańsk, fed from the boiler Sep 1 2018 Office house situated in ul. Elbląska 135, Gdańsk Sep 5 2001 No. PEE/238/ 612/W/2/2001/ AS Business activity comprising Amended under: transmission and distribution of President - Decision No. From electricity to customers located of the PEE/238A/612/ Transmission Sep 10 2001 within the limits of the City of 4. Energy W/1/2003/MS and distribution to Gdańsk, on the licensee‟s Regulatory of Jun 30 2003 of electricity Sep 1 2021 premises and in their immediate Office - Decision No. vicinity DEE/238-

ZTO/612/W/OG D/2010/BP of Jul 12 2010

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Issue date, number, Licensing No. amendments, if Type Validity term Licensed activity authority any (numbers, issue dates) Business activity comprising generation of heat in President cogeneration with the licensee‟s Aug 21 2007 – From of the own heat source situated in No. WCC/1157/ Generation of Sep 1 2008 5. Energy ul. Elbląska 135, Gdańsk, 612/W/OGD/ heat to Regulatory equipped with four steam 2007/KK Sep 1 2018 Office boilers; the heat is generated through fuel oil processing

Sep 29 2000 No. WEE/69/ Business activity comprising 612/N/1/2/2000/ generation of electricity at the AS CHP plant situated in ul. Amended under: President Elbląska 135, Gdańsk, Poland; - Decision No. of the the electricity is generated by WEE/69A/612/ Generation of Until 6. Energy combustion of conventional W/1/2003/MS electricity Sep 1 2018 Regulatory fuels in four steam boilers of Jun 30 2003 Office feeding steam to two turbine - Decision No. generator sets cogenerating WEE/69- electricity and heat ZTO/612/W/OG

D/2009/BP of Jul 16 2009 Nov 28 1998 Business activity conducted for No. WPC/2/ profit by the licensee in its own 612/U/2/98/PK name, in an organised and Amended under: continuing manner, comprising - Decision No. production of: WPC/2A/612/W/ - motor gasolines, aviation fuels, President 2/2003/MJ diesel oils, light fuel oils, heavy of the of Jun 30 2003 fuel oils, liquefied gas, esters as Production of Until 7. Energy - Decision No. self-contained fuels and fuels liquid fuels Dec 31 2025 Regulatory WPC/2B/612/W/ designed for use by selected Office 1/2007/ALK fleets, on the premises of the of Jan 15 2007; fuel depot in ul. Elbląska 135, - Decision No. Gdańsk, Poland; WPC/2- - diesel oils on the premises of ZTO/612/W/1/20 fuel depot in Piotrków 07/ALK Trybunalski; of Oct 15 2007; - diesel oils, esters as self-

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Issue date, number, Licensing No. amendments, if Type Validity term Licensed activity authority any (numbers, issue dates) - Decision No. contained fuels (B-100) and WPC/2A- motor gasolines other than ZTO/612/W/1/20 aviation gasolines on the 07/ALK premises of fuel depot in of Dec 17 2007 Czechowice-Dziedzice - Decision No. WPC/2B- ZTO/612/W/1/20 08/Alk of Oct 15 2008 - Decision No. WPC/2C- ZTO/612/W/1/20 09/ALK of May 6 2009 Decision No. WPC/2E- ZTO/612/W/1/20 09/ALK of Jun 17 2009; - Decision No. WPC/2F- ZTO/612/W/1/20 09/ALK of Oct 12 2009 Dec 23 1998 No. OPC/14/ 3408/U/1/2/98/ MS Amended under: Business activity comprising President - Decision No. trade in the following liquid of the OPC/14A/3408/ fuels: motor gasolines other Trade in liquid Until 8. Energy W/1/2/2001/AJP than aviation gasolines, aviation fuels Dec 31 2025 Regulatory of Feb 15 2001 fuels, diesel oils, fuel oils, Office - Decision No. liquefied gas and kerosene OPC/14B/3408/ W/2/2003/MJ of Jun 10 2003 - Decision No. OPC/14-,

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Issue date, number, Licensing No. amendments, if Type Validity term Licensed activity authority any (numbers, issue dates) ZTO/612/W/1/20 07/ALK of Oct 5 2007 Source: The Issuer.

11.2.2 Licences Granted to Other LOTOS Group Companies

LOTOS Serwis Sp. z o.o. In connection with its business activity and pursuant to the legal provisions referred to above, LOTOS Serwis Sp. z .o.o. is obliged to obtain a relevant licence. On June 12th 2006, the Minister of Internal Affairs and Administration granted the company Licence No. L-0129/06 for conducting business activity comprising technical protection of property. The licence was granted for 15 years and is valid in Gdańsk and the Gdańsk Province.

LOTOS TANK Sp. z o.o. In connection with its business activity and pursuant to the legal provisions referred to above, LOTOS Tank Sp. z o.o. is obliged to obtain relevant licences. The company holds Licence No. OPC/9836/W/OKR/2009/WK issued by the President of the Energy Regulatory Office for trade in liquid fuels, valid from September 1st 2009 to August 31st 2019. The licence was granted under the President‟s decision dated May 26th 2009. Under Decision No. OPC/9836A/W/OKR/2009/MGE, dated September 3rd 2009, the licence was amended with respect to the licensee‟s registered office.

LOTOS Ochrona Sp. z o.o. In connection with its business activity and pursuant to the legal provisions referred to above, LOTOS Ochrona Sp. z o.o. is obliged to obtain relevant licences. Under Decision No. ZK-I/K-1747/99/224/00/3, dated February 10th 2000, the Minister of Internal Affairs and Administration granted the company Licence No. L-0050/00 for business activity comprising direct physical protection of persons and property. The licence was granted for indefinite term and is valid in the entire territory of the Republic of Poland. Under Decision No. ZK-I-M- 99/04/MK issued on January 20th 2004, the Minister of Internal Affairs and Administration amended the licence with respect to the company‟s name. Further amendments to the licence were introduced under the following decisions: No. DziK-I-6610-1020/07/L-0050/00/EG dated February 28th 2008, DZiK-I-6610-979/08/L-0050/00/IŻ dated December 16th 2008, and DZiK-I-6610-82/09/L-0050/00/BG dated February 18th 2009. The amendments referred to the manner of the representation of the company.

LOTOS Paliwa Sp. z o.o. In connection with its business activity and pursuant to the legal provisions referred to above, LOTOS Paliwa Sp. z o.o. is obliged to obtain relevant licences. The company was granted a licence for trade in liquid fuels, valid from February 10th 2000 to February 11th 2025. The licence was granted by the President of the Energy Regulatory Office under Decision No. OPC/1045/733/W/1/2/2000/BK dated February 3rd 2000. The licence was amended under the following decisions: No. OPC/1045A/733/U/1/2/2000/ASA dated December 22nd 2000, , No. OPC/1045B/733/W/2/2003/AJP dated April 24th 2003, No. OPC/1045C/733/W/1/2004/AJP dated October 4th

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2004 and No. OPC/1045-ZTO/733/W/1/2010/ALK dated January 27th 2010. The business activity covered by the licence is trade in liquid fuels.

LOTOS Oil S.A. In connection with its business activity and pursuant to the legal provisions referred to above, LOTOS Oil S.A. is obliged to obtain relevant licences. The company was granted a licence for storage of liquid fuels, valid from September 1st 2009 to December 31st 2025. The licence was issued by the President of the Energy Regulatory Office under Decision No. MPC/177/18726/W/1/2009/MJ dated August 26th 2009. The licence covers business activity conducted for profit by the licensee in its own name, in an organised and continuing manner, comprising storage of fuel oils in nine tanks adapted to hold such liquid fuels and situated on the premises of the fuel depot in ul. Łukaszewicza 2, Czechowice-Dziedzice, Poland.

LOTOS Asfalt Sp. z o.o. In connection with its business activity and pursuant to the legal provisions referred to above, LOTOS Asfalt Sp. z o.o. is obliged to obtain relevant licences. The company was granted a licence for trade in liquid fuels, valid from January 1st 2007 to January 1st 2017. The licence was issued by the President of the Energy Regulatory Office under Decision No. OPC/15124/W/OGD/2006/CW dated December 20th 2006. The licence covers business activity comprising trade in liquid fuels.

LOTOS Jasło In connection with its business activity and pursuant to the legal provisions referred to above, LOTOS Jasło S.A. is obliged to obtain relevant licences.

Table 55 Licences granted to LOTOS Jasło

Licensing No. Issue date, number Licensed activity Validity period authority President of Nov 17 1998 Transmission and distribution 1. Until Nov 30 2018 URE* No. PCC/640/665/U/OT3/89/JP of heat President of Nov 19 1999 2. Trade in heat Until Jan 1 2020 URE* No. OCC/256/665/W/3/99/RW President of Dec 23 1998 3. Trade in electricity Until Dec 31 2018 URE* No. OEE/95/665/U/OT-3/98/JP President of Dec 23 1998 Transmission and distribution 4. Until Dec 31 2018 URE* No. PEE/94/665/U/OT-3/98/JP of electricity President of Apr 8 1999 5. Trade in liquid fuels Until Dec 31 2025 URE* No. OPC/162/665/U/1/2/99/RG Dec 1 1998 President of 6. No. WPC/4/665/U/OT-3/2/98/EB Production of liquid fuels Until Dec 31 2025 URE*

* URE – the Energy Regulatory Office. Source: The Issuer.

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LOTOS Petrobaltic In connection with its business activity and pursuant to the legal provisions referred to above, LOTOS Petrobaltic is obliged to obtain relevant licences. The company has been granted the following licences.

Table 56 Licences granted to LOTOS Petrobaltic

Licensing No. Issue date, number Licensed activity Validity period authority Exploration for and appraisal Minister of Dec 14 2001 of deposits of crude oil and Until 1. Environment No. 34/2001/p natural gas in the Gaz December 2012 Południe Area Exploration for and appraisal Minister of Dec 14 2001 of deposits of crude oil and Until 2. Environment No. 35/2001/p natural gas in the Gaz Północ December 2010 Area Exploration for and appraisal Minister of Dec 14 2001 of deposits of crude oil and Until 3. Environment No. 36/2001/p natural gas in the Gotlandia December 2010 Area Exploration for and appraisal Minister of Dec 14 2001 Until 4. of deposits of crude oil and Environment No. 37/2001/p December 2010 natural gas in the Łeba Area Exploration for and appraisal Minister of Dec 14 2001 of deposits of crude oil and Until 5. Environment No. 38/2001/p natural gas in the Rozewie December 2010 Area Exploration for and appraisal Minister of Dec 14 2001 of deposits of crude oil and Until 6. Environment No. 40/2001/p natural gas in the Sambia – W December 2010 Area Exploration for and appraisal Minister of Dec 14 2001 of deposits of crude oil and Until 7. Environment No. 39/2001/p natural gas in the Sambia – E December 2010 Area Exploration for and appraisal Minister of Dec 14 2001 of deposits of crude oil and Until 8. Environment No. 41/2001/p natural gas in the Wolin Area June 2011

Minister of Environmental Extraction of crude oil and Protection, Jul 29 1994 22 years 9. associated gas in the work Natural No. 108/94 (until 2016) area of the B3 field Resources and Forestry

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Licensing No. Issue date, number Licensed activity Validity period authority Extraction of gasoline natural Minister of May 11 2007 25 years 10. gas in the work area of the B4 Environment No.6/2007 (until 2032) field, Mining Area Lubiatowo Extraction of natural gas (gas Minister of Nov 7 2006 condensate) in the work area 26 years 11. Environment No.2/2006 of the B6 field, Mining Area (until 2032) Smołdzino Extraction of crude oil and Minister of Sep 5 2006 associated gas in the work 25 years 12. Environment No.1/2006 area of the B 8 field, Mining (until 2031) Area Kuźnica Source: The Issuer.

The area of production in the B3 field is covered by the mining usufruct agreement signed on April 13th 1994 between Minister of Environment, Natural Resources and Forestry and LOTOS Petrobaltic. The area of the B8 field is covered by the mining usufruct agreement signed on September 5th 2006 between the Minister of Environment and LOTOS Petrobaltic, together with Annex No. 1 of October 26th 2009.

12 Trend Information

12.1 The Most Significant Recent Trends in Production, Sales, Inventories, Costs and Selling Prices from the End of the Last Financial Year to the Date of the Registration Document

In the first nine months of 20101, the Grupa LOTOS processed 5,871.8 thousand tonnes of crude oil, which represented a 50.4% increase on the corresponding period of 2009 (due to the overhaul shutdown in H1 2009 and use in 2010 of the new CDU/VDU unit constructed under the 10+ Programme). In the coming periods, a rise in throughput volumes is expected, as new facilities built as part of the 10+ Programme will be put into operation.

In the period January – September 2010, the LOTOS Group‟s sales volume amounted to 6,301.6 thousand tonnes, up by 14.0% year on year. When compared with the sales of 5,527.1 thousand tonnes recorded in the first nine months of 2009, in the discussed nine-month period of 2010 the largest increases were seen in sales of heavy fuel oils (up by 378.8 thousand tonnes), diesel oils (up by 309.4 thousand tonnes) and gasolines (up by 149.1 thousand tonnes), reformate (up by 41.1 thousand tonnes), and bitumens (up by 27.7 thousand tonnes), while the largest decline in sales volumes was recorded in the case of aviation fuel (down by 99.4 thousand tonnes), liquid gases (down by 54.3 thousand tones) and bunker fuel (down by 30.2 thousand tonnes). The key reason behind the increase in sales volumes was the increased output attributable to oil processing at the new CDU/VDU unit completed as part of the 10+ Programme.

1 Grupa LOTOS has been listed on the Warsaw Stock Exchange since 2005, and in line with the applicable laws it publishes consolidated quarterly financial reports. Owing to systemic limitations resulting from the size of the Issuer and its Group, and because the Group’s data is consolidated on a quarterly basis, it is very difficult to generate the figures as at the Prospectus Date. If any events of a one-off nature occur that are likely to change the trends in production, sales, inventories, costs, and prices, this Prospectus will be updated accordingly. 156

The 35.4% year-over-year rise in Grupa LOTOS‟ sales revenue posted for the first nine months of 2010 was largely driven by higher global prices of crude oil and petroleum products relative to 2009 and increased sales volumes. In the period January – September 2010, the average Brent price (Dated Brent) stood at 77.1 USD/bbl, which represents a 34.6% increase over the corresponding period of 2009. The average net selling price of Grupa LOTOS in the first nine months of 2010 was PLN 2,212 per tonne, up by 18.8% year on year.

Grupa LOTOS‟ inventories as at the end of September 2010 amounted to PLN 3,850.5m, having grown by PLN 827.4m over the first nine months of 2010, mainly as a result of an increase in the volume of mandatory stocks of the Parent Company (its stocks of fuels and heavy fuel oil grew by 199.1 thousand cubic metres and stocks of crude oil by 48.6 thousand tonnes), and higher crude oil and petroleum product prices as at the end of September 2010 relative to the price levels seen at the end of December 2009.

12.2 Information on Any Known Trends, Uncertainties, Demands, Commitments or Events that Are Reasonably Likely to Have a Material Effect on the Issuer’s Prospects for at Least the Current Financial Year

Fluctuations of crude oil prices, crack margins and currency (especially USD and EUR) exchange rates are among the key drivers of the LOTOS Group‟s performance, as they affect both the cost of feedstock, and the prices of products and goods for resale. Another factor relevant to demand for fuels and other products sold by the Group is the condition of the overall economy.

Apart from the information disclosed in Section 6.2 of Chapter III (Principal Markets) and in Chapter II (Risk Factors) of this Prospectus, the Issuer is not aware of any other trends, uncertainties, demands, commitments or events that are likely to have a material effect on the Group‟s prospects until the end of financial year 2010.

13 Profit Forecasts or Estimates

The Issuer does not present any profit forecasts or estimates in this Prospectus. The Issuer did not publish any profit forecasts or estimates.

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14 Administrative, Management, and Supervisory Bodies and Senior Management

14.1 Information Regarding Members of the Administrative, Management and Supervisory Bodies and the Senior Management Relevant to the Statement that the Issuer Has the Requisite Knowledge and Experience for Managing Its Operations

14.1.1 Management Board

Pursuant to the Articles of Association of Grupa LOTOS, the Management Board is composed of three to seven Members, including the President and Vice-Presidents. The number of members of the Management Board is defined by way of a resolution of the Supervisory Board. The Supervisory Board appoints the Management Board, first appointing the President of the Management Board, and then – acting upon the President‟s proposal – the Vice-Presidents and the other Management Board Members. The term of office of the Management Board is a joint term of three years. As at the Prospectus Date, the Management Board of the Company was composed of the following Members:

Paweł Olechnowicz – President of the Management Board, Chief Executive Officer

Mr Olechnowicz has been President of the Management Board of Grupa LOTOS (Rafineria Gdańska S.A. until June 2003) since March 12th 2002. He manages, administers and is responsible for the entirety of Grupa LOTOS‟ operations. Currently Mr Olechowicz is also holding the position of Vice-President of the Management Board for Exploration and Production, until a new member of the Management Board is appointed.

Mr Olechowicz graduated from the Academy of Mining and Metallurgy of Kraków (Faculty of Technology and Mechanisation of Foundry Engineering), completed post-graduate studies in Organisation, Economics and Management in the Industry at the Technical University of Gdańsk, holds an MBA degree (INSEAD, Fontainebleau), completed Orchestrating Winning Performance programme (IMD, Lausanne) and participated in numerous domestic and foreign training courses in management.

In 1977, he started his professional career at Zakłady Mechaniczne Zamech in Elbląg (since 1990 – ABB Zamech Sp. z o.o.). In 1990-1996, he was President of the Management Board and Director General of ABB Zamech Ltd. Subsequently, for two years Mr Olechnowicz served at the headquarters of ABB Ltd Zurich in Switzerland as Vice- President for Central and Eastern Europe. In 1999-2000, Mr Olechnowicz was Vice-President and Deputy Director General of ZML Kęty S.A., and from 2001 managed his own consulting company: Paweł Olechnowicz – Consulting. Fluent speaker of English and Russian.

Mr Olechnowicz held or holds the following positions in the governing bodies of various entities: (i) Chairman of the Board of Directors of Central Europe Energy Partners (a non-profit organisation), (ii) President of the Management Board of the Polish Higher Education-Business Forum, (iii) Chairman of the Board of Directors of LOTOS Exploration & Production Norge AS in Norway, (iv) Chairman of the Supervisory Board of LOTOS Petrobaltic S.A. of Gdańsk (until March 31st 2010 Przedsiębiorstwo Poszukiwań i Eksploatacji Złóż Ropy i Gazu Petrobaltic S.A.), (v) Chairman of the Supervisory Board of Rafineria Czechowice S.A. of Czechowice-Dziedzice (at present LOTOS

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Czechowice S.A.), (vi) Chairman of the Supervisory Board of LOTOS Partner Sp. z o.o. of Poznań, (vii) Chairman of the Supervisory Board of LOTOS Ekoenergia S.A. of Gdańsk, (viii) Chairman of the Supervisory Board of LOTOS Paliwa Sp. z o.o. of Gdańsk (until April 2003 – Stacje Paliw Rafinerii Gdańskiej Sp. z o.o.).

Save as specified above, Mr Olechnowicz does not hold, and did not hold in the previous five years, any positions in other companies‟ governing bodies.

Marek Paweł Sokołowski – Vice-President of the Management Board, Chief Operation Officer

Mr Sokołowski has been Vice-President of the Management Board of Grupa LOTOS since April 19th 2002. He manages, coordinates, administers and is responsible for the production, technology and development divisions as well as the refinery expansion division (implementing the 10+ Programme).

Mr Sokołowski graduated from Faculty of Electrical Engineering at the Technical University of Gdańsk, completed post-graduate studies in Investment Projects in the Industry, and participated in numerous specialist domestic and foreign training courses in management. In 1973, Mr Sokołowski joined Rafineria Gdańska S.A. (today – Grupa LOTOS S.A.), where in 1990 he became Technical Director and Member of the Management Board. For three consecutive terms in office, his chief responsibility was the refinery‟s plant engineering and execution of investment projects. In 1996–2000, he managed the execution of the expansion and modernisation plan for the Gdańsk refinery. In mid-2000, he was appointed Chief of Technical Service and the Company‟s Commercial Proxy.

Mr Sokołowski held or holds the following positions in the supervisory boards of various entities: (i) Chairman of the Supervisory Board of LOTOS Serwis Sp. z o.o. of Gdańsk, (ii) a Member of the Supervisory Board of LOTOS Ekoenergia S.A. of Gdańsk, (iii) Chairman of the Supervisory Board of LOTOS Kolej Sp. z o.o. of Gdańsk, (iv) Chairman of the Supervisory Board of LOTOS Hydrokompleks of Gorlice, (v) Chairman of the Supervisory Board of LOTOS Straż Sp. z o.o. of Gdańsk, (vi) Chairman of the Supervisory Board of LOTOS Lab Sp. z o.o. of Gdańsk, (vii) Chairman of the Supervisory Board (2005-present) of LOTOS Czechowice S.A. of Czechowice-Dziedzice, (viii) Chairman of the Supervisory Board of LOTOS Jasło S.A. of Jasło, (ix) Chairman of the Supervisory Board of LOTOS Park Technologiczny Sp. z o.o. of Jasło, (x) Chairman of the Supervisory Board of Rafineria Nafty Glimar S.A. w upadłości (in bankruptcy) of Gorlice, (xi) a Member of the Supervisory Board of BiproRaf Sp. z o.o. of Gdańsk.

Save as specified above, Mr Sokołowski does not hold, and did not hold in the previous five years, any positions in other companies‟ governing bodies.

Mariusz Machajewski – Vice-President of the Management Board, Chief Financial Officer

Mr Machajewski has been serving as Vice-President of Grupa LOTOS since June 19th 2006. He manages and is responsible for the entirety of economic, financial and accounting activities of the Company.

Mr Machajewski graduated from the University of Gdańsk (Faculty of Economy) and participated in numerous domestic and foreign training courses in management and economy. In 1994–1997, he worked at Stocznia Gdynia S.A. In 1997, he joined Rafineria Gdańska S.A., (currently Grupa LOTOS) and in 1999 he was placed in charge of managing the company‟s controlling functions. Since mid-2002, he has held the position of the Chief Financial Officer. In the period from April 2005 to June 2006 he also served as the Company‟s Commercial Proxy. 159

Mr Machajewski held or holds the following positions in the supervisory boards of various entities: (i) Deputy Chairman of the Supervisory Board of LOTOS Paliwa Sp. z o.o. of Gdańsk, (ii) a Member of the Supervisory Board of LOTOS Petrobaltic S.A. of Gdańsk, (iii) a Member of the Supervisory Board of LOTOS Ekoenergia S.A. of Gdańsk, (iv) Chairman of the Supervisory Board of LOTOS Jasło S.A. of Jasło.

Save as specified above, Mr Machajewski does not hold, and did not hold in the previous five years, any positions in other companies‟ governing bodies.

Maciej Szozda – Vice-President of the Management Board, Chief Commercial Officer

Mr Szozda has been Vice-President of the Management Board of Grupa LOTOS since July 1st 2009. He manages and is responsible for the entirety of the trade segment operations of the LOTOS Group.

Mr Szozda graduated from the Faculty of Economics at Warsaw School of Economics. In 1980,he commenced his professional careeer PHZ Lubimex. In 1983–1984, he worked for KWM Engineering as Managing Director. Then, until 1986, he worked in the US as Contract Manager. In 1986, he joined Przedsiębiorstwo Zagraniczne Ipaco, where he held the position of Director; in 1987–1989 he was Export Manager at Sinexim Gmbh of West Berlin. Starting from 1989, he operated as a sole trader, which included work for Easey Garments UK Ltd. (Easy Jeans) as Head of the Representative Office for Poland and the CIS countries. In 2002, he joined PKN Orlen S.A., where he subsequently served as: Director of the Office of Planning and Development of Retail Network, Director of the Office of Development of Retail Network – Europe, and Retail Sales Executive Director. From October 2008 to February 2009, Mr Szozda was a Member of the Supervisory Board of Orlen Deutschland AG. From 2007 to February 2009, he worked for AB VENTUS NAFTA of Vilnius, a company of the PKN ORLEN Group, as a Member of the Management Board and then President of the Management Board.

Mr Szozda also holds various positions in the governing bodies of the following entities: Ruch S.A. of Warsaw, ORLEN Budonaft Sp. z o.o. of Kraków, and LOTOS Paliwa Sp. z o.o. of Gdańsk.

Save as specified above, Mr Szozda does not hold, and did not hold in the previous five years, any positions in other companies‟ governing bodies.

14.1.2 Supervisory Board of the Company

According to the Articles of Association of the LOTOS Group, Supervisory Board is composed of six to nine Members, including the Chairman, the Deputy Chairman and the Secretary. Supervisory Board members are appointed and removed from office by the General Shareholders Meeting in a secret ballot, by an absolute majority of votes. The General Shareholders Meeting may appoint new members to the Supervisory Board from an unlimited number of candidates. Notwithstanding the above, as long as the State Treasury remains a shareholder in the Company, the State Treasury, represented by the competent minister, is entitled to appoint and remove from office one member of the Supervisory Board. The Chairman of the Supervisory Board is appointed by the General Shareholders Meeting. The Deputy Chairman and the Secretary are elected by the Supervisory Board from among its other members. The term of office of the Supervisory Board is a joint term of three years. Any or all Supervisory Board members may be removed from office at any time prior to the expiry of their term.

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As at the Prospectus Date, the Company‟s Supervisory Board was composed of the following persons:

Wiesław Skwarko – Chairman of the Supervisory Board

Appointed to the Supervisory Board on June 30th 2008. Mr Skwarko graduated from the Warsaw School of Economics (Faculty of Foreign Trade). From 1987 to 1994, Mr Skwarko worked as an assistant reader at the Warsaw School of Economics. From 1990 to 1999 he was partner at Access Sp. z o.o., then became member of the Management Board of Rothschild Polska Sp. z o.o. In 2005–2006, Mr Skwarko served as Head of the Privatisation Office at Nafta Polska S.A. In 2006, he took the position of the Financial Strategy and Capital Development Director, initially at CTL Maczki Bór of Sosnowiec and then at CTL Logistics S.A. of Warsaw. From January 10th 2008 to December 31st 2010, Mr Skwarko served as Member of the Management Board of Nafta Polska S.A., and since January 1st 2010, he has been acting as the Liquidator at Nafta Polska S.A. w likwidacji (in liquidation).

Mr Skwarko held or holds the following positions in the bodies of various entities: (i) Chairman of the Supervisory Board of ZAK S.A. of Kędzierzyn-Koźle, (ii) Chairman of the Supervisory Board of Zakłady Azotowe w Tarnowie Mościcach of Tarnów, (iii) a Member of the Supervisory Board of CTL Haldex Sp. z o.o. of Sosnowiec, (iv) a Member of the Supervisory Board of CTL Południe Sp. z o.o. of Kraków, (v) a Member of the Supervisory Board of CTL Autozap Sp. z o.o. of Puławy, (vi) Chairman of the Supervisory Board of OLPP Sp. z o.o. of Płock, (vii) Vice- President of the Management Board and Chairman of the Audit Commission of SKF Klub Sportowy URSUS (sports club) of Warsaw. Mr Szozda did not hold, and still does not hold, any positions in other companies‟ bodies.

Save as specified above, Mr Skwarko does not hold, and did not hold in the previous five years, any positions in other companies‟ governing bodies.

Leszek Starosta – Vice-Chairman of the Supervisory Board

Appointed to the Supervisory Board on June 30th 2008. Mr Starosta graduated from the Faculty of Law and Administration at the Adam Mickiewicz University of Poznań. Professor Extraordinary, Doctor (habilitated) of Law, Dean of the Faculty of Law and Prorector responsible for development at the Academy of International Economic and Political Relations in Gdynia, Head of the Institute of European Studies in Gdynia. In 1991–2000, Mr Starosta was Advisor to the Management Board of Rafineria Gdańska S.A. From 1995 to 1998, he served as Advisor and Consultant to the President of the Management Board of Petrochemia Płock S.A. He has authored over 20 studies and analyses concerning the oil and fuel sector, which he prepared for various entities, including government agencies. Between 1998 and 2007, he was Member and Deputy Chairman of the Supervisory Board of Prokom Software S.A. Mr Starosta is an attorney and a member of the Council of the Bar in Gdańsk. He is also Vice-President of the Confederation of Polish Employers and an Arbitrator in the Sports Arbitration Tribunal of the Polish Olympic Committee. In the years 1998-2007, Mr Starosta served as a Member of the Management Board (the Board of Directors) of UiS International AB in Sweden, the founding company of Computerland S.A. (at present Sygnity S.A.) of Warsaw. He coordinated the process of commercialisation and privatisation of Rafineria Gdańska, Gdańska Stocznia Remontowa, Polska Żegluga Bałtycka (for the Ministry of State Treasury).

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In the five years prior to the Prospectus Date Mr Starosta was a partner at LSC Swiss Watches Sp. J. of Gdynia, President of the Management Board of Nordmark Marketing Sp. z o.o. of Gdynia and President of the Management Board of ISE Sp. z o.o. of Gdynia.

Save as specified above, in the previous five years Mr Starosta did not hold any positions in other companies‟ governing bodies.

Oskar Andrzej Pawłowski – Secretary of the Supervisory Board

Appointed to the Supervisory Board on February 11th 2010. Mr Pawłowski is a graduate of the Faculty of Law and Administration at the Adam Mickiewicz University of Poznań (1998). In 1999, Mr. Pawłowski was awarded a diploma of Cambridge University, majoring in British and EU law; in 2006, he completed legal counsel training held by the Board of the District Chamber of Legal Counsels in Poznań and was entered in the list of legal counsels. Currently, Mr Pawłowski is Managing Partner at Oskar Pawłowski i Wspólnicy Sp. k. law firm; earlier he was a lawyer at Włodzimierz Głowacki law firm (2003–2007), D. Janczak i Wspólnicy Sp. k. / Domański Zakrzewski Palinka Sp.k. – Ernst & Young Law Alliance – Energy Group (2002– 2003), Głowacki, Grynhoff, Hałaziński s.j law firm (2000–2002). Mr Pawłowski has over 10 years of experience in legal counsel services. He specialises in the regulatory environment of the energy sector and in legal services for real estate trade and investment processes. He has extensive experience in company law and mergers and acquisitions. He authored the following papers: “The Rights of Electricity Consumers and the Methods of Protecting Them” in Rynek Energii (2/2009); “Legal Due Diligence of Real Estate” in Inwestor (1/2010). Fluent speaker of English.

In the previous five years Mr Oskar Andrzej Pawłowski did not hold any positions in other companies‟ governing bodies.

Małgorzata Hirszel – Member of the Supervisory Board

Appointed to the Supervisory Board on June 30th 2008 Ms Hirszel is a graduate of the Warsaw University, Faculty of Law and Administration, she also completed a post- graduate programme in European Studies run by the Warsaw University Faculty of Journalism and Political Science. Currently Ms Hirszel is pursuing doctoral studies at the Polish Academy of Sciences, the Institute of Legal Sciences. In 2000, she joined the Chancellery of the Prime Minister, where she was the Chief Specialist/Counsel to the Head of the Chancellery until 2002, and then Counsel to the Vice-President and President of the Council of Ministers (the Prime Minister) in the Economic and Social Department (later transformed into the Council of Ministers Committee Department). In 2002–2006, Ms Hirszel served as Acting Deputy Head of the Economic Division of the Council of Ministers Committee Department, and then as Acting Head of the Programme Department of the Chancellery. In 2007, she became Head of the Council of Ministers Committee Department and Secretary of the Council of Ministers Standing Committee. Ms Hirszel passed the examination for candidates for supervisory board members in state-stock companies in 2002.

Ms Małgorzata Hirszel does not hold, and did not hold in the previous five years, any positions in other companies‟ governing bodies.

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Michał Bartosz Rumiński – Member of the Supervisory Board

Appointed to the Supervisory Board on February 11th 2010. Mr Rumiński holds a master‟s degree in law and administration from Warsaw University (1998), master‟s degree in economics from the Warsaw School of Economics (2003), and an MBA degree from University of Chicago, Booth School of Business (2009).

Since 2007, Mr. Rumiński has cooperated with MCI Euroventures (investment fund), holding the following positions: Investment Partner, Member of the Management Board of ABC Data Holding S.A., President of the Management Board and Managing Partner of Cleantech Venture Partners, Member of the Supervisory Board of Grupa Lew Sp. z o.o. In 2000–2007, Mr. Rumiński worked for the KBC Group as Corporate Finance Director; in 2004, Mr. Rumiński served as Head of the Investment Banking Division at Kredyt Bank S.A.; in 2000–2004, he was employed as Project Manager at Kredyt Bank S.A.‟s Investment Banking Department; prior to that, in 1999– 2000 he worked as specialist at the Capital Markets Department of Bank Współpracy Europejskiej S.A. Fluent speaker of English. Mr Rumiński is the author of the following publications: “The 1997 Currency Crisis vs. Restructuring of the Financial and Corporate Sectors in South Korea”, Narodowy Bank Polski (September 2004); “Free Flow of Capital in the European Community”, INFOR (February 2000).

Mr Rumiński held or holds various positions in the governing bodies of the following entities: (i) ABC DATA S.A. of Warsaw, (ii) Cleantech Venture Partners Sp. z o.o. of Warsaw, (iii) Grupa Lew Sp. z o.o. of Częstochowa.

Save as specified above, Mr Rumiński does not hold, and did not hold in the previous five years, any positions in other companies‟ governing bodies.

Rafał Marcin Wardziński – Member of the Supervisory Board

Appointed to the Supervisory Board on February 11th 2010. Mr Wardziński holds a master‟s degree from the Jean Monnet European Integration Department of the University of Szczecin; he completed supplementary studies at the Faculty of Law of the University of Liège, Belgium. He was also awarded a scholarship funded by the European Commission.

In 2003–2004, Mr Wardziński was employed at the European Integration Department of the Marshal‟s Office of the Province of Szczecin. Then, in 2004–2007, he worked as a consultant for the European Parliament Committee on Industry, Research and Energy in Brussels. From 2007 to 2008, he held the position of Director of the Regional Office of the Province of Szczecin in Brussels. Since 2008, he has worked at the Polish Ministry of State Treasury, currently as Deputy Director of the Department of Corporate Supervision and Privatisation – in charge of supervision of companies in the gas and oil sector. Fluent speaker of English and French.

Mr Wardziński held or holds the following positions in the governing bodies of various companies: (i) Chairman of the Supervisory Board of PERN Przyjaźń S.A. of Płock, (ii) a Member of the Supervisory Board of Kopalnie i Zakłady Chemiczne Siarki Siarkopol S.A. of Grzybów, (iii) a Member of the Supervisory Board of Operator Gazociągów Przesyłowych GAZ – SYSTEM S.A. of Warsaw, (iv) a Member of the Supervisory Board of PKS Kielce S.A. of Kielce.

Save as specified above, Mr Wardziński does not hold, and did not hold in the previous five years, any positions in other companies‟ governing bodies. 163

Ewa Joanna Sibrecht- Ośka – Member of the Supervisory Board

Appointed to the Supervisory Board on June 28th 2010. Ms Sibrecht- Ośka graduated from the Law Department at the University of Łódź. She has practiced as a legal counsel since 1994, having completed her legal counsel training held by the Board of the District Chamber of Legal Counsels in Warsaw. From 1991 to 2001 she was employed at the Legal Department of the Ministry of Finance. In the same period, she was employed at a bank (1992–1995), at the Baker McKenzie law office (1995– 1996), at the Cavere law office (1998–2001) and at the Office of the Committee for European Integration (2000– 2001). In 2001–2006, she worked for Nafta Polska S.A. In 2007, she worked as a legal counsel at the Corporate Supervision Department of the Capital City of Warsaw Municipal Office. Since November 2007, Ms Sibrecht- Ośka served as a legal counsel to the Minister at the Department of Corporate Supervision and Privatisation I of the Ministry of State Treasury; since May 2009 she has been Head of the Department of Analyses at the Ministry of State Treasury.

Ms. Ewa Sibrecht-Ośka participated in the work on the draft Tax Advisory Services Act and on the Act on Compensation Proceedings at Entities of Particular Importance to the Polish Shipyard Industry. She also participated in the preparation of Grupa LOTOS S.A. to the listing on the stock exchange and in the process of privatisation of the Polish Heavy Chemical Sector, and more specifically in the project involving preparation of the sale of shares in the Heavy Chemical Sector companies, which included receipt of pre-privatisation analyses, work on agreements with the privatised companies, and negotiation of agreements with investors, including negotiation of public assistance issues.

Mrs Sibrecht- Ośka held or holds the following positions in the governing bodies of various companies: (i) Chairman of the Supervisory Board of Zakłady Chemiczne Organika Sarzyna S.A. of Nowa Sarzyna, (ii) a Member of the Supervisory Board of Mennica Polska S.A. of Warsaw, (iii) Chairman of the Supervisory Board of Nafta Polska S.A. w likwidacji (in liquidation) of Warsaw, (iv) a Member of the Supervisory Board of Huta Pokój S.A. of Ruda Śląska, (v) a Member of the Supervisory Board of Kappa S.A. of Warsaw, (vi) a Member of the Supervisory Board of Polska Agencja Prasowa S.A. of Warsaw, (vii) Chairman of the Supervisory Board of CIECH S.A. of Warsaw.

Save as specified above, Ms Sibrecht- Ośka does not hold, and did not hold in the previous five years, any positions in other companies‟ governing bodies.

Rafał Sebastian Lorek – Member of the Supervisory Board

Appointed to the Supervisory Board on June 28th 2010. He is a graduate of Warsaw School of Economics. Most of his professional career is associated with the capital market in Poland. He worked for a number of leading institutions providing investment banking and wealth management services. Mr. Lorek started his career working as a stockbroker at Bank Handlowy and then at Societe Generale Securities Polska, in the period of 1995–2000. From 2001 to 2005 he worked for CAIB Investment Management S.A. as Account Manager and Deputy Director of Account Managers Team. Between 2005 and 2007, he served as Senior Wealth Manager at Citibank Polska. From 2007 to 2008, Mr Lorek worked for Bank Sal. Oppenheim Jr. & CIE Austria AG as Vice President Private Banking. Since 2008, he has been running his own consulting company, R.S.P. LOREK.

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At present, Mr Lorek serves as a Member of the Management Board of Lorek Pawlak i Wspólnicy Sp. z o.o. w organizacji of Warsaw (company in organisation). According to his statement, Mr Lorek is an Independent Member. Save as specified above, Mr Lorek does not hold, and did not hold in the previous five years, any positions in other companies‟ governing bodies.

14.1.3 Senior Management

Save for the Members of the Management Board and the Supervisory Board, there are no senior management members at the Company relevant to the statement that the Issuer has the requisite knowledge and experience for managing his operations.

14.1.4 Statements by the Members of the Management Board and the Supervisory Board

According to the statements submitted by the Members of the Management Board and the Supervisory Board, in the period of five years before the Prospectus Date none of them was: - entered into the Register of Insolvent Debtors maintained under the Act on National Court Register of August 20th 1997 (Dz.U. of 2009 No.173, item 1808, as amended), - formally charged or subjected to any sanctions imposed by statutory or regulatory bodies (including recognised professional organisations), - disqualified from conducting business for their own account or from acting as a member of a supervisory body, a representative or proxy of a commercial company, state-owned company, cooperative, foundation or association, - received a court order to act as a member of a management or supervisory body of the Company or any other business, - disqualified from participating in the management or conduct of the affairs of the Company or any other business, - convicted, by a final court judgement, on charges under the provisions of Chapters XXXIII- XXXVII of the Polish Criminal Code, especially on charges of fraud, and under Art. 585, 587-591 of the Commercial Companies Code

Mr Marek Paweł Sokołowski, Vice-President of the Issuer‟s Management Board, served as Chairman of the Supervisory Board of LOTOS Hydrokompleks Sp. z o.o of Gorlice, which was deleted from the Register of Entrepreneurs of the National Court Register in 2008. Furthermore, Mr Sokołowski held the position of Chairman of the Supervisory Board of Rafineria Nafty Glimar S.A. of Gorlice, which was declared bankrupt in 2005 and then sold to an external entity in 2008.

At present, Wiesław Skwarko, Chairman of the Issuer‟s Supervisory Board, serves as the Liquidator of Nafta Polska S.A. w likwidacji (in liquidation). The decision to place the company in liquidation was made by the Minister of the State Treasury, acting in the capacity of the General Shareholders Meeting, on January 1st 2010, the reason being the accomplishment of the company‟s objectives.

Save as specified above, none of the Members of the Issuer‟s Management Board and the Supervisory Board served on the governing bodies of or was a partner in any other entity which was declared bankrupt, placed in liquidation or under administration.

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Furthermore, Mr Skwarko served as a Member of the Management Board of Nafta Polska S.A., until July 23rd 2009 the Parent Company of the Issuer within the meaning of the Public Offering Act of July 25th 2005 and the Accountancy Act of September 29th 1994 (Dz.U. of 2006 No.173, item 1119, as amended).

No family links exist between the Members of the Management and Supervisory Board, and none of them are engaged in any activities that could significantly affect the Issuer‟s operations or in activities competitive towards the Company‟s business.

14.2 Conflicts of Interests at the Administrative, Management, and Supervisory Bodies and the Senior Management

The Issuer is not aware of any, even potential, conflicts between the obligations towards the Issuer and the private interests or other duties of the members of the administrative, management and supervisory bodies.

The Company Shares Held by the Supervisory and Management Board Members

The Company shares are held by the following Management Board members: - Marek Paweł Sokołowski – 8,636 shares with the total par value of PLN 8,636.

Other Supervisory and Management Board members do not hold any Issuer shares.

Agreements on Appointments to the Governing Bodies

The Company executed no agreements whereby members would be appointed to the Management and Supervisory Boards.

Agreed Restrictions on the Disposal of Company Shares by Members of the Governing Bodies and Senior Management

There are no agreed restrictions at the Company on the disposal of the Issuer shares by the members of management and supervisory bodies and senior management.

Shares Held by the Supervisory and Management Board Members and Senior Management

Over five years immediately preceding the date of this Prospectus, the following members of the Issuer‟s Management Board held, and continue to hold, shares: a) Marek Paweł Sokołowski holds 8,636 Issuer shares with the total par value of PLN 8,636; b) Mariusz Machajewski was, and continues to be, a shareholder in companies listed on the Warsaw Stock Exchange, however, he did not, and does not, hold a significant block of shares in any of the companies.

Over five years immediately preceding the date of this Prospectus, shares were held by the following members of the Issuer‟s Supervisory Board: a) Leszek Stanisław Starosta held (i) 51% of shares in ISE Sp. z o.o. of Gdynia, with the total par value of PLN 125,700 (ii) 98.6% of shares in Nordmark Marketing Sp. z o.o. of Gdynia, with the total par value of PLN 78,650;

166 b) Michał Bartosz Rumiński held (i) 5% of shares in Cleantech Venture Partners Sp. z o.o. of Warsaw, with a par value of PLN 5,000, (ii) 0.01% of shares (4,800 shares) in MCI Management S.A. of Wrocław, with a par value of PLN 4,800; c) Rafał Sebastian Lorek held 40% of shares in Lorek Pawlak i Wspólnicy Sp. z o.o. w organizacji of Warsaw (company in organisation), with a par value of PLN 2,000.

Over the last five years, and as at the date of this Prospectus, other Management and Supervisory Board members did not hold, and do not hold, shares in any companies.

15 Remuneration and Other Benefits in Relation to the Last Full Financial Year for Members of the Administrative, Management, and Supervisory Bodies and the Senior Management

15.1 Amount of Remuneration Paid (Including any Contingent or Deferred Benefits), and Benefits in Kind Granted by the Issuer and Its Subsidiaries for Services to the Company and/or its Subsidiaries

The remuneration of the members of the administrative, management and supervisory bodies is subject to limitations prescribed under the Act on Remunerating Persons Who Manage Certain Legal Entities of March 3rd 2000 (Dz.U. of 2000 No 26, item 306, as amended), commonly referred to as the Compensation Cap Act. Pursuant to the Act, the remuneration of the Issuer‟s Management Board members may not be higher than six times the average monthly remuneration in the corporate sector, net of bonuses paid out from profit in the fourth quarter of preceding year, as announced by the president of Central Statistics Office.

Table 57 Remuneration paid and payable to members of the Management Board of Grupa LOTOS S.A.

for the year ended PLN Dec 31 2009

Paweł Olechnowicz 199,862

Marek Sokołowski 196,565

Mariusz Machajewski 197,625

Maciej Szozda 118,947

Total 712,999 Source: the Issuer.

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Table 58 Remuneration paid and payable to members of the Management Board of Grupa LOTOS S.A. in consideration for their membership in the supervisory boards of subsidiary undertakings

for the year ended PLN Dec 31 2009

Paweł Olechnowicz 188,438

Marek Sokołowski 50,332

Mariusz Machajewski 34,831

Maciej Szozda 3,962

Total 277,563

Source: the Issuer.

Table 59 Remuneration paid or payable to members of the Supervisory Board of Grupa LOTOS S.A.

for the year ended PLN Dec 31 2009

Wiesław Skwarko(1) -

Leszek Starosta 39,621

Mariusz Obszyński(2) 39,621

Radosław Barszcz(2) 39,621

Piotr Chajderowski(2) 10,813

Małgorzata Hirszel 39,621

Jan Stefanowicz(2) 39,621

Ireneusz Fąfara(2) 23,681

Total 232,599

(1) The Company received a statement from Mr Wiesław Skwarko to the effect that he forgoes the remuneration due to him for serving as a member of the Supervisory Board of Grupa LOTOS S.A. until further notice.

(2) No longer members of the Issuer’s Supervisory Board as at the Prospectus Date.

Source: the Issuer.

As at December 31st 2009, the Company has not advanced any loans or similar benefits to members of the management and supervisory bodies.

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15.2 Total Amounts Set Aside or Accrued by the Issuer or Its Subsidiaries to Provide Pension, Retirement or Similar Benefits

The Issuer‟s Group creates provisions for retirement severance pays and length-of-service awards. As at the end of 2009 they amounted to PLN 98,694 thousand.

16 Practices of the Administrative, Management, and Supervisory Bodies

16.1 Expiry Date of the Current Term of Office, if Applicable, and the Period for which the Person Has Held a particular Position

As stated in Par. 14 of the Articles of Association of Grupa LOTOS S.A., Members of the Management Board are appointed by the Supervisory Board for a joint term of office lasting three years.

As stated in Par. 11 of the Articles of Association of the Company, Members of the Supervisory Board are appointed by the General Shareholders Meeting of the Issuer for a joint term of office lasting three years.

Information regarding the commencement and termination dates for the current, seventh term of office of the Management Board, and the current, seventh term of office of the Supervisory Board, as well as mandate expiry dates for particular members of the Management Board and the Supervisory Board is presented in the table below:

Table 60 Members of the Management Board and the Supervisory Board of the seventh term of office

Appointment Term of office expiry Mandate Name Position date date expiry date Paweł President of the Jun 25 2009 Jun 25 2012 - Olechnowicz Management Board Mariusz Vice-President of the Jun 25 2009 Jun 25 2012 - Machajewski Management Board Marek Vice-President of the Jun 25 2009 Jun 25 2012 - Sokołowski Management Board Vice-President of the Maciej Szozda Jun 25 2009 Jun 25 2012 - Management Board

Wiesław Chairman of the Jun 30 2008 Jun 30 2011 - Skwarko Supervisory Board

Member of the Leszek Starosta Jun 30 2008 Jun 30 2011 - Supervisory Board Member of the Mariusz Removed from office Supervisory Board Jun 30 2008 Feb 11 2010 Obszyński before expiry of the term

Member of the Radosław Removed from office Supervisory Board Jun 30 2008 Feb 11 2010 Barszcz before expiry of the term

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Appointment Term of office expiry Mandate Name Position date date expiry date Member of the Piotr Supervisory Board Jun 30 2008 Resigned Mar 10 2009 Chajderowski

Member of the Małgorzata Supervisory Board Jun 30 2008 Jun 30 2011 - Hirszel

Member of the Removed from office Jan Stefanowicz Jun 30 2008 Feb 11 2010 Supervisory Board before expiry of the term Member of the Ireneusz Fąfara Apr 27 2009 Resigned Mar 29 2010 Supervisory Board Secretary of the Oskar Pawłowski Feb 11 2010 Jun 30 2011 - Supervisory Board Member of the Michał Rumiński Feb 11 2010 Jun 30 2011 - Supervisory Board Member of the Rafał Wardziński Feb 11 2010 Jun 30 2011 - Supervisory Board Ewa Sibrecht – Member of the Jun 28 2010 Jun 30 2011 - Ośka Supervisory Board Member of the Rafał Lorek Jun 28 2010 Jun 30 2011 - Supervisory Board Source: the Issuer.

16.2 Information on Existing Service Contracts of Members of the Administrative, Management and Supervisory Bodies, Executed with the Issuer or Any of Its Subsidiaries, Providing for Benefits upon Termination of Employment, or on Non-Existence of Such Contracts

Members of the Issuer’s Management Board

Apart from standard employment contracts concluded by Grupa LOTOS S.A. with the management staff and providing for severance pay in the amount of triple the monthly remuneration, payable in the event of termination of the employment contract, no agreements were executed that provide for compensation to the management staff in the event they resign or are dismissed without a good reason or in the event they are terminated or dismissed as a result of the Company‟s takeover by another entity. The amounts of severance pays payable to members of the management staff are specified in the Act on Remunerating Persons Who Manage Certain Legal Entities (Compensation Cap Act).

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Members of the Issuer’s Supervisory Board

Members of the Issuer‟s Supervisory Board have not concluded any agreements with the Issuer that would determine the manner of performing their services as Supervisory Board members. They receive remuneration under resolutions on their appointment to the Supervisory Board. The remuneration amount is limited by the provisions of the Act on Remunerating Persons Who Manage Certain Legal Entities (Compensation Cap Act). The manner of performing duties by the Supervisory Board members is defined in the Articles of Association, the Rules of Procedure for the Supervisory Board, and the applicable regulations.

16.3 Information on the Issuer's Audit Committee and Remuneration Committee, Including the Names of the Committee Members and a Summary of the Rules of the Committees’ Operations

Rules of the Supervisory Board Committees’ Operations

The Supervisory Board may set up standing or ad-hoc committees composed of its members to examine specific matters. The Rules of Procedure for the Supervisory Board currently in force provide for three mandatory committees:

 Strategy and Development Committee

 Organisation and Management Committee

 Audit Committee

The committees report on their activities to the Supervisory Board as need arises; standing committees must report to the Supervisory Board at least once a year.

Committees are composed of three to five persons. The chairman of a committee, who manages the committee‟s work, is elected by the Supervisory Board from among the committee members. Acting on his own initiative or upon request of a committee member, the chairman calls the committee meetings. The right to call a meeting is also vested in the Chairman of the Supervisory Board or a Supervisory Board Member designated by the Chairman. All members of the Supervisory Board have the right to participate in the committee meetings.

The chairman of a committee, or a person designated by the chairman, is entitled to request the Supervisory Board to adopt a resolution concerning preparation for the committee of opinions or expert opinions concerning the scope of the committee‟s tasks, or appointment of an adviser

The committees adopt their decisions at the meetings. Notices of a meeting should be delivered to the committee members and to other Supervisory Board members not later than five days prior to the meeting or, in urgent cases, not later than one day prior to the meeting.

The committees adopt resolutions by an absolute majority of votes of the total number of the committee members, unless provided otherwise in the resolution establishing a given committee.

Minutes are prepared for each committee meeting. The minutes are signed by all attending committee members and should include the committee‟s resolutions, conclusions and reports.

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The Organisation and Management Committee and the Audit Committee, presented below, are standing committees of the Supervisory Board of Grupa LOTOS S.A.

Organisation and Management Committee

The Organisation and Management Committee is responsible for providing the Supervisory Board with opinions and recommendations regarding the management structure, including organisation-related solutions, remuneration system and recruitment of personnel, with a view to enabling the Company to achieve its strategic objectives, including:

1. Assessment of candidates for members of the Company‟s Management Board,

2. Recommendations as to the terms of employment for newly appointed Members of the Company‟s Management Board,

3. Evaluation of activities of the Management Board Members,

4. Periodic review and evaluation of the Company‟s remuneration system,

5. Assessment of the human resources management system adopted at the Company.

As at the date of this Prospectus, the Organisation and Management Committee was composed of:

1. Leszek Starosta – Chairman

2. Małgorzata Hirszel

3. Michał Rumiński

4. Oskar Pawłowski

5. Ewa Sibrecht-Ośka

Audit Committee

The Audit Committee is responsible for the provision of ongoing advisory support to the Supervisory Board with respect to correct implementation of the policies related to budgetary and financial reporting, the Company‟s internal control function and cooperation with its auditors, including: 1. Monitoring of the financial reporting process, 2. Monitoring of the effectiveness of the Company‟s internal control, internal audit and risk management systems, 3. Monitoring of the performance of auditing procedures, including the process of auditing the annual separate and consolidated financial statements, 4. Monitoring of the work and reports of independent auditors, including the monitoring of independence of the auditors and of the entities qualified to audit financial statements, 5. Reviewing particular economic events relevant to the Company‟s business, 6. Providing ongoing information to the Supervisory Board on any material matters with respect to the Audit Committee‟s activities.

As at the date of this Prospectus, the Audit Committee was composed of:

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1. Michał Rumiński – Chairman

2. Wiesław Skwarko

3. Oskar Pawłowski

4. Rafał Wardziński

5. Rafał Lorek

Mr Wiesław Skwarko meets the criteria of independence and has qualifications in accountancy as stipulated in Art. 86.4 of the Act on Statutory Auditors and their Self-Government, Entities Qualified to Audit Financial Statements, and Public Supervision of May 7th 2009.

16.4 Statement of the Issuer’s Compliance with the Corporate Governance Regime in Effect in the Issuer’s Country of Incorporation

Grupa LOTOS S.A. follows the principles of corporate governance compiled in the document entitled Best Practices for WSE Listed Companies, which was adopted by the Supervisory Board of the Warsaw Stock Exchange on July 4th 2007.

The full text of the document is available to the public on the official WSE website at http://www.corp- gov.gpw.pl/assets/library/polish/dobrepraktyki2007.pdf, as well as in the “Investors Relations” profile on Grupa LOTOS S.A.‟s website, in the “Corporate Governance” section (http://www.LOTOS.pl/inwestorski/lad_korporacyjny/dobre_praktyki), along with a link to the Q&A section on the WSE website. On January 8th 2010, Grupa LOTOS S.A. gained access to Electronic Database (EBI) and may now disclose its Corporate Governance reports by electronic means, in accordance with Resolution 718/2009 of the Management Board of the Warsaw Stock Exchange dated December 16th 2009.

In 2009, Grupa LOTOS S.A. did not release any reports regarding non-compliance with the principles outlined in Best Practices for WSE Listed Companies. On January 1st 2008, in connection with the coming into force of corporate governance principles enunciated in Best Practices for WSE Listed Companies, and acting in accordance with the „comply or explain” rule and with Par. 29.3 of the WSE Rules, the Management Board of the Company reported that Grupa LOTOS S.A. did not apply the following corporate governance principles:

- Principle 1.11 contained in Section II

“A company should operate a corporate website and publish: … information known to the Management Board based on a statement by a member of the Supervisory Board on any relationship of a member of the Supervisory Board with a shareholder who holds shares representing no less than 5% of all votes at the company’s General Meeting.”

Grupa LOTOS S.A. does not comply with the principle as it is not aware of any relationships between Supervisory Board members and a shareholder who holds shares representing 5% or more of the total vote at the General Shareholders Meeting.

- Principle 6 contained in Section III

“At least two members of the Supervisory Board should meet the criteria of being independent from the company and entities with significant connections with the company. The independence criteria should be applied under Annex II to the Commission Recommendation of February 15th 2005 on the role of non- executive or supervisory directors of listed companies and on the committees of the (supervisory) board.

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Irrespective of the provisions of item b) of the said Annex, a person who is an employee of the company, or its subsidiary or associated company, cannot be deemed to meet the independence criteria described in the Annex. In addition, a relationship with a shareholder which precludes the independence of a member of the Supervisory Board as understood in this principle is an actual and significant relationship with any shareholder who has the right to exercise at least 5% of all votes at the General Meeting.”

Grupa LOTOS S.A. does not comply with this principle.

The Company will follow the principle after it has been notified that at least two independent members are appointed to the Supervisory Board or that at least two existing members are deemed independent, in accordance with Annex II to the Commission Recommendation of February 15th 2005 on the role of non- executive or supervisory directors of listed companies and on the committees of the (supervisory) board.

- Principle 8 contained in Section III

“Annex I to the Commission Recommendation of February 15th 2005 on the role of non-executive or supervisory directors … should apply to the tasks and operation of the committees of the Supervisory Board.”

Grupa LOTOS S.A. does not comply with the principle due to the fact that it has no information regarding the independence of the members of the Supervisory Board who should serve on the existing Supervisory Board committees, as required by Annex I to the Commission Recommendation of February 15th 2005 on the role of non-executive or supervisory directors ….

The Company will follow the principle after it has been notified that a proper number of members meeting the independence criteria have been appointed to the existing Supervisory Board committees, and that the tasks and operation of the committees are compliant with the requirements set forth in Annex I to the Commission Recommendation of February 15th 2005 on the role of non-executive or supervisory directors of listed companies and on the committees of the (supervisory) board.

Non-obligatory best practices in corporate governance

Grupa LOTOS S.A. takes steps to implement best practices in such areas as environmental protection or health and safety at work and security of management systems, which go beyond the requirements stipulated in Polish laws.

Since November 19th 2009, Grupa LOTOS S.A. has been included in the first index of socially responsible companies in the CEE region, the RESPECT Index (Responsibility, Ecology, Sustainability, Participation, Environment, Community, Transparency), which includes 16 companies listed on the regulated market of the WSE and granted A rating as leaders in sustainable development, corporate disclosure and communication with the financial markets.

The RESPECT Index also takes into account the criteria of profitability related to dividend payments and pre- emptive rights, which provides insight into the economic standing of the companies included in the Index.

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17 Employment

17.1 Employment Structure of the LOTOS Group – General Information

The table below presents employment at the LOTOS Group in 2007, 2008, 2009, after the first half of 2010 and as at this Prospectus approval date, by key geographical regions in the case of the Issuer and individually for its subsidiaries. All data contained in this section are numbers of persons employed as at the end of the periods specified in the tables.

Table 61 Employment by geographical regions (number of persons employed)

Geographical region Dec 31 Dec 31 Dec 31 Jun 30 Prospectus 2007 2008 2009 2010 Date

IssuerGdańsk 1,008 1,152 1,210 1,213 1,210 Czechowice 33 30 29 33 33 Jasło 15 15 17 18 18 Kraków 5 5 3 6 6 Piotrków Trybunalski 9 9 9 9 9 Poznań 5 5 5 6 6 Rypin 0 10 11 11 11 Warsaw 23 20 21 20 22 Total 1,098 1,246 1,305 1,316 1,315 Subsidiares SuLOTOSbsidiaries Paliwa 272 244 261 264 261 LOTOS Kolej 345 407 504 534 545 LOTOS Oil 322 327 330 340 340 LOTOS Lab 185 168 153 149 147 LOTOS Serwis 722 734 725 721 717 LOTOS Straż 75 72 76 87 88 LOTOS Asfalt 176 214 249 293 293 LOTOS Gaz 97 82 28 8 7 LOTOS Ochrona 156 176 194 173 166 UAB LOTOS Baltija 9 8 6 7 7 LOTOS Park Technologiczny 102 16 1 1 1 RC Serwis 16 15 14 0 0 LOTOS Parafiny 265 279 274 273 272 LOTOS Tank 5 12 16 16 18 LOTOS Jasło 169 135 123 109 107 PLASTEKOL Organizacja Odzysku 10 17 5 4 4 LOTOS Czechowice 163 155 142 139 139 RC Ekoenergia 81 78 74 70 69 LOTOS Biopaliwa 8 35 35 34 34 Energobaltic 0 0 45 34 35 LOTOS Petrobaltic 486 446 421 428 432 LOTOS EPN AS 2 12 13 14 15 Total 3,666 3,632 3,689 3,698 3,697

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Source: the Issuer.

The tables below present the employment structure of the LOTOS Group and the Issuer by age and sex of employees.

Table 62 Employment structure of the LOTOS Group by age

Dec 31 Dec 31 Dec 31 Jun 30 Aug 31 Dec 31 Dec 31 Dec 31 Jun 30 Prospectus

2007 2008 2009 2010 2010 2007 2008 2009 2010 Date Issuer Subsidiaries 19-29 years 215 255 278 266 252 666 640 524 524 520 of age 30-40 years 298 365 389 411 416 1,066 1,047 1,101 1,105 1,111 of age 41-50 years 267 273 264 268 267 1,107 1,113 1,150 1,148 1,142 of age 51 years of age and 318 353 374 371 380 827 832 914 921 924 more Source: the Issuer.

Table 63 Employment structure of the LOTOS Group by sex

Dec Dec Dec Jun Aug Dec Dec Dec Jun 31 31 31 30 31 31 31 31 30 Prospectus Date 2007 2008 2009 2010 2010 2007 2008 2009 2010 Women Men Issuer 342 394 404 401 400 756 852 901 915 915 Subsidiari 816 776 759 763 762 2,850 2,856 2,930 2,935 2,935 es Source: the Issuer.

The table below sets forth the number of accidents at work that occurred in 2007, 2008, 2009 and from January 1st 2010 to the Prospectus Date.

Table 64 Accidents at work

from Jan 1 2010 2007 2008 2009 to the Prospectus Date Issuer 6 7 13 4 Subsidiaries 44 41 32 35 Total 50 49 45 39 Source: the Issuer.

Until the Prospectus date, the LOTOS Group, including the Issuer, employed 145 temporary workers who were employed for a definite term under employment contracts or for the period of a specific service.

Provisions for retirement and pension benefits as well as length-of-service awards are created separately for each LOTOS Group company and their total value amounts to PLN 101,159,00 thousand.

Employment at the LOTOS Group is fairly stable. Any changes in the employment structure result from the retirement of employees, which entails the necessity to fill the vacant posts, and from the growth of the LOTOS Group companies, requiring the recruitment of new employees.

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17.2 Shares and Stock Options Held by the Management and Supervisory Board Members

The Company shares are held by the following Management Board members: a) Marek Paweł Sokołowski – 8,636 shares with the total par value of PLN 8,636.

Other Management and Supervisory Board members do not hold any Issuer shares.

17.3 The Group’s HR Management Policy

The LOTOS Group has adopted a strategic and highly comprehensive approach in its human resources management policy. As part of its strategy of turning the Group‟s human resources into human capital, the Issuer adjusts the qualitative and quantitative structure of employment in response to the evolving environment, shapes the internal labour market and uses a variety of incentives to reward performance. The Management Board of Grupa LOTOS defines the Group-wide HR management policy with respect to selection and recruitment of staff, professional improvement and development, HR administration, incentive schemes, as well as social matters. The key principle underlying the Group‟s HR management policy is to treat staff as the Company‟s most vital capital.

LOTOS Academy

The LOTOS Academy, the Group‟s key training and development initiative run since 2004, is intended to promote the work culture and management philosophy based on the concept whereby all employees are consciously engaged in the creation of added value sought by the Company‟s customers and shareholders. The main objective behind the establishment of the LOTOS Academy was to create a loyal and mutually supportive team of employees, forming the backbone of a transparent, modern, efficient and strong organisation, capable of facing up to competition from large EU players.

Work Placements and Scholarships

The Issuer‟s Group seeks to support the academic and professional development of students. Every year more than a hundred of them are offered work placement openings at Grupa LOTOS or its subsidiaries. The Issuer has concluded a trilateral agreement with the Gdańsk University of Technology and the AGH University of Science and Technology with the intent to support talented, dedicated and creative students, as part of which it sponsors scholarships for students. The Issuer‟s objective is to facilitate the transition of students and graduates of universities from the Gdańsk-Gdynia-Sopot conurbation from the academic to the professional environment, helping them to “find their feet” on the labour market.

17.4 Trade Unions, Works Councils and Other Agreements with the Social Side

Availing themselves of their rights to independently and freely form employee organisations, employees of Grupa LOTOS have set up six trade unions, whose membership is close to 39% of the Company‟s total workforce. The size of the trade unions operating at Grupa LOTOS S.A. varies significantly – from 1.1% to 18% of the Issuer‟s

177 total workforce. The employer has concluded agreements with all the trade unions whereby they have been granted the use of premises for the conduct of their statutory activities as well as means of communication, in line with the standards applied to employees holding executive positions. The premises used by the trade unions are located at the registered address of Grupa LOTOS and access to the premises is in no way restricted. Apart from trade union representatives, there is a Works Council at Grupa LOTOS, composed of seven members designated by the two largest trade unions. The employer has concluded an agreement with the Works Council, enabling it to perform its tasks in a manner consistent with the high standards adopted by the employer. Each meeting of the Works Council, which proceeds according to an autonomously set agenda, is attended by the employer‟s representative, who can communicate any information which employee representatives may find interesting, answer their questions and, to a necessary extent, discuss certain issues.

As at the Prospectus date, there were ten trade unions operating at the Issuer‟s subsidiaries. The total number of trade unions operating at the LOTOS Group as at the prospectus date was 16, of which ten were multi-employer organisations.

In addition to the trade unions, there were works councils or their representations at all the Issuer‟s subsidiaries, in accordance with the Act on Informing and Consulting with Employees, dated April 7th 2006 (Dz. U. of 2006, No. 79, item 550, as amended).

17.5 Collective Bargaining Agreements

The labour relations at the LOTOS Group are governed by employment contracts, work rules and other internal regulations, collective bargaining agreements and other agreements with the social side: the Collective Bargaining Agreement for employees of Grupa LOTOS, dated April 29th 2004, entered in the Register of Collective Bargaining Agreements on October 1st 2007 (Registration Card No. U-CDLXIII). Some employees of Grupa LOTOS, especially members of its corporate governing bodies, have been excluded from the above Collective Bargaining Agreement with respect to its provisions relating to terms of employment and remuneration. All the material subsidiaries of the LOTOS Group have entered into separate collective bargaining agreements with their employees, which define the mutual obligations of the parties and the employment policies in place (including working hours, holiday leave, remuneration and payment of work-related allowances and benefits).

The following collective bargaining agreements have been concluded at the LOTOS Group companies:

 Collective Bargaining Agreement for employees of LOTOS Asfalt Sp. z o.o. of Gdańsk, dated November 4th 2005, entered in the Register of Collective Bargaining Agreements on December 13th 2005, Registration Card No. U-DCLI,  Collective Bargaining Agreement for employees of LOTOS Czechowice S.A. of Czechowice, dated November 21st 2007, entered in the Register of Collective Bargaining Agreements on January 14th 2008, Registration Card No. U-MDCCCXXXI/08,  Collective Bargaining Agreement for employees of LOTOS Kolej Sp. z o.o. of Gdańsk, dated December 12th 2005, entered in the Register of Collective Bargaining Agreements on January 16th 2006, Registration Card No. U-DCLV,  Collective Bargaining Agreement for employees of LOTOS Lab Sp. z o.o. of Gdańsk, dated June 10th 2005, entered in the Register of Collective Bargaining Agreements on July 7th 2005, Registration Card No. U- DCXLV,

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 Collective Bargaining Agreement for employees of LOTOS Ochrona Sp. z o.o. of Gdańsk, dated December 3rd 2008, entered in the Register of Collective Bargaining Agreements on December 15th 2008, Registration Card No. U-DCLXXXI,  Collective Bargaining Agreement for employees of LOTOS Oil S.A. of Gdańsk, dated November 22nd 2005, entered in the Register of Collective Bargaining Agreements on December 23rd 2005, Registration Card No. U-DCLII,  Collective Bargaining Agreement for employees of LOTOS Serwis Sp. z o.o. of Gdańsk, dated June 10th 2005, entered in the Register of Collective Bargaining Agreements on July 7th 2005, Registration Card No. U- DCXLIV,  Collective Bargaining Agreement for employees of LOTOS Straż Sp. z o.o. of Gdańsk, dated November 3rd 2005, entered in the Register of Collective Bargaining Agreements on December 1st 2005, Registration Card No. U-DCXLVIII,  Collective Bargaining Agreement for employees of LOTOS Petrobaltic S.A. of Gdańsk, dated November 29th 2007, entered in the Register of Collective Bargaining Agreements on December 28th 2007, Registration Card No. U-DCXXIX,  Collective Bargaining Agreement for employees of LOTOS Paliwa Sp. z o.o. of Gdańsk, dated August 22nd 1997, entered in the Register of Collective Bargaining Agreements on October 1st 1997, Registration Card No. U-CDLXIII.

17.6 Remuneration System

The remuneration system in place at the LOTOS Group is based on fixed monthly base pay, and includes additional benefits and an incentive element.

The base remuneration offered by the Issuer and most of its subsidiaries is determined on the basis of data derived from payroll reports, obtained regularly through labour market analysis, taking into account the specific character of each sector. For each job, a market median value has been determined, which also represents the target value. The median values have been determined on the basis of data obtained from external HR consultancies.

The criteria taken into account when determining individual remuneration include qualifications, skills and relevant experience. Every year, negotiations are held with the trade unions to agree the rate of base pay growth for all employees in a given year. In the first half of each year, a periodic payroll review is undertaken with a view to moving a group of outstanding employees, whose potential and importance for the Company are considered the greatest, further up the pay scale.

17.7 Additional Employee Benefits

In addition to the base remuneration, employees of the LOTOS Group are entitled to a range of additional benefits.

Such benefits include in particular: (i) length-of-service awards, (ii) mandatory annual bonuses, (iii) quarterly incentive bonuses, (iv) special awards, and (v) medical services package.

The LOTOS Group‟s employees retiring due to old age or disability are also entitled to one-off severance pay, whose amount depends on the length of service and exceeds the amount prescribed by law. The detailed rules for granting additional employee benefits are set down in the relevant collective bargaining agreements, as well as the work rules and rules of remuneration.

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The employees are also entitled to receive benefits from the Company Social Benefits Fund, in accordance with the Rules of the Company Social Benefits Fund, determined for the individual Group companies.

At Grupa LOTOS and its subsidiaries covered by the agreement on a joint social policy, the basic contribution to the Company Social Benefits Fund, provided for in the Act on Company Social Benefits Funds of March 4th 1994 (Dz. U. of 1994, No. 43, item 163, as amended), has been raised to 100% of the average monthly remuneration in the national economy per each employee and 6.25% per each retiree and pensioner. The LOTOS Group‟s expenditure on social benefits is growing in step with its own rapid growth and the rising headcount of employees, for whom good remuneration along with the rich social package represent an added advantage when looking for a job.

In addition, employees of the Issuer and its subsidiaries are covered by a group life insurance, under the Unit- Linked Group Life Insurance Agreement, concluded between companies of the LOTOS Group and Amplico Life Pierwsze Amerykańsko – Polskie Towarzystwo Ubezpieczeń na Życie i Reasekuracji S.A. of Warsaw.

17.8 Collective Labour Disputes

In the period covered by historical financial information, the Issuer and its subsidiaries have been parties to three collective disputes with their employees. It needs to be noted that the Group‟s policy is to resolve any labour disputes by settlement through social dialogue, pursuant to the Act on Resolution of Collective Disputes, dated May 23rd 1991 (Dz. U. of 1991, No. 55, item 236, as amended). Accordingly, the disputes that have arisen so far were resolved by settlement reached between the governing bodies of the Issuer and the relevant subsidiaries, and the trade unions operating at the Group. As at the prospectus date, no collective disputes were pending.

17.9 Employees’ Entitlement to Acquire Employee Shares Free of Charge

Pursuant to Art. 24.1 of the Act on Privatisation of State-Owned Enterprises of July 13th 1990 (Dz. U. of 1990, No. 51, item 298, as amended), the Issuer‟s employees were entitled to acquire on preferential terms up to 20% of the total number of the Issuer shares held by the State Treasury.

With effect from October 22nd 1996, the Privatisation Act was superseded by the Act on Privatisation and Commercialisation of State-Owned Enterprises of August 30th 1996 (Dz. U. of 1996, No. 118, item 561, as amended), as a result of which the Issuer shares were acquired by eligible employees on terms set forth in Art. 63.2 of the Commercialisation Act. The eligible employees were entitled to acquire free of charge up to 15% of the total number of the Issuer shares held by the State Treasury.

The total number of eligible employees entitled to acquire employee shares was 1,936. Under relevant agreements, they had acquired – until the date when the right to acquire Issuer shares free of charge expired – 1,179,697 ordinary registered shares, with a par value of PLN 10 per share, representing 14.99% of the Issuer‟s share capital at that time.

With respect to Series C Shares, employees of the LOTOS Group were not granted the right to acquire employee shares free of charge.

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18 Major Shareholders

18.1 To the Extent Known to the Issuer, Shareholders Other Than Members of the Administrative, Management and Supervisory Bodies Holding, Directly or Indirectly, Equity Interests in the Issuer’s Capital or Voting Rights Subject to Notification Under the National Law of the Issuer

Table 65 Major shareholders holding 5% or more of Grupa LOTOS’ share capital as at the Prospectus Date

Shareholder Number of shares % of the share capital of Grupa LOTOS State Treasury 69,076,392* 53.19% ING OFE 6,524,479** 5.02% Source: Issuer.

* According to the shareholder’s notification submitted to the Issuer on January 29th 2010. As at the Prospectus Date the Issuer did not receive any notification from the shareholder of any change in the number of shares held by the shareholder.

** According to the shareholder’s notification submitted to the Issuer on November 23rd 2009. At the General Shareholders Meeting held on June 28th 2010, ING OFE registered 8,500,000 shares of the Issuer, representing 6.54% of the share capital of Grupa LOTOS. As at the Prospectus Date the Issuer did not receive any notification from the shareholder of any change in the number of shares held by the shareholder.

18.2 Information on Whether Major Shareholders Have Other Voting Rights

As at the Prospectus Date, the Issuer had no knowledge of any shareholders other than the members of the administrative, management and supervisory bodies holding, directly or indirectly, equity interests in the Issuer‟s capital or voting rights subject to notification under the national law of the Issuer.

All the shares of Grupa LOTOS, including the shares held by the State Treasury and ING OFE, are ordinary shares carrying the right to one vote at the General Shareholders Meeting.

Pursuant to Par. 10 of the Issuer‟s Articles of Association, as long as the State Treasury or Nafta Polska S.A. holds the Company shares conferring the rights to at least one-fifth of the total vote at the General Shareholders Meeting, the rights of the Company shareholders are limited so that none of them can exercise at the General Shareholders Meeting more than one-fifth of the total number of votes at the Company as at the day of the General Shareholders Meeting. The limitation described in the preceding sentence does not apply to the State Treasury, Nafta Polska S.A., or their subsidiaries. The exercise of a voting right by a subsidiary is deemed as the exercise of that right by the parent entity within the meaning of the Public Offering Act, with the proviso that a parent entity and a subsidiary are also understood as any entity whose votes conferred by the shares held (directly or indirectly) in the Company may be aggregated with the votes of other entity or entities in accordance with the provisions of the Public Offering Act concerning holding, disposal or acquisition of significant blocks of shares in the Company. A shareholder whose voting right was limited in each case retains the right to exercise at least one vote. 181

18.3 Parent Entity of the Issuer

As at the Prospectus Date, the Parent Entity of Grupa LOTOS was the State Treasury, holding 53.19% of the Issuer‟s share capital. The State Treasury, represented by the Minister of the State Treasury, as the majority shareholder holds and exercises rights provided for in the Commercial Companies Code, Articles of Association and other provisions of law.

Pursuant to Par. 10 of the Issuer‟s Articles of Association, as long as the State Treasury holds the Company shares, it is entitled to appoint and remove one member of the Supervisory Board of Grupa LOTOS.

Under the above Act, the Minister of the State Treasury has the right to object to a resolution adopted by a company‟s management board or its other act in law concerning disposal of critical infrastructure assets which constitute a real threat to the functionality, continuity and integrity of critical infrastructure.

Such objection may also be made with respect to a resolution concerning: dissolution of the company, changes of the intended use or discontinuation of the use of any of the company‟s assets comprising critical infrastructure, change of the company‟s business profile, sale or lease of the company‟s business or its organised part, or encumbrance of the business or its organised part with limited property rights, adoption of a financial plan, investment plan, or a long-term strategic plan, and relocation of the company‟s registered office abroad, where the implementation of such a resolution could constitute a real threat to the functionality, continuity and integrity of the critical infrastructure. The objection of the Minister of State Treasury may be appealed against to the administrative courts.

The assumptions of the state policies concerning social or economic life spheres of material importance to public order or safety will be published in Monitor Polski.

The observers are authorised to request from companies any documents or explanations regarding the above issues, and, having analysed them, they are required to submit the obtained materials to the Minister of the State Treasury, together with their position expressed in writing and the statement of reasons.

The State Treasury Minister is required in certain cases, and in other cases he is authorised, to voice his objection to an action of a given strategic company of which he has been notified by the observers. Provided that it is not appealed against, such an objection renders a given legal action invalid as of the date on which it was performed.

As at the date of this Prospectus, the Issuer received no statement on the appointment of an observer for Grupa LOTOS.

Apart from the measures available under the Commercial Companies Code, Articles of Association and applicable provisions of law, there are no additional measures designed to substantially prevent the abuse of control over the Issuer by the Parent Entity.

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18.4 Description of All Arrangements Known to the Issuer, the Performance of Which

May Change the Control over the Issuer at a Later Date

As at the Prospectus Date, Grupa LOTOS had no knowledge of any arrangements the execution of which may change the control over the Issuer at a later date. The Company had no knowledge of shareholders other than the members of the administrative, management and supervisory bodies holding, directly or indirectly, equity interests in the Issuer‟s capital or voting rights subject to notification under the national law of the Issuer.

19 Related Party Transactions

The Issuer executed transactions with its related parties, within the meaning of International Accounting Standard 24, and intends to do so in future.

Grupa LOTOS enters into the following transactions with related parties:

- transactions with the companies of the LOTOS Group;

- transactions with subsidiaries of the State Treasury;

- transactions with the Company‟s joint ventures;

- transactions with the members of the Company‟s governing bodies;

All related party transactions are entered into in the ordinary course of business, at arm‟s length and at market prices of the delivered goods and services.

19.1 Related Party Transactions – Transactions with the Companies of the LOTOS Group

The Issuer enters into transactions with other companies of the LOTOS Group on an ongoing basis for the following reasons:

- sale of the Company‟s products, which are then resold by the related companies in the course of their business;

- provision by the related companies of services essential to the Issuer‟s operations (outsourcing of services essential to the Issuer‟s operations);

- provision by the Issuer of services essential to the operations of the related companies which have been centralised within the LOTOS Group (outsourcing of services essential to the related companies‟ operations);

- conclusion by the Issuer of agreements for the whole LOTOS Group, the costs of which are subsequently allocated to the related companies:

The main areas of cooperation between the Issuer and its subsidiaries:

- sale of the Gdańsk refinery‟s products to the subsidiaries;

- provision of repair and maintenance services to the Issuer (LOTOS Serwis); 183

- provision of property protection services to the Issuer (LOTOS Ochrona);

- provision of fire protection services to the Issuer (LOTOS Straż);

- provision of transport services to the Issuer (LOTOS Kolej);

- provision by the Issuer of accounting services to the subsidiaries;

- provision by the Issuer of HR and payroll services to the subsidiaries;

- provision by the Issuer of administrative office services to the subsidiaries;

- provision by the Issuer of IT services to the subsidiaries;

- provision of call centre services by LOTOS Paliwa;

- rules of personal data processing;

- rules for settling the cost of access to price reports obtained from external suppliers;

- rules for settling fees for membership in organisations;

- rules for settling the cost of office space rental;

- rules of using trademarks and know-how by the companies;

- provision of utilities and rules for settling the related costs;

- sale of oil to the Issuer by LOTOS Petrobaltic.

Table 66 Summary of transactions with related parties – companies of the LOTOS Group in the period

January – September 2010 (PLN ‘000)1

Sales to related parties Purchases from related parties (incl. excise duty and fuel (incl. excise duty and fuel charge) charge) Company

9 months ended Sep 30 9 months ended Sep 30 2010 2010 LOTOS Paliwa 9,776,740 882 LOTOS Oil 264,054 1,680 LOTOS Parafiny 49,901 25 LOTOS Kolej 7,105 212,854 LOTOS Serwis 4,130 35,620 LOTOS Gaz 8 -

1 Owing to systemic limitations resulting from the size of the Issuer and its Group, it is very difficult to generate the figures as at the Prospectus Date. Where the Issuer does not have the data as at the Prospectus Date, the most recent available data is presented. In the event of any significant changes, this Prospectus will be updated accordingly. 184

Sales to related parties Purchases from related parties (incl. excise duty and fuel (incl. excise duty and fuel charge) charge) Company

9 months ended Sep 30 9 months ended Sep 30 2010 2010 LOTOS Lab 990 11,082 LOTOS Ochrona 331 7,655 LOTOS Ekoenergia 5 - LOTOS Straż 562 8,571 LOTOS Asfalt 869,423 382 LOTOS Park Technologiczny - - LOTOS Tank 90,909 115 UAB LOTOS Baltija 2 138 LOTOS Jasło Group 1,027 8,905 LOTOS Czechowice Group 905 270,738 LOTOS Petrobaltic Group 8,055 279,172 Total 11,074,147 837,819 Source: the Issuer.

Table 67 Summary of transactions with related parties – companies of the LOTOS Group in 2009 (PLN ‘000)

Sales to related parties Purchases from related parties

Company

12 months ended Dec 31 2009 12 months ended Dec 31 2009

LOTOS Paliwa 10,557,197 1,579 LOTOS Oil 190,729 1,383 LOTOS Parafiny 57,733 43 LOTOS Kolej 8,809 244,406 LOTOS Serwis 5,359 56,166 LOTOS Gaz 94,118 1 LOTOS LAB 1,332 12,602 LOTOS Ochrona 464 11,990 LOTOS Ekoenergia 7 - LOTOS Straż 732 10,261 LOTOS Asfalt 815,692 98 LOTOS Park Technologiczny - - LOTOS Tank 194,524 744 LOTOS Baltija 3 189

185

LOTOS Jasło Group 1,062 11,845 LOTOS Czechowice Group 1,053 352,355 LOTOS Petrobaltic Group 13,283 231,679 RCSerwis 18 10 Total 11,942,115 935,351 Source: the Issuer.

Table 68 Summary of transactions with related parties – companies of the LOTOS Group in 2008 (PLN ‘000)

Sales to related parties Purchases from related parties

Company

12 months ended Dec 31 2008 12 months ended Dec 31 2008

LOTOS Paliwa 9,924,596 1,084 LOTOS Oil 273,874 1,741 LOTOS Parafiny 72,808 38 LOTOS Kolej 8,126 230,901 LOTOS Serwis 4,564 53,977 LOTOS Gaz 141,685 1,024 LOTOS LAB 1,270 12,789 LOTOS Ochrona 389 9,859 LOTOS Ekoenergia 7 - LOTOS Straż 706 10,273 LOTOS Asfalt 878,402 922 LOTOS Park Technologiczny 12 18 LOTOS Tank 220 55 LOTOS Baltija 1 56 LOTOS EPN 57 239 LOTOS Jasło Group 103,396 115,447 LOTOS Czechowice Group 946 104,437 LOTOS Petrobaltic Group 15,820 377,768 RCSerwis 22 45 Total 11,426,901 920,673 Source: the Issuer.

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Table 69 Summary of transactions with related parties – companies of the LOTOS Group in 2007 (PLN ‘000)

Sales to related parties Purchases from related parties Company

12 months ended Dec 31 2007 12 months ended Dec 31 2007

LOTOS Paliwa 7,977,175 683 LOTOS Partner 2,380,778 47,297 LOTOS Oil S.A. 215,471 1,829 LOTOS Parafiny 69,634 102 LOTOS Kolej 7,243 213,226 LOTOS Serwis 4,797 40,548 LOTOS Gaz 111,944 1,645 LOTOS LAB 1,095 12,608 LOTOS Ochrona 130 6,758 LOTOS Ekoenergia 7 - LOTOS Straż 616 10,287 LOTOS Asfalt 696,631 1,835 LOTOS Park Technologiczny 24 39 LOTOS Tank - - LOTOS Baltija - 57 LOTOS EPN 98 - LOTOS Jasło Group 74,172 83,072 LOTOS Czechowice Group 972 18,316 LOTOS Petrobaltic Group 5,479 290,338 RC Serwis 25 - Total 11,546,291 728,640 Source: the Issuer.

19.2 Related Party Transactions – Transactions with Subsidiaries of the State Treasury

The State Treasury is the Parent Entity of the Company. The State Treasury is also the parent entity or a shareholder of many other entities operating on the market. The Company has entered and will enter into transactions with entities which are wholly or partially owned by the State Treasury and therefore are the related parties of the Company within the meaning of International Accounting Standard 24.

Transactions with subsidiaries of the State Treasury are entered into at arm‟s length.

Due to the number of entities on the market in which the State Treasury holds equity interests and with which the Company enters into transactions in the ordinary course of its business, the Company is not able to present full information concerning all such transactions. Therefore, below are presented transactions with material related

187 parties of the State Treasury, whose equity exceeds PLN 100,000, as determined based on the list of companies with a majority interest held by the State Treasury and state-owned stock companies.

Table 70 Transactions with related parties of the State Treasury in the period January – September 2010 (PLN ‘000)1

The Company Sales to Purchases from related related parties (incl. parties (incl. excise duty and fuel excise duty charge) and fuel charge) Zakłady Azotowe PUŁAWY S.A. 1,216 2 Zakłady Chemiczne POLICE S.A. 763 - Zarząd Morskiego Portu Gdynia S.A. 21 - rzedsiębiorstwo Eksploatacji Rurociągów Naftowych PRZYJAŹŃ S.A. 2 83,808 Polskie Górnictwo Naftowe i Gazownictwo S.A. - 38,718 Total 2,002 122,528

Source: the Issuer.

Table 71 Transactions with related parties of the State Treasury – historical data (PLN ‘000)

For the year ended Dec 31 2009

Company Sales to related parties Purchases from (incl. excise duty and fuel related parties (incl. charge) excise duty and fuel charge) Zakłady Azotowe PUŁAWY S.A. 971 8 Zakłady Chemiczne POLICE S.A. 617 - Polskie Górnictwo Naftowe i Gazownictwo S.A. - 27,482 ENERGA S.A. 102 - Zarząd Morskiego Portu Gdynia S.A. 67 3 Przedsiębiorstwo Eksploatacji Rurociągów Naftowych 12,866 144,214 PRZYJAŹŃ S.A. Total 14,623 171,707 For the year ended Dec 31 2008

Zarząd Morskiego Portu Gdynia S.A. 112 - Przedsiębiorstwo Eksploatacji Rurociągów Naftowych 5 83,233 PRZYJAŹŃ S.A. ENERGA S.A. 1 63,278 OLPP Sp. z o.o. 6,114 53,507 Total 6,232 200,018 For the year ended Dec 31 2007

H.CEGIELSKI-POZNAŃ S.A. - 65 Przedsiębiorstwo Eksploatacji Rurociągów Naftowych 7 77,763 PRZYJAŹŃ S.A. ENERGA S.A. 1 48,974 Stocznia Gdynia S.A. 99 - Zarząd Morskiego Portu Gdynia S.A. 85 - Zakłady Azotowe PUŁAWY S.A. - 7 Total 192 126,809 Source: the Issuer.

19.3 Transactions with the Company’s Joint Ventures

The Company holds membership of many associations and organisations, which helps it to achieve its various business objectives. Membership of such organisations, among other things, allows the Company to voice its opinions in important discussions concerning the market of liquid fuels, provides it with access to information relevant to its business decision-making process, and to the know-how useful in carrying out its operations (such

189 as the registration of substances under the REACH Regulation). The benefits to the Issuer resulting from its participation in such organisations are incommensurably high compared to the costs incurred.

Table 72 Transactions with the Company’s joint ventures – contributions paid and benefits resulting from concluded agreements in 2007–2010 (PLN) 1

9 months No. Organisation ended Sep 2009 2008 2007 30 2010

1 Business Center Club --- 9,516.00 9,241.50 9,058.50 Gdańsk Business Club (Gdański Klub 2 6,400.00 ------6,400.00 Biznesu) Confederation of Polish Employers 3 20,000.00 24,000.00 24,000.00 24,000.00 (Konfederacja Pracodawców Polskich) Polish Organisation of Oil Industry and 4 Trade Warsaw (Polska Organizacja 144,232.00 131,120.00 119,200.00 113,400.00 Przemysłu i Handlu Naftowego W-wa) Polish Association of Listed Companies 5 15,000.00 15,000.00 5,000.00 5,000.00 (Stowarzyszenie Emitentów Giełdowych) Polish Higher Education-Business Forum 6 --- 6,000.00 6,000.00 6,450.00 (Polskie Forum Akademicko-Gospodarcze) European League for Economic 7 --- 16,482.75 12,106.13 12,418.80 Cooperation – Polish Section World Petroleum Council - Polish National 8 --- 1,360.21 1,487.08 --- Committee Polish Forum ISO-14000 Club (Klub 9 50.00 150.00 ------Polskie Forum ISO 14000) Polish Forum ISO 9000 (Polskie Forum 10 1,200.00 1,200.00 1,200.00 1,200.00 ISO 9000) Polish Economic Society Gdańsk (Polskie 11 ------2,000.00 Towarzystwo Ekonomiczne Gdańsk) Polish District Chamber of Civil Engineers 12 (Polska Okręgowa Izba Inżynierów 1,180.00 5,720.00 1,320.00 3,960.00 Budownictwa) Accountants Association in Poland 13 --- 1,000.00 ------(Stowarzyszenie Księgowych w Polsce) Conservation of Clean Air and Water in 14 39,447.00 44,872.00 35,221.00 47,659.30 Europe (CONCAWE) Brussels Institute for Fuels and Renewable Energy 15 Warsaw (Instytut Paliw i Energii 5,000.00 10,000.00 Odnawialnej W-wa)

9 months No. Organisation ended Sep 2009 2008 2007 30 2010 Polish Business Roundtable Club (Klub 16 4,392.00 4,392.00 4,392.00 7,027.20 Polskiej Rady Biznesu)

17 Windsor Energy Group (WEG) 21,718.50 26,115.50 ------

Pomorskie in European Union Association 18 (Stowarzyszenie "Pomorskie w Unii 25,000.00 ------Europejskiej") INTERNATIONAL DATA GROUP 19 --- 1,342.00 1,292.83 --- POLAND s.a. INTERNATIONAL OIL POLLUTION 20 ------106,575.11 --- COMPENSATION Institute of Internal Auditors Poland 21 (Stowarzyszenie Audytorów 400.00 400.00 200.00 400.00 Wewnętrznych IIA Polska)

22 CREDITREFORM 500.00 ------European League for Economic 23 14,517.83 ------Cooperation (ELEC) Source: the Issuer.

The total value of transactions between the Issuer and the organisations of which it is a member was as follows:

2007 – PLN 248,573.80

2008 – PLN 327,035.65

2009 – PLN 293,120.46

9 months ended September 30th 2010 – PLN 294,437.33

19.4 Transactions with Members of the Company’s Governing Bodies

In the period covered by the historical information, the transactions concluded by the Company with members of its governing bodies involved payment of employee benefits and benefits for serving on the Issuer‟s Supervisory Board. All the transactions described in this section were concluded on arms‟ length terms and in the ordinary course of the Company‟s business, subject to the restrictions provided for by the Act on Remunerating Persons Who Manage Certain Legal Entities, dated March 3rd 2000 (the Compensation Cap Act).

191

Table 73 Remuneration of the Management and Supervisory Board Members and information on loans and other similar benefits granted to members of the management and supervisory bodies of the Issuer in the period January – October 20101

PLN ‘000 10 months ended Oct 31 2010

990 Management Board Supervisory Board 206 Management Board – subsidiaries (1) 208 Total(2) 1,404 Source: the Issuer.

(1) Remuneration paid and payable to the members of the Management Board of Grupa LOTOS S.A. for serving on the Supervisory Boards and the Boards of Directors of subsidiaries.

(2) The remuneration amount reflects changes in the composition of the Management and Supervisory Boards of Grupa LOTOS S.A. during the reporting period.

As at October 31st 2010, the Company did not grant any loans or similar benefits to members of its management and supervisory bodies.

Table 74 Remuneration of the Management and Supervisory Board Members and information on loans and other similar benefits granted to members of the management and supervisory bodies of the Issuer in 2009

Year ended Dec 31 2009 PLN ‘000

713 Management Board Supervisory Board 233 Management Board – subsidiaries (1) 278 Total(2) 1,224 Source: the Issuer.

(1) Remuneration paid and payable to the members of the Management Board of Grupa LOTOS S.A. for serving on the Supervisory Boards and the Boards of Directors of subsidiaries.

(2) The remuneration amount reflects changes in the composition of the Management and Supervisory Boards of Grupa LOTOS S.A. during the reporting period.

As at December 31st 2009, the Company did not grant any loans or similar benefits to members of its management and supervisory bodies.

Table 75 Remuneration of the Management and Supervisory Board Members and information on loans and other similar benefits granted to members of the management and supervisory bodies of the Issuer in 2008

PLN ‘000 Year ended Dec 31 2008

606 Management Board Supervisory Board 261 Management Board – subsidiaries(1) 441 Total(2) 1,308 Source: the Issuer.

(1) Remuneration paid and payable to the members of the Management Board of Grupa LOTOS S.A. for serving on the Supervisory Boards and the Boards of Directors of subsidiaries.

(2) The remuneration amount reflects changes in the composition of the Management and Supervisory Boards of Grupa LOTOS S.A. during the reporting period.

As at December 31st 2008, the Company did not grant any loans or similar benefits to members of its management and supervisory bodies.

Table 76 Remuneration of the Management and Supervisory Board Members and information on loans and other similar benefits granted to members of the management and supervisory bodies of the Issuer in 2007

PLN ‘000 Year ended Dec 31 2007

Management Board 738(1) Supervisory Board 239 Management Board – subsidiary and associated undertakings 274 Total(2) 1,251 Source: the Issuer.

(1)Remuneration payable for the period preceding appointment to the Management Board of Grupa LOTOS S.A.

(2) The remuneration amount reflects changes in the composition of the Management and Supervisory Boards of Grupa LOTOS S.A. during the reporting period.

As at December 31st 2007, the Company did not grant any loans or similar benefits to members of its management and supervisory bodies.

193

20 Financial Information Concerning the Issuer’s Assets and Equity and Liabilities, Financial Position and Profits and Losses

20.1 Historical Financial Information

Pursuant to Art. 22.2 of the Public Offering Act and Art. 28 of the Commission Regulation (EC) No. 809/2004 of April 29th 2004 as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements, the Issuer incorporated by reference in the Registration Document previously published consolidated financial statements for the years 2007–2009.

The Issuer incorporated by reference the following financial information:

 audited annual consolidated financial statements for 2007, published in the annual report released on May 8th 2008; opinion and report on the audit of the consolidated annual financial statements for 2007 were included in the annual report;

 audited annual consolidated financial statements for 2008, published in the annual report released on April 28th 2009; opinion and report on the audit of the consolidated annual financial statements for 2008 were included in the annual report;

 audited annual consolidated financial statements for 2009, published in the annual report released on April 30th 2010; opinion and report on the audit of the consolidated annual financial statements for 2009 were included in the annual report;

 unaudited semi-annual consolidated financial statements for the first half of 2010, published in the interim report released on August 26th 2010; report on the review of the consolidated financial statements for the first half of 2010 was included in the interim report;

 unaudited interim condensed consolidated financial statements for the period of three and nine months ended September 30th 2010, published in the interim report released on November 4th 2010.

The above financial information is available on the Issuer‟s website at www.lotos.pl.

20.2 Pro-Forma Financial Information

We hereby represent that in 2007, 2008 and 2009 no events occurred which would entail the requirement to prepare pro-forma financial information. As a result, no pro-forma financial information within the meaning of the Commission Regulation (EC) No. 809/2004 is presented in this Prospectus.

20.3 Financial Statements

The reports containing historical financial information are available on the Issuer‟s website at www.lotos.pl

20.4 Audit of the Historical Annual Financial Information

Auditors‟ opinions on the Issuer‟s consolidated financial statements which served as the basis for the historical financial information included in this Prospectus, i.e. the financial statements for 2007, 2008 and 2009, were published together with the relevant financial statements for those periods in the form of periodic reports.

194

The opinions are available on the Issuer‟s website at www.lotos.pl.

Apart from the consolidated financial data of Grupa LOTOS S.A. for the years 2007–2009 and for the first half of 2010, no other information contained in this Prospectus was audited or reviewed by auditors.

20.5 Date of the Most Recent Financial Information

The most recent audited annual consolidated financial statements of Grupa LOTOS S.A. (for 2009) were prepared as at December 31st 2009 and released on April 30th 2010.

The most recent semi-annual consolidated financial statements of Grupa LOTOS S.A. (for H1 2010) were prepared as at June 30th 2010 and released on August 26th 2010. They were reviewed by an auditor.

The most recent interim condensed consolidated financial statements for the period of three and nine months ended September 30th 2010, not audited and not reviewed by an auditor, were released on November 4th 2010.

20.6 Interim Financial Information and Other Data

Following the date of its most recent audited financial statements (annual consolidated financial statements for 2009), the Issuer published consolidated financial statements for the first quarter of 2010, consolidated financial statements for the first half of 2010 and consolidated financial statements for the third quarter of 2010.

The quarterly consolidated financial statements of Grupa LOTOS S.A. (for the first quarter of 2010) were prepared as at March 31st 2010 in accordance with the International Accounting Standards. The Q1 2010 consolidated financial report containing appropriate financial data for the first three months of 2010 was released on May 6th 2010.

The interim consolidated financial statements of Grupa LOTOS S.A. (for the first half of 2010) were prepared as at June 30th 2010 in accordance with the International Accounting Standards. The H1 2010 consolidated financial report containing appropriate financial data for the first six months of 2010 (financial data reviewed by an auditor) was released on August 26th 2010.

The quarterly consolidated financial statements of Grupa LOTOS S.A. (for the third quarter of 2010) were prepared as at September 30th 2010 in accordance with the International Accounting Standards. The Q3 2010 consolidated financial report, containing appropriate financial data for the first three and nine months of 2010 ,was released on November 4th 2010.

20.7 Dividend Policy

In line with the dividend policy included in the Strategy for the LOTOS Group until 2015 applicable as at the Prospectus Date (http://www.lotos.pl/korporacyjny/grupa_lotos/bstrategia_2011-2015b/strona/12238), dividend payments will be subject to the principle providing for optimising the LOTOS Group‟s financing structure. It is expected that the dividend for the years covered by the strategy will be paid out in the amount of up to 30% of the net profit. The dividend policy for the subsidiaries will be determined, taking into account their financial standing and development programmes, by the Management Board of Grupa LOTOS.

195

Table 77 Dividends paid in 2007–2010

Year Dividend paid per share 2007 PLN 0.36 2008 PLN 0.00 2009 PLN 0.00 2010 PLN 0.00 Source: the Issuer.

20.8 Court and Arbitration Proceedings

As at this Prospectus approval date, no material proceedings were pending against companies of the LOTOS Group. Below are described court proceedings to which LOTOS Group companies are a party and which are deemed most important given their value or subject of litigation.

20.8.1 Grupa LOTOS S.A.

Action brought by Petroecco JV Sp. z o.o. against Grupa LOTOS S.A.

Litigation value: PLN 6,974,700.00.

On May 18th 2001, PETROECCO JV Sp. z o.o. brought an action against the Company whereby it sought the courts‟ decision awarding an amount of PLN 6,975 thousand, together with statutory interest from May 1st 1999, as compensation for damage incurred as a result of the Company‟s monopolistic practices, which involved selling BS base oils in a manner favouring some customers, whose orders were executed to a disproportionately higher extent than the orders of PETROECCO JV Sp. z o.o.

The alleged use of the monopolistic practices by the Company was confirmed by a decision of the Competition and Consumer Protection Office of September 26th 1996, in which the Office ordered the Company to abandon such practices. The Company appealed against the decision. The Provincial Court of Warsaw – the Anti-Monopoly Court, changed, by virtue of decision of October 22nd 1997, only the wording of the decision and ordered the Company to abandon monopolistic practices. The cassation complaint against this decision filed by the Company was dismissed by the Supreme Court by virtue of its decision of June 2nd 1999.

The Regional Court of Gdańsk, by virtue of decision of December 21st 2002, dismissed the action for compensation, fully complying with the Company‟s objection referring to the statute of limitation. However, this decision was overruled on December 4th 2003 by the Gdańsk Court of Appeals, in case No. I ACa 824/03, and submitted for re-examination by the Regional Court of Gdańsk. The Court of Appeals found that the reference to the statute of limitation was not justified. According to the Court, it was only on June 2nd 1999 (the date of the Supreme Court‟s ruling) that PETROECCO JV Sp. z o.o. became aware that the damage it incurred resulted from monopolistic practices giving rise to the Company‟s liability in tort, and it is as of that date, in the Court‟s opinion, that the three-year period of limitation of compensation claims should be counted.

The case is pending before the Regional Court of Gdańsk (First Instance Court); file No. is IX GC 134/04. The Company defended itself by raising objections as to the merits of the case (it questions the fact that any damage was incurred by PETROECCO JV Sp. z o.o., the amount of the alleged damage, and the existence of the cause and effect relationship between the monopolistic practices and the damage). Following the hearing of June 2005, the Regional Court of Gdańsk ordered a court expert in accountancy and economics to draw up a report concerning the extent of the damage which the plaintiff incurred as a result of Grupa LOTOS S.A.‟s activities. In 196 the issued opinion, the expert witness indicated that based on the materials presented by PETROECCO JV Sp. z o.o. it was impossible to establish the amount of the losses or even state whether the losses were actually incurred. Besides, the expert pointed out that an opinion should be requested from an expert witness in a field other than accountancy. The lack of evidence required to issue such an opinion prevented the plaintiff from causing the appointment of another expert witness. The hearing was held on March 27th 2007. The ruling was scheduled to be announced on April 10th 2007, then postponed until April 20th 2007. Pursuant to the ruling of April 20th 2007, the suit was dismissed. On May 17th 2007, the Company filed an appeal against the decision on the cost of the proceedings. On June 4th 2007, PETROECCO filed an appeal against the ruling issued on April 20th 2007. On August 12th 2007, the Company submitted its response to the appeal. On December 20th 2007, the Court dismissed PETROECCO JV Sp. z o.o.‟s appeal against the decision of the Regional Court. On March 19th 2008, an enforcement motion was filed with a Court Enforcement Officer against PETROECCO JV Sp. z o.o. On April 17th 2008, PETROECCO JV Sp. z o.o. lodged a cassation complaint against the ruling issued on December 20th 2007. The complaint was delivered to Grupa LOTOS S.A. on June 17th 2008. On June 30th 2008, Grupa LOTOS S.A. sent a response to the complaint. The case was referred to trial proceedings scheduled for November 14th 2008. On January 14th 2009, the Supreme Court reversed the ruling appealed against and remanded the case for re-examination by the Court of Appeals in Gdańsk. On April 3rd 2009, the Court Enforcement Officer sent the decision on discontinuation of the enforcement proceedings. On May 14th 2009, the Court of Appeals referred the case to the Regional Court for re-examination. During the next hearing held on November 3rd 2009, the Court obliged PETROECCO JV Sp. z o.o. to appoint an expert. The date of the next hearing will be set. The plaintiff submitted expert evidence. The date of the next hearing was set for October 1st 2010. The case is pending.

Action in Response to Grupa LOTOS’ Appeal against a Decision Issued by the Office of Competition and Consumer Protection

Litigation value: PLN 1,000,000.

On March 21st 2005, the President of the Office of Competition and Consumer Protection (UOKiK) issued a decision whereby anti-trust proceedings were instigated ex officio to investigate the issue of a suspected agreement between Polski Koncern Naftowy ORLEN S.A. of Płock and Grupa LOTOS S.A. of Gdańsk, concerning a simultaneous discontinuation of the production and distribution of the universal U95 gasoline. In the opinion of the Company‟s Management Board, given that in fact the production and sale of the U95 universal gasoline were not discontinued, the allegations of UOKiK are unfounded. In April 2005, the Management Board motioned for issuing a decision to the effect that Grupa LOTOS S.A. has not been found to use practices restricting competition.

In July 2005, the Company appealed to the Anti-Monopoly Court against the UOKiK‟s decision limiting access to a part of the evidence gathered in the case. Independent of the appeal, in September 2005, the Company filed another request with the Court to issue a decision to the effect that Grupa LOTOS S.A. does not use monopolistic practices. In October 2005, the Company received another decision of UOKiK concerning limitation of access to a part of the evidence, against which the Company appealed to the Anti-Monopoly Court. The Regional Court – Competition and Consumer Protection Court dismissed the appeals. Grupa LOTOS S.A. appealed to the Warsaw Court of Appeals, but the appeals were dismissed as well.

Pursuant to the Court‟s Decision of April 18th 2007, Grupa LOTOS S.A.‟s right of access to evidence in the anti- trust proceedings, namely to the materials obtained during inspections at PKN ORLEN S.A.‟s offices, was restricted on the basis of a petition submitted by PKN ORLEN S.A. The restriction concerned the report on inspection of the offices in Warsaw together with appendices to the report, and a part of appendices to the report on inspection of the offices in Płock. Under the same Decision, PKN ORLEN S.A.‟s petition was rejected to the extent concerning restriction of Grupa LOTOS S.A.‟s right of access to the report on inspection of PKN ORLEN 197

S.A.‟s offices in Płock. On April 26th 2007, Grupa LOTOS S.A. filed a complaint against the Decision restricting Grupa LOTOS S.A.‟s right of access to the evidence. On May 9th 2007, Grupa LOTOS S.A. received a notice from the UOKiK to provide information on changes to U-95 and Pb95 gasoline prices. The information was sent to the UOKiK on the same day. On August 2nd 2007, Grupa LOTOS S.A. sent a notification to the UOKiK to the effect that the production of the U-95 gasoline had been discontinued. On December 31st 2007, the President of UOKiK imposed a fine of PLN 1,000 thousand on Grupa LOTOS S.A. Consequently, on January 17th 2008, an appeal against the decision was filed with the Regional Court of Warsaw. On September 23rd 2008, the Regional Court of Warsaw sent a response by the President of UOKiK to the appeal submitted by Grupa LOTOS S.A. against the President‟s decision. In response to Grupa LOTOS S.A.‟s appeal, the President stated that Grupa LOTOS S.A.‟s objections both with reference to substantive and procedural laws were unfounded and requested that the appeal be dismissed in its entirety and that the President be awarded the costs of legal representation. The hearing was set for April 27th 2010. On June 15th 2010, the Company received a decision dismissing the appeal against the decision of the President of UOKiK. On June 28th 2010, Grupa LOTOS S.A. appealed against this decision. The case is pending.

Action brought by the Minister of the State Treasury against Grupa LOTOS S.A.

Litigation value: PLN 3,334,000.00

On November 3rd 2005, Grupa LOTOS S.A. was served a nullity suit submitted by the Minister of the State Treasury, concerning the agreement of August 18th 1998 between Grupa LOTOS S.A. and Polska Żegluga Morska, a state-owned company, providing for the sale of two shares in Naftoport Sp. z o.o., valued at PLN 3,340 thousand. On April 21st 2006, the Regional Court in Gdańsk, IX Commercial Division, issued a ruling dismissing the claim in its entirety. On June 8th 2006, the Minister of the State Treasury appealed against the ruling of April 21st 2006. On June 30th 2006, the Company filed its response to the appeal. On December 28th 2006, the Court of Appeals passed a ruling reversing the challenged decision of April 21st 2006 and declaring the agreement on the sale of two shares in Naftoport Sp. z o.o. as invalid. On April 6th 2007, the Company filed a cassation complaint and a request to stay enforcement of the decision of the second instance. By virtue of the ruling of the Court of Appeals of Szczecin dated April 20th 2007, the request to stay enforcement of the decision of the second instance was dismissed. On August 10th 2007, the Supreme Court issued a decision to accept the cassation complaint for consideration. On November 21st 2007, the Supreme Court issued a decision to remand the case back to the Court of Appeals in Szczecin. The hearing was held on May 7th 2008. The Court dismissed the claim in its entirety and decided that the costs of the proceedings in the amount of PLN 100 thousand would be returned to Grupa LOTOS S.A. The Court‟s decision became final with effect from May 7th 2008. On August 20th 2008, the State Treasury lodged a cassation complaint. In a closed session held on March 6th 2009, the Court accepted the complaint for consideration. The date of the hearing was set for May 6th 2009; during the hearing, the Supreme Court remanded the case for re-examination by the Court of Appeals in Szczecin. At the hearing held on September 30th 2009, the Court of Appeals dismissed the action and awarded reimbursement of the cost of court proceedings to Grupa LOTOS S.A. by the State Treasury. On January 11th 2010, the State Treasury lodged a cassation complaint against the ruling of the Court of Appeals. On July 8th 2010, the Supreme Court overruled the Court of Appeals‟ judgment dated September 30th 2009 and remanded the case for re-examination. The case is pending.

20.8.2 LOTOS Paliwa Sp. z o.o.

Action brought by WANDEKO against LOTOS Paliwa

Litigation value: PLN 15,318,000. 198

LOTOS Paliwa Sp. z o.o. is a party to court proceedings pending before the Regional Court of Gdańsk, instigated by Przedsiębiorstwo Wielobranżowe Wan-Deko Andrzej Wójcik. In the case in question, Mr Andrzej Wójcik demands from LOTOS Paliwa the payment of remuneration together with claims for compensation (contractual interest) related to an alleged delay in payment. The dispute between the parties concerns the manner in which, in 2005–2006, Mr Andrzej Wójcik performed his contractual obligations consisting in the provision of services connected with the rebranding of service stations. On October 28th 2009, Regional Court of Gdańsk, without examining LOTOS Paliwa‟s arguments and evidence, issued a default judgement (No. IXGC 272/09) awarding PLN 1,921 thousand plus all accessory claims from the company to the plaintiff. LOTOS Paliwa lodged an objection to the default judgement by the time prescribed, demanding that the judgement be reversed and the action dismissed in its entirety, and presenting the company‟s position on the case. LOTOS Paliwa Sp. z o.o. created a provision for the amount awarded against it along with interest accrued until December 31st 2009 in the amount of PLN 15,318 thousand. The case is pending.

20.8.3 LOTOS Czechowice S.A.

Proceedings Concerning Excise Duty Liabilities for the Period September 1st – December 31st 2003

On April 12th 2006, the Head of the Customs Office of Bielsko-Biała instigated fiscal proceedings concerning LOTOS Czechowice S.A. to determine the correct amount of the company‟s excise duty liability for the period September 1st – December 31st 2003

After repeated setting of deadlines for final resolution of the proceedings, on November 13th 2008 the Head of the Customs Office of Bielsko-Biała issued decisions determining the amounts of excise duty liability for September, October, November and December 2003, which exceeded the excise duty liability amounts reported by LOTOS Czechowice S.A. in its tax returns:

- by PLN 3,587,545 – with respect to the tax liability for September 2003,

- by PLN 12,188,624 – with respect to the tax liability for October 2003,

- by PLN 8,887,402 – with respect to the tax liability for November 2003,

- by PLN 6,222,657 – with respect to the tax liability for December 2003.

On November 21st 2008, LOTOS Czechowice S.A. filed a request with the Head of the Customs Office of Bielsko- Biała to stay enforcement of the decision related to the excise duty liability for September – December 2003.

On December 1st 2008, LOTOS Czechowice S.A. filed an appeal with the Director of the Customs Chamber of Katowice, through the intermediation of the Head of the Customs Office of Bielsko-Biała, against the decision issued by the Head of the Customs Office determining the excise duty liabilities in amounts exceeding those declared by the company.

On December 4th 2008, the Director of the Customs Chamber of Katowice initiated enforcement proceedings against LOTOS Czechowice S.A. by issuing enforcement orders with respect to the decisions of the Head of the Customs Office of Bielsko-Biała regarding excise duty liabilities for September – December 2003, and by seizing the amounts owed from LOTOS Czechowice S.A.‟s bank accounts. The additional excise duty liability amounts payable under the decisions were increased by the costs of enforcement proceedings in the total amount of PLN 2,460,419.10 and default interest determined as at the date of issuing the enforcement orders in the total amount of PLN 10,120,755.00.

199

On December 15th 2008, the Director of the Customs Chamber of Katowice filed eight requests with the District Court of Pszczyna, along with enforcement orders, to register compulsory ordinary mortgages (hipoteka przymusowa zwykła), each with the value of PLN 5,446,155.40 (PLN 43,569,243.20 in total), over LOTOS Czechowice S.A.‟s properties.

On December 17th and 18th 2008, the District Court of Pszczyna registered seven ordinary compulsory mortgages, in line with the requests. On December 23rd 2008, the Court resolved to dismiss one of the requests filed by the Director of the Customs Chamber of Katowice on the grounds of having encountered obstacles in registration (inconsistencies between the contents of the Land and Mortgage Register entry and the request). The dismissed request concerned property entered into the Land and Mortgage Register under entry No. KW 9034 Cz.

On December 12th 2008, the company filed requests with the Director of the Customs Chamber of Katowice to stay the enforcement proceedings instigated by virtue of the enforcement orders.

On December 12th 2008, the Head of the Customs Office of Bielsko-Biała granted the request filed by the company on November 21st 2008 and issued a decision to stay enforcement of the decision concerning the excise duty liability for December 2003.

On the same day, the Director of the Customs Chamber of Katowice issued decisions to stay enforcement of the decisions concerning the excise duty liabilities for the period September – November 2003.

Also on December 12th 2008, the Director of the Customs Chamber of Katowice, invoking the decisions to stay enforcement of the Customs Office Head‟s decisions concerning the excise duty liabilities for the period September – December 2003, issued decisions to suspend the enforcement proceedings.

On February 23rd 2009, the Director of the Customs Chamber of Katowice issued decisions concerning the excise duty liabilities for the period September – December 2003, which repealed the decisions of the Head of the Customs Office of Bielsko-Biała and remanded the cases back to the Head of the Customs Office of Bielsko-Biała.

On May 4th, May 6th, and May 14th 2009, LOTOS Czechowice S.A. received notices from the District Court of Pszczyna, V Land and Mortgage Register Division, to the effect that the compulsory mortgages, previously registered at the request of the Director of the Customs Chamber of Katowice, were de-registered.

On November 20th 2009, the Management Board of LOTOS Czechowice submitted a process letter to the Head of the Customs Office of Bielsko-Biała, accompanied by a legal expert report and opinion on the properties and functional qualities of preparation named “Oil B for ceramic moulds”, which confirmed the correctness of the company‟s position in the pending proceedings.

By virtue of decisions of February 25th 2010, the Head of the Customs Office of Bielsko-Biała set a new deadline for resolving the cases concerning proceedings relating to the excise duty liability for September, October, November and December 2003 – May 28th 2010.

On May 17th 2010, the Head of the Customs Office of Bielsko-Biała issued decisions (delivered to the company on May 21st 2010) determining the amounts of excise duty liability for September, October, November and December 2003, which exceeded the excise duty liability amounts reported by the company in its tax returns:

- by PLN 3,587,545 – with respect to the tax liability for September 2003,

- by PLN 12,188,624 – with respect to the tax liability for October 2003,

- by PLN 8,887,402 – with respect to the tax liability for November 2003, 200

- by PLN 6,222,657 – with respect to the tax liability for December 2003.

By the statutory deadline (i.e. June 2nd 2010), LOTOS Czechowice filed appeals against these decisions with the Director of the Customs Chamber of Katowice, through the agency of the Head of the Customs Office of Bielsko- Biała. The appeals were accompanied by an auxiliary expert‟s opinion issued by Prof. Brzeziński from Toruń, dated May 31st 2010, confirming the correctness of LOTOS Czechowice‟s position.

Proceedings Concerning Excise Duty Liabilities for the Period January 1st – March 31st 2004

At LOTOS Czechowice, the Head of the Customs Office of Bielsko-Biała carried out an inspection to determine the correct amount of excise duty payable for the period from January 1st 2004 to September 30th 2004. As a result of the inspection, fiscal proceedings were instigated on May 18th 2005 on an ex officio basis. On May 5th 2006, LOTOS Czechowice received four decisions issued by the Head of the Customs Office of Bielsko-Biała, determining the excise duty liability for January, February, and March 2004. The proceedings aimed at determining the excise duty liability for April 2004 were discontinued. On May 19th 2006, the company filed with the Director of the Customs Chamber an appeal against the aforementioned decisions as well as requests to stay execution of the decisions. In August 2006, the company received decisions issued by the Head of the Customs Office, which discontinued the proceedings concerning excise duty for May–September 2004. On October 17th 2006, LOTOS Czechowice S.A. received the decision of the Director of the Customs Chamber of Katowice, setting the deadline by which the appeals against the decisions issued by the Head of the Customs Office of Bielsko-Biała, determining the excise duty liability for January–March 2004, would be considered, i.e. December 13th 2006. Pursuant to the decision of August 13th 2007, the Director of the Customs Office of Katowice set the date for considering the appeal at October 13th 2007. On October 19th 2007, LOTOS Czechowice received three decisions issued by the Director of the Customs Chamber of Katowice, repealing in full the decisions of the Head of the Customs Office of Bielsko-Biała determining the amount of excise duty liability for January, February, and March 2004. The case was remanded for re-examination by the first instance body.

On November 19th 2007, the company filed with the Provincial Administrative Court three complaints against the decisions issued by the Director of the Customs Chamber of Katowice which repealed the decisions of the Head of the Customs Office of Bielsko-Biała and remanded the cases back to the Head of the Customs Office of Bielsko- Biała. On April 2nd 2008, court hearings were held concerning the complaints, and rulings were issued whereby the complaints were dismissed. After LOTOS Czechowice S.A. had requested and received the written statements of reasons, the Management Board resolved not to file a complaint to the Supreme Administrative Court.

As a result, the cases were remanded back to the first instance body, i.e. to the Head of the Customs Office of Bielsko-Biała, for re-examination.

By virtue of the decisions issued on June 29th 2009 by the Head of the Customs Office of Bielsko-Biała, a new deadline for resolving the cases concerning the excise duty liability for the period January – March 2004 was set for July 31st 2009.

On July 30th 2009, LOTOS Czechowice S.A. received decisions of July 27th 2009 issued by the Head of the Customs Office of Bielsko-Biała concerning January, February and March 2004, determining the amounts of excise duty liability which exceeded the excise duty liability amounts reported by LOTOS Czechowice S.A. in its tax returns:

- by PLN 1,238,908.00 – with respect to the tax liability for January 2004,

- by PLN 538,167.00 – with respect to the tax liability for February 2004, 201

- by PLN 8,223.00 – with respect to the tax liability for March 2004.

On August 13th 2009, the Management Board of LOTOS Czechowice lodged appeals against the decisions with the Director of the Customs Chamber of Katowice, through the intermediation of the Head of the Customs Chamber of Bielsko-Biała.

Upon examination of the appeals, by virtue of decisions issued on November 17th 2009, the Director of the Customs Chamber of Katowice reversed the decisions appealed against and remanded the case for re- examination by the first instance body.

By virtue of its decisions of March 3rd 2010, the Head of the Customs Office of Bielsko-Biała set the deadline for resolving the case at May 5th 2010.

On April 19th 2010, LOTOS Czechowice received the decisions issued on April 14th 2010 by the Head of the Customs Office of Bielsko-Biała relating to January, February and March 2004, which again determined the amounts of excise duty liabilities in excess of the excise duty liability amounts reported by LOTOS Czechowice S.A. in its tax returns:

- by PLN 1,238,908.00 – with respect to the tax liability for January 2004,

- by PLN 538,167.00 – with respect to the tax liability for February 2004,

- by PLN 8,223.00 – with respect to the tax liability for March 2004.

By the statutory deadline, i.e. on May 4th 2010, the Management Board of LOTOS Czechowice lodged appeals against the above decisions to the Director of the Customs Chamber of Katowice through the intermediation of the Head of the Customs Office of Bielsko-Biała.

On June 7th 2010, LOTOS Czechowice sent a process letter to the Director of the Customs Chamber of Katowice, accompanied by an auxiliary expert‟s opinion issued by Prof. Brzeziński of Toruń, dated May 31st 2010.

Currently, the cases involving oil B concerning the years 2003 and 2004 are at the same stage of examination by the second instance body (i.e. by the Head of the Customs Office of Katowice).

As concerns the potential excise duty liabilities for the period September–December 2003 and the period January– March 2004, taking into account the obtained expert reports and specialist opinions as well as the legal and tax analyses conducted to date, including the analyses carried out by external tax advisers as well as an expert witness designated by the Director of the Customs Chamber, LOTOS Czechowice S.A. is of opinion that there is very little any risk of unfavourable outcome of the dispute with the tax authorities, therefore no provisions were created in the financial statements with regard to these potential liabilities.

20.8.4 LOTOS Gaz S.A.

Proceedings in Connection with the Acquisition of KRAK-GAZ Sp. z o.o.

As at December 31st 2008, in connection with the events discussed below, the LOTOS Group recognised an impairment loss in the total amount of PLN 12,645 thousand on the goodwill which arose on the acquisition of KRAK–GAZ Sp. z o.o. by LOTOS Gaz S.A. on July 9th 2007.

On June 20th 2008, the Tax Supervision Authority of Kraków issued a post-inspection report as part of the proceedings instituted on November 21st 2006 (i.e. prior to the purchase of shares in KRAK–GAZ Sp. z o.o. by 202

LOTOS Gaz S.A.) in order to review the correctness of KRAK–GAZ Sp. z o.o.‟s settlement of excise duty for the years 2003–2004. The proceedings identified defaults in the excise duty payment by KRAK–GAZ Sp. z o.o.

On October 31st 2008, the Director of the Tax Supervision Authority of Kraków issued decisions whereby the excise duty liability for the years 2003–2004 was established at PLN 16,408 thousand. On November 21st 2008, KRAK–GAZ Sp. z o.o. appealed against those decisions. By virtue of decisions of May 6th 2009, the Director of the Customs Chamber of Kraków upheld the decisions of the body of first instance. KRAK–GAZ Sp. z o.o. filed with the Provincial Administrative Court a complaint against 16 Decisions of the Director of the Customs Chamber of Kraków dated May 6th 2009, upholding the decisions issued by the Director of the Tax Supervision Authority of Kraków.

On July 20th 2009, the Director of the Customs Chamber of Kraków submitted to the Provincial Administrative Court of Kraków responses to the complaint filed by KRAK-GAZ Sp. z o.o.

By virtue of issued enforcement orders, the Director of the Customs Office of Kraków instigated enforcement proceedings against KRAK–GAZ Sp. z o.o. for the amount determined in the decision of the Director of the Tax Supervision Authority. On December 19th 2008, new final decisions and enforcement orders were issued. The excise duty due for 2003–2004 was established at the aggregate amount of PLN 8,309 thousand, including interest and costs of enforcement proceedings.

On April 30th 2009, KRAK-GAZ Sp. z o.o. filed a petition requesting declaration of its bankruptcy by liquidation of assets. On July 23rd 2009, the District Court for Kraków-Śródmieście in Kraków declared KRAK-GAZ Sp. z o.o. bankrupt (by liquidation of assets). On September 24th 2009, LOTOS Gaz S.A. lodged a claim in insolvency proceedings, requesting exclusion of assets from the bankruptcy estate. The bankruptcy proceedings are pending.

Taking into consideration the decision issued by the Director of the Tax Supervision Authority of Kraków and the contents of the post-inspection report prepared by the Tax Supervision Authority of Kraków on June 20th 2008, the Management Board of LOTOS Gaz made two representations (on July 11th 2008 and December 9th 2008) towards the sellers of shares in KRAK-GAZ Sp. z o.o. regarding the reduction of the purchase price of shares in KRAK-GAZ Sp. z o.o. by a total amount of PLN 16,368 thousand. Accordingly, the sellers‟ claim for the last payment of the purchase price in the amount of PLN 1,500 thousand expired.

On July 28th 2008, the Management Board of LOTOS Gaz S.A. called upon the former owners of shares in KRAK- GAZ Sp. z o.o. to enter into mandatory negotiations, in line with the provisions of the share purchase agreement.

On December 15th 2008, the Management Board of LOTOS Gaz instigated arbitration proceedings against the sellers of shares in KRAK-GAZ Sp. z o.o. On April 14th 2010 the Arbitration Court issued its award in the case instituted by LOTOS Gaz against the sellers of shares in KRAK-GAZ Sp. z o.o. and in the cross action for payment instituted by the sellers. The court awarded (i) to LOTOS Gaz: PLN 4,155 thousand along with interest from December 19th 2008 until the payment date, to be paid jointly and severally by the defendants, and (ii) to the defendants: PLN 1,682 thousand along with interest from July 5th 2009 until the payment date, to be paid by LOTOS Gaz. Furthermore, as reimbursement of the costs of proceedings, the court awarded PLN 209 thousand to LOTOS Gaz to be paid by the sellers, and PLN 98 thousand to the sellers to be paid by LOTOS Gaz. Any other mutual claims for reimbursement of costs/expenses between the parties were cancelled by the court.

On July 14th 2010, LOTOS Gaz lodged a complaint with the Regional Court in Kraków, I Civil Division, to repeal the ad hoc decision of the Arbitration Court issued in Warsaw on April 14th 2010. Concurrently, LOTOS Gaz filed a motion to stay enforcement of the decision appealed against. By virtue of the decision of August 13th 2010, the

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Regional Court in Kraków, I Civil Division, stayed the enforcement of the ad hoc decision of the Arbitration Court issued in Warsaw on April 14th 2010.

By virtue of a decision of November 17th 2008, the Regional Court in Kraków established a claim bond to secure LOTOS Gaz‟s claims against the sellers of the shares up to the amount of PLN 5,975 thousand. The decision was endorsed with an enforcement clause on January 20th 2009. On February 2nd 2009, the sellers petitioned for cancellation of the claim bond. In its decision of April 23rd 2009, the Regional Court in Kraków declared cancellation of the claim bond. Next, following a complaint filed by LOTOS Gaz, by virtue of its decision of June 15th 2009, the Kraków Court of Appeals changed the decision appealed against so that the sellers‟ petition for cancellation of the claim bond was dismissed. On the basis of the final decision granting the claim bond, LOTOS Gaz instigated enforcement proceedings concerning the claim bond before the court enforcement officer of the District Court for Gdańsk-Północ in Gdańsk. By virtue of a decision of April 24th 2919, the court enforcement officer of the District Court for Gdańsk-Północ in Gdańsk concluded security proceedings in this case.

In May 2009, LOTOS Gaz filed a notification of suspected offence of fraud to the detriment of LOTOS Gaz by the sellers of KRAK-GAZ Sp. z o.o. An investigation was launched by the prosecutor‟s office and is still underway. In February 2010, the scope of the proceedings was extended to investigate the issue of exercise of due diligence by the persons who participated in the KRAK-GAZ Sp. z o.o. acquisition process on the part of LOTOS Gaz. The proceedings are pending.

20.9 Significant Change in the Issuer’s Financial or Trading Position

We hereby represent that no significant changes have occurred in the Group‟s financial or trading position since the end of the last financial period for which financial information or interim financial information was published.

21 Additional Information

21.1 Share Capital of the Issuer

21.1.1 Amount of Issued Capital

The share capital of Grupa LOTOS S.A. amounts to PLN 129,873,362 and is divided into 129,873,362 shares with a par value of PLN 1 per share.

Table 78 Share capital as at the Prospectus approval date

Series/ Number of Market value as at Type of shares Par value Paid up in issue shares Nov 9 2010 A Bearer shares 78,630,889 78,630,889 Cash 2,585,383,630.32 Registered 2,272,369.68 A 69,111 69,111 Cash shares B Bearer shares 35,000,000 35,000,000 Cash 1,150,800,000.00 Contribution in 531,780,142.56 C Bearer shares 16,173,362 16,173,362 kind 129,873,362 129,873,362 4,270,236,142.56 Source: the Issuer. 204

12.45% of the share capital was covered with a contribution in kind. On November 9th 2010, Grupa LOTOS S.A. shares traded at PLN 32.88. The Company‟s free float is equal to 87.49% of its share capital, (113,630,889 shares as at the Prospectus Date). As at December 31st 2009, the free float comprised 55,635,609 shares, which accounted for 42.84% of the Company‟s share capital.

Table 78 Number of shares traded on the Warsaw Stock Exchange

As at Number of traded shares Prospectus Date 113,630,889 Dec 31 2009 55,635,609 Dec 31 2008 55,635,609 Dec 31 2007 55,629,209 Dec 31 2006 55,629,209 Source: the Issuer.

21.1.2 Shares Not Representing Capital

Grupa LOTOS S.A. has not issued any shares not representing the capital.

21.1.3 Number, Book Value and Par Value of the Issuer Shares Held by or on Behalf of the Issuer or by Subsidiaries of the Issuer

None of the Grupa LOTOS S.A. shares are held by or on behalf of the Company or by the Company‟s subsidiaries.

21.1.4 Convertible Securities, Exchangeable Securities or Securities with Warrants

No convertible securities, exchangeable securities or securities with warrants have been issued by Grupa LOTOS S.A.

21.1.5 Acquisition Rights and Obligations over the Authorised Capital or Obligations to Increase the Capital

In accordance with Par. 4.3 of the Company‟s Articles of Association, the share capital may be increased pursuant to a resolution of the General Shareholders Meeting by issuing new shares or increasing the par value of the existing shares. A share capital increase may be also financed with the Company‟s internally-generated funds in accordance with the provisions of the Commercial Companies Code. The Company has no obligations related to the authorised capital or obligations to increase the capital.

21.1.6 Capital of Any Member of the Group Which Is under Option or Agreed Conditionally or Unconditionally to Be Put under Option

There are no options or agreements whereby the Company‟s capital could be put under option.

21.1.7 History of Share Capital for the Period Covered by the Historical Financial Information 205

From early 2007 until the prospectus date, only one change occurred in the share capital of Grupa LOTOS S.A. On June 30th 2009, by virtue of Resolution No. 34/2009 of the General Shareholders Meeting, the Company‟s share capital was increased by PLN 16,173,362, from PLN 113,700,000 to PLN 129,873,362, by issuing 16,173,362 Series C ordinary bearer shares with a par value of PLN 1 per share. The issue price of Series C Shares was determined at PLN 22.07. On July 17th 2009, the share capital increase through the issue of Series C Shares was registered by the District Court Gdańsk-Północ, VII Commercial Division of the National Court Register.

21.2 Articles of Association

The current version of the Company‟s Articles of Association is available at www.lotos.pl. The latest amendments to the Articles of Association were introduced by the Annual General Shareholders Meeting of Grupa LOTOS S.A. on June 30th 2009, by virtue of Resolutions No. 24, 25, 26, 27, 28, 29, 30, 31, 32 and 34. The amendments were entered in the Register of Entrepreneurs of the National Court Register under entries No. 16 of June 23rd 2009, No. 17 of June 24th 2009 and No. 18 of June 28th 2009.

21.2.1 Description of the Profile and Purpose of the Issuer’s Business, Along with Indication of Relevant Provisions of the Articles of Association

Pursuant to Par. 3 of the Company‟s Articles of Association: in accordance with the Polish classification of business activities (PKD), the Company‟s business profile comprises:

1) Extraction of crude petroleum and natural gas (PKD 06)

2) Support activities for petroleum and natural gas extraction (PKD 09.1)

3) Other printing (PKD 18.12)

4) Manufacture of coke and refined petroleum products (PKD 19)

5) Manufacture of industrial gases (PKD 20.11)

6) Manufacture of other inorganic basic chemicals (PKD 20.13)

7) Manufacture of other organic basic chemicals (PKD 20.14)

8) Manufacture of plastics in primary forms (PKD 20.16)

9) Manufacture of plastic packing goods (PKD 22.22)

10) Manufacture of steel drums and similar containers (PKD 25.91)

11) Repair of fabricated metal products (PKD 33.11)

12) Repair of machinery (PKD 33.12)

13) Repair of electrical equipment (PKD 33.14)

14) Installation of industrial machinery and equipment (PKD 33.2)

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15) Electricity, gas, steam, hot water and air conditioning supply (PKD 35)

16) Water collection, treatment and supply (PKD 36)

17) Sewerage (PKD 37)

18) Waste collection, treatment and disposal activities; materials recovery (PKD 38)

19) Remediation activities and other waste management services (PKD 39)

20) Construction of utility projects (PKD 42.2)

21) Electrical, plumbing and other construction installation activities (PKD 43.2)

22) Other specialised construction activities n.e.c. (PKD 43.99)

23) Agents involved in the sale of fuels, ores, metals and industrial chemicals (PKD 46.12)

24) Wholesale of solid, liquid and gaseous fuels and related products (PKD 46.71)

25) Wholesale of chemical products (PKD 46.75)

26) Non-specialised wholesale trade (PKD 46.9)

27) Retail sale of automotive fuel in specialised stores (PKD 47.3)

28) Other retail sale not in stores, stalls or markets (PKD 47.99)

29) Freight rail transport (PKD 49.2)

30) Freight transport by road (PKD 49.41)

31) Transport via pipeline (PKD 49.5)

32) Sea and coastal freight water transport (PKD 50.2)

33) Warehousing and storage (PKD 52.1)

34) Service activities incidental to land transportation (PKD 52.21)

35) Service activities incidental to water transportation (PKD 52.22)

36) Service activities incidental to air transportation (PKD 52.23)

37) Cargo handling (PKD 52.24)

38) Publishing of books, periodicals and other publishing activities, except software publishing (PKD 58.1)

39) Other software publishing (PKD 58.29)

40) Wired telecommunications activities (PKD 61.1)

41) Other telecommunications activities (PKD 61.9)

42) Computer programming, consultancy and related activities (PKD 62)

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43) Data processing, hosting and related activities; web portals (PKD 63.1)

44) Other information service activities n.e.c. (PKD 63.99)

45) Other financial service activities, except insurance and pension funding n.e.c. (PKD 64.99)

46) Security and commodity contracts brokerage (PKD 66.12)

47) Other activities auxiliary to financial services, except insurance and pension funding (PKD 66.19)

48) Buying and selling of own real estate (PKD 68.1)

49) Renting and operating of own or leased real estate (PKD 68.2)

50) Accounting, bookkeeping and auditing activities; tax consultancy (PKD 69.2)

51) Activities of head offices; management consultancy activities (PKD 70)

52) Engineering activities and related technical consultancy (PKD 71.12)

53) Technical testing and analysis (PKD 71.2)

54) Other research and experimental development on natural sciences and engineering (PKD 72.19)

55) Advertising and market research (PKD 73)

56) Specialised design activities (PKD 74.1)

57) Other professional, scientific and technical activities n.e.c. (PKD 74.9)

58) Renting and leasing of motor vehicles, except motorcycles (PKD 77.1)

59) Renting and leasing of construction and civil engineering machinery and equipment (PKD 77.32)

60) Renting and leasing of office machinery and equipment (including computers) (PKD 77.33)

61) Renting and leasing of water transport equipment (PKD 77.34)

62) Renting and leasing of other machinery, equipment and tangible goods n.e.c. (PKD 77.39)

63) Leasing of intellectual property and similar products, except copyrighted works (PKD 77.4)

64) Activities of employment placement agencies (PKD 78.1)

65) Other human resources provision (PKD 78.3)

66) Security and investigation activities (PKD 80)

67) Services to buildings and landscape activities (PKD 81)

68) Office administrative and support activities (PKD 82.1)

69) Activities of call centres (PKD 82.2)

70) Packaging activities (PKD 82.92) 208

71) Other business support service activities n.e.c. (PKD 82.99)

72) Fire service activities (PKD 84.25)

73) Other education n.e.c. (PKD 85.59)

74) Repair of computers and communication equipment (PKD 95.1).

The core business of the Issuer comprises crude oil production and processing as well as wholesale and retail sale of high-quality petroleum products.

The Articles of Association do not specify the purpose of the Company‟s business.

21.2.2 Summary of the Provisions of the Issuer's Articles of Association or Rules of Procedure Applying to Members of the Administrative, Management and Supervisory Bodies

General Shareholders Meeting of Grupa LOTOS S.A.

The General Shareholders Meeting of Grupa LOTOS S.A. operates in accordance with the Articles of Association of Grupa LOTOS S.A. (consolidated text, incorporating amendments introduced by Resolutions Nos. 24–32 and 34 by the Annual General Shareholders Meeting of June 30th 2009), and Rules of Procedure for the General Shareholders Meeting of Grupa LOTOS S.A. (Resolution No. 33 by the Annual General Shareholders Meeting of Grupa LOTOS S.A. of June 30th 2009), which specify the rules governing the participation in the General Shareholders Meeting and exercising voting rights, manner of convening and cancelling the General Shareholders Meeting, its opening and proceedings, and the procedure for election of the Supervisory Board members (full text of the two documents is available at http://www.lotos.pl).

An Annual General Shareholders Meeting should be held no later than within six months after the end of the financial year. An Annual General Shareholders Meeting may also be convened by the Supervisory Board if the Management Board fails to convene it within that timeframe.

An Extraordinary General Shareholders Meeting is convened by the Management Board on its own initiative, by the Supervisory Board (if the Supervisory Board deems it appropriate), or by shareholders representing at least half of the Company‟s share capital or at least half of the total vote at the Company.

Moreover, a shareholder or shareholders representing at least one-twentieth of the share capital may request that an Extraordinary General Shareholders Meeting be convened, and that particular items be placed on its agenda.

Any matter to be discussed at a General Shareholders Meeting is subject to prior consideration by the Supervisory Board. No resolution may be adopted on matters not included in the agenda of a General Shareholders Meeting, unless the Company‟s entire share capital is represented at the Meeting and no objections to the adoption of such resolution are submitted by any of the persons participating in the Meeting, with the exception of motions to convene an Extraordinary General Shareholders Meeting and procedural motions. A General Shareholders Meeting adopts resolutions by an absolute majority of votes, unless the Articles of Association or the Commercial Companies Code provide otherwise. Votes are cast in an open ballot. However, a secret ballot is ordered during elections and in the case of motions to dismiss a member of a governing body of the Company or its liquidator, or to hold them liable, motions concerning personnel-related matters, as well as in situations where at least one shareholder so demands.

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Par. 9 of the Articles of Association of Grupa LOTOS S.A. specifies the powers of the Issuer‟s General Shareholders Meeting.

In accordance with Par. 10 of the Articles of Association, the General Shareholders Meeting may adopt resolutions concerning the following issues with a four-fifths majority of the votes cast, in the presence of shareholders representing at least half of the Company‟s share capital: 1) Dissolving the Company, 2) Transferring the Company‟s registered office abroad, 3) Changing the Company‟s business in a way that would limit its operations in the area of production, processing and sale of refined petroleum products, 4) Selling or leasing the Company‟s business or its organised part whose activities include production, processing and sale of refined petroleum products, as well as encumbering such business or its organised part with limited property rights, 5) Merging the Company with another company, 6) Dividing the Company, 7) Establishing preferential rights on shares, 8) Establishing a European company, joining such company or transforming the Company into a European company, 9) Amending the provisions of Par. 10 of the Articles of Association.

The Supervisory Board of Grupa LOTOS S.A.

The Supervisory Board of Grupa LOTOS S.A. operates on the basis of Grupa LOTOS S.A.‟s Articles of Association (consolidated text incorporating amendments introduced by Resolutions Nos. 24–32 and No. 34 by the Annual General Shareholders Meeting of June 30th 2009), and Rules of Procedure for the Supervisory Board of Grupa LOTOS S.A. (consolidated text of December 17th 2009 – Resolution No. 72/VII/2009 by the Supervisory Board of December 17th 2009); full text of the two documents is available at http://www.lotos.pl.

Supervisory Board members are appointed and removed from office by the General Shareholders Meeting in a secret ballot, by an absolute majority of votes. The General Shareholders Meeting may appoint new members to the Supervisory Board from an unlimited number of candidates. Notwithstanding the above, as long as the State Treasury remains a shareholder in the Company, the State Treasury, represented by the competent minister, is entitled to appoint and remove from office one member of the Supervisory Board. The Chairman of the Supervisory Board is appointed by the General Shareholders Meeting. The Deputy Chairman and the Secretary are elected by the Supervisory Board from among its other members.

The term of office of the Supervisory Board is a joint term of three years. Any or all Supervisory Board members may be removed from office at any time prior to the expiry of their term (Par. 11 of the Articles of Association of Grupa LOTOS S.A.).

The Supervisory Board may only adopt resolutions regarding matters included in the agenda. The Supervisory Board adopts its resolutions with an absolute majority of valid votes cast, in the presence of at least a half of the Supervisory Board members, except resolutions concerning appointment and removal from office of any or all members of the Management Board of Grupa LOTOS S.A. which require the presence of at least two-thirds of the Supervisory Board members to be adopted (Par. 12.4 of the Articles of Association of Grupa LOTOS S.A.).

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The Supervisory Board exercises ongoing supervision over the Company‟s business, across all areas of its operations. The Supervisory Board may issue its opinions on all matters related to the Company‟s business, and submit motions and proposals to the Management Board. Powers of the Supervisory Board are specified in Par. 13 of the Company‟s Articles of Association.

The Supervisory Board may set up standing or ad-hoc committees composed of its members to examine specific matters. The committees report on their activities to the Supervisory Board as need arises; standing committees must report to the Supervisory Board at least once a year. Powers of the Supervisory Board in this respect are specified in Par. 9 of the Rules of Procedure for the Supervisory Board of Grupa LOTOS S.A.

The following standing committees operate within the Supervisory Board of Grupa LOTOS S.A.:

 Strategy and Development Committee

The Strategy and Development Committee is responsible for providing to the Supervisory Board opinions and recommendations regarding planned investment projects with material effect on the Company‟s assets,

 Organisation and Management Committee

 Audit Committee

The Management Board of Grupa LOTOS S.A.

The Management Board of Grupa LOTOS S.A. operates on the basis of Grupa LOTOS S.A.‟s Articles of Association (consolidated text incorporating amendments introduced by Resolutions Nos. 24–32 and No. 34 by the Annual General Shareholders Meeting of June 30th 2009), and Rules of Procedure for the Management Board of Grupa LOTOS S.A. (adopted by Resolution No. 6/VI/2007 by the Management Board of Grupa LOTOS S.A. of January 23rd 2007, and approved by Resolution No. 70/VI/2007 by the Supervisory Board of January 29th 2007); full text of the two documents is available at http://www.lotos.pl.

The Management Board manages all corporate affairs of Grupa LOTOS S.A. and represents the Company towards third parties, with the exception of the actions falling within the scope of responsibilities of the General Shareholders Meeting or the Supervisory Board and matters going beyond day-to-day management, which require prior resolution by the Management Board, as well as matters assigned to particular Management Board members under the Rules of Procedure for the Management Board.

In accordance with Par. 14 of the Articles of Association of Grupa LOTOS S.A., the Management Board is composed of three to seven members, including the President and Vice-Presidents of the Management Board. The number of the Management Board members is determined by a resolution of the Supervisory Board. The

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Management Board is appointed by the Supervisory Board. The term of office of the Management Board is a joint term of three years.

Mandates of the Management Board members expire not later than on the date of the General Shareholders Meeting approving the financial statements for the last full financial year during the term of office, but the President, Vice-Presidents, other Management Board members and the entire Management Board may be dismissed or suspended for a good reason by the Supervisory Board at any time before the end of their term of office.

The Management Board represents the Company in dealings with third parties and in all legal activities, with the exception of the Company‟s actions concerning the Management Board members. Powers and operating procedures of the Issuer‟s Management Board are specified in Par. 16 of the Company‟s Articles of Association.

21.2.3 Description of the Rights, Preferences and Restrictions Attached to Each Class of the Existing Shares

The Company‟s share capital amounts to PLN 129,873,362.00 and is divided into 129,873,362 shares with a par value of PLN 1 per share.

Since April 12th 2010, 113,630,889 ordinary bearer shares in Grupa LOTOS S.A. have been marked with ISIN code No. PLLOTOS00025, and 69,111 ordinary registered shares in Grupa LOTOS S.A. have been marked with ISIN code No. PLLOTOS00033.

In accordance with Par. 4.2 of the Articles of Association of Grupa LOTOS S.A., at a shareholder‟s request, registered shares may be converted into bearer shares, provided that the Company‟s Management Board is authorised by the shareholder to place the bearer shares in a depository. Notwithstanding the above, upon admission of the Company shares to public trading, conversion of registered shares into bearer shares in book- entry form does not require authorisation of the Management Board to place the shares in a depository. Bearer shares may not be converted into registered shares.

In accordance with Par. 10.1 of the Articles of Association of Grupa LOTOS S.A., as long as the State Treasury or Nafta Polska S.A. holds the Company shares conferring the rights to at least one-fifth of the total vote at the Company, the voting rights of the Company shareholders are limited so that none of them can exercise at the General Shareholders Meeting more than one-fifth of the total number of votes at the Company as at the day of the General Shareholders Meeting. The limitation described in the preceding sentence does not apply to the State Treasury, Nafta Polska S.A., or their subsidiaries. For the purposes of this paragraph, the exercise of a voting right by a subsidiary is deemed as the exercise of that right by the parent entity within the meaning of the Act on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organised Trading, and Public Companies, dated July 29th 2005 (“Public Offering Act”), with the proviso that a parent entity and a subsidiary are also understood as an entity whose votes conferred by the shares held (directly or indirectly) in the Company may be aggregated with the votes of other entity or entities in accordance with the provisions of the Public Offering Act concerning holding, disposal or acquisition of significant blocks of shares in the Company. A shareholder whose voting right was limited in each case retains the right to exercise at least one vote.

The share capital may be increased pursuant to a resolution of the General Shareholders Meeting by issuing new shares or increasing the par value of the existing shares. A share capital increase may be also financed with the Company‟s internally-generated funds in accordance with the provisions of the Commercial Companies Code.

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21.2.4 Description of Actions Necessary to Change the Rights of Holders of the Shares, Indicating Where the Conditions are More Significant than Is Required by Law

The Company shares do not create any obligation involving any services or payments to the Company. Rights and duties of shareholders are specified in the Commercial Companies Code and the Company‟s Articles of Association.

21.2.5 Description of the Conditions Governing the Manner in which Annual General Shareholders Meetings and Extraordinary General Shareholders Meetings are Convened, Including the Conditions of Admission

The Commercial Companies Code, the Articles of Association of Grupa LOTOS S.A. (consolidated text incorporating amendments introduced by Resolutions Nos. 24–32 and No. 34 by the Annual General Shareholders Meeting of June 30th 2009) and the Rules of Procedure for the General Shareholders Meeting of Grupa LOTOS S.A. (adopted by virtue of Resolution No. 33 by the Annual General Shareholders Meeting of Grupa LOTOS S.A. of June 30th 2009) specify the rules governing the participation in the General Shareholders Meeting and exercising voting rights, manner of convening and cancelling the General Shareholders Meeting, its opening and proceedings.

Mandatory and Optional Convening of a General Shareholders Meeting

A General Shareholders Meeting takes place at the Company‟s registered office and is convened by the Management Board on its own initiative. A body authorised to convene the General Shareholders Meeting should determine such venue and time of the Meeting that would allow the participation of as many shareholders as possible.

If the balance sheet prepared by the Management Board shows a loss exceeding the total of statutory reserve funds and capital reserves as well as one-third of the Company‟s share capital, the General Shareholders Meeting must be convened immediately to adopt a resolution concerning further existence of the Company.

The Supervisory Board may convene the Extraordinary General Shareholders Meeting if the Supervisory Board deems it appropriate. An Extraordinary General Shareholders Meeting may also be convened by shareholders representing no less than half of the Company‟s share capital or no less than half of the total vote at the Company.

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Parties Entitled to Convene the General Shareholders Meeting and Place Particular Items on Its Agenda

A shareholder or shareholders representing at least one-twentieth of the share capital may demand that an Extraordinary General Shareholders Meeting be convened, and that particular items be placed on its agenda. Any such requests must be made in writing or in electronic form and submitted to the Management Board.

If the Extraordinary General Shareholders Meeting is not convened within two weeks of the submission of such a request to the Management Board, the Registry Court may authorise the requesting shareholders to convene the Extraordinary General Shareholders Meeting. In such an event, the Registry Court appoints a Chairman of the Extraordinary General Shareholders Meeting. The notice of the Extraordinary General Shareholders Meeting should include a reference to the Registry Court‟s decision.

The General Shareholders Meeting convened at the request of a shareholder or shareholders adopts a resolution determining whether the costs of convening and holding the Meeting are to be covered by the Company. The shareholders at whose request the General Shareholders Meeting was convened may apply to the Registry Court for release from the obligation to cover the costs imposed on them by virtue of a resolution of the General Shareholders Meeting.

A request for the General Shareholders Meeting to be convened and for particular items to be placed on its agenda, made by parties entitled to do so, should be presented along with a statement of grounds. The Supervisory Board, or the shareholder or shareholders requesting the Extraordinary General Shareholders Meeting to be convened, are obliged to provide the Management Board with draft resolutions proposed for adoption together with written grounds for the request to convene the Meeting and for the draft resolutions, early enough to enable inclusion of the draft resolutions in the agenda, in accordance with the Commercial Companies Code.

The Management Board is obliged to announce alterations to the agenda introduced at the shareholders‟ request immediately, but not later than eighteen days prior to the scheduled date of the General Shareholders Meeting. The announcement must be made in the same manner in which the convening of the General Shareholders Meeting is announced.

A General Shareholders Meeting convened at shareholders‟ request should be held on the date given in the request and, if this date cannot be kept, on the nearest date that would allow the General Shareholders Meeting to consider the matters on its agenda.

Notice of a General Shareholders Meeting

A General Shareholders Meeting is convened by publishing a notice on the Company‟s website and in the manner prescribed for publication of current reports, in accordance with the provisions of the Act on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organised Trading, and Public Companies. The notice must be published at least twenty-six days before the date of the General Shareholders Meeting.

Notice of a General Shareholders Meeting should include at least the following information:

1) date, time and place of the General Shareholders Meeting as well as detailed agenda, 214

2) detailed description of the procedures governing participation in the Meeting and exercise of voting rights, including in particular information on: a) shareholder‟s right to request that certain items be placed on the agenda of the General Shareholders Meeting, b) shareholder‟s right to propose draft resolutions concerning items which have been or are to be placed on the agenda prior to the General Shareholders Meeting, c) shareholder‟s right to propose draft resolutions concerning items placed on the agenda during the General Shareholders Meeting, d) exercise of voting rights through a proxy, including in particular information on forms used for voting through a proxy and the manner of notifying the Company, using means of electronic communication, of the appointment of a proxy,

3) the date of registration for participation in General Shareholders Meeting, 4) information that only persons who are the Company shareholders on the date of registration for participation in the General Shareholders Meeting are entitled to participate in the Meeting, 5) place and manner in which a person entitled to participate in the General Shareholders Meeting may obtain the full text of the documentation which is to be presented to the General Shareholders Meeting, as well as draft resolutions or, if no resolutions are to be adopted, comments by the Company‟s Management Board or Supervisory Board concerning items which have been or are to be placed on the agenda prior to the General Shareholders Meeting, 6) website on which information on the General Shareholders Meeting will be published.

After the date of notice of the General Shareholders Meeting, the Company publishes on its website:

1) notice of the General Shareholders Meeting, 2) information on the total number of the Company shares and the number of votes attached to the shares as at the notice date and, if there are different types of the shares, on the number of shares of a given type and the number of votes attached to the shares of each type, 3) documentation which is to be presented to the General Shareholders Meeting, 4) draft resolutions or, if no resolutions are to be adopted, comments by the Company‟s Management Board and Supervisory Board concerning items which have been or are to be placed on the agenda prior to the General Shareholders Meeting, 5) proxy or postal ballot forms if such forms are not sent directly to each shareholder.

If the forms referred to in item 5 cannot be made available on the website for technical reasons, the Company provides information on the website on how and where the forms may be obtained. In such an event, the Company sends the forms by post to each shareholder at their request, free of charge. The forms should include the proposed wording of the resolution of the General Shareholders Meeting and should make it possible to:

1) identify the voting shareholder and his/her/its proxy, if the shareholder exercises voting rights through a proxy, 2) cast a vote, 3) lodge an objection by a shareholder voting against the resolution, 4) include instructions for the proxy to vote in a particular manner with respect to each resolution.

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Adoption of Resolutions Without Convening a General Shareholders Meeting

Resolutions may also be adopted without the General Shareholders Meeting being formally convened or with respect to matters not placed on the agenda, provided that the total share capital is represented and none of those present objects to the holding of the General Shareholders Meeting or placing certain matters on its agenda.

Right to Participate in a General Shareholders Meeting

Only persons who are the Company shareholders sixteen days prior to the date of the General Shareholders Meeting (i.e. on the date of registration for participation in the General Shareholders Meeting) are entitled to participate in the General Shareholders Meeting. The date of registration for participation in the General Shareholders Meeting is the same for holders of rights under bearer and registered shares. Holders of rights under registered shares or provisional certificates (świadectwa tymczasowe) as well as pledgees and usufructuaries holding voting rights are entitled to participate in the General Shareholders Meeting provided that they are entered in the Share Register on the registration date.

Bearer shares in certificated form entitle the holder to participate in the General Shareholders Meeting, if the share certificates are submitted at the Company no later than on the day of registration for participation in the General Shareholders Meeting and are not collected prior to the end of that day. Instead of the shares, the shareholder may submit a document confirming that the shares have been deposited with a notary public, bank, or an investment firm with registered offices or a branch in the European Union or in a state which is a party to the treaty on the European Economic Area, as specified in the notice of the General Shareholders Meeting. Such document should specify serial numbers of the share certificates and state that the share certificates will not be released prior to the end of the day of registration for participation in the General Shareholders Meeting.

At the request of a holder of rights under the Company bearer shares in book-entry form, made no earlier than after the date of the notice of the General Shareholders Meeting and no later than on the first business day following the date of registration for participation in the General Shareholders Meeting, the entity keeping the securities account issues a certificate to such holder‟s name confirming the holder‟s entitlement to participate in the General Shareholders Meeting. At the request of a holder of rights under bearer shares in book-entry form, the certificate should specify all or part of the shares registered in the holder‟s securities account. The legal regulations applicable to trading in financial instruments may specify other documents considered equivalent to such certificate, provided that information on the entity issuing such documents is provided to the entity keeping the depository for securities for the public company.

The list of entities entitled to participate in a General Shareholders Meeting as holders of rights under bearer shares is determined by the Company based on the shares submitted at the Company and a record prepared by the entity keeping a depository for securities, in accordance with the legal regulations applicable to trading in financial instruments. The entity keeping the depository for securities draws up the record based on the records submitted by the authorised entities no later than twelve days prior to the date of the General Shareholders Meeting, in accordance with the legal regulations applicable to trading in financial instruments. The records submitted to the entity keeping the depository for securities are prepared based on certificates confirming the right to participate in the General Shareholders Meeting of the public company.

The list of shareholders entitled to participate in a General Shareholders Meeting is prepared and signed by the Management Board. The list should specify the names or company names of the persons entitled to participate in 216 the General Shareholders Meeting, addresses of their residence or registered offices, number, type and serial numbers of shares as well as the number of votes held by them. The list should be displayed at the Management Board Office for three business days prior to the General Shareholders Meeting.

A shareholder may transfer shares in the period between the date of registration for participation in a General Shareholders Meeting and the date of closing the General Shareholders Meeting.

Participation in a General Shareholders Meeting

Members of the Management and Supervisory Boards should participate in General Shareholders Meetings. The auditor should participate in the Annual General Shareholders Meeting, as well as in the Extraordinary General Shareholders Meeting if the Meeting addresses the Company‟s financial matters. The Management Board may invite other third parties if their participation in the General Shareholders Meeting is justified. The Chairman of the General Shareholders Meeting decides whether persons other than shareholders may participate in the General Shareholders Meeting, in particular experts and advisors to the shareholders and representatives of the media.

Participation in a General Shareholders Meeting Through a Proxy

A shareholder may participate in a General Shareholders Meeting and exercise voting rights in person or by proxy. The right to appoint a proxy for a General Shareholders Meeting and the number of proxies may not be limited. A proxy exercises all the rights of a shareholder at the General Shareholders Meeting, unless otherwise stipulated in the powers of proxy. The proxy may grant further powers of proxy if the original power of proxy so permits. A proxy may represent more than one shareholder and vote the shares of different shareholders in different manner. A shareholder holding shares registered in more than one securities account may appoint separate proxies to exercise the rights under the shares registered in each of the accounts.

A power of proxy to participate in a General Shareholders Meeting and exercise voting rights must be in a written or electronic form. Granting powers of proxy in electronic form does not require an electronic signature verifiable with a valid qualifying certificate. If the person acting as a proxy is a Management Board member, a Supervisory Board member, a liquidator, an employee of the Company or a member of the governing bodies or an employee of a subsidiary or cooperative of the company, the powers of proxy may authorise the holder to represent the shareholder at one General Shareholders Meeting only

The proxy is obliged to disclose to the shareholder any circumstances indicating an actual or potential conflict of interests. Granting of further powers of proxy is not permitted. The proxy must vote in accordance with the voting instructions of the appointing shareholder. The proxy is obliged to disclose their status while registering for participation in the General Shareholders Meeting, prior to the receipt of the voting card. Information on the proxy‟s status is entered in the attendance roll. The Company‟s Management Board is obliged to specify each time in the notice of the General Shareholders Meeting the manner of notification of the Company of the appointment of a proxy in electronic form by means of electronic communication.

Voting Rights at a General Shareholders Meeting

A shareholder may vote each of its shares in a different manner. In accordance with Par. 10.3 of the Articles of Association of Grupa LOTOS S.A., as long as the State Treasury or Nafta Polska S.A. holds the Company shares conferring the rights to at least one-fifth of the total vote at the General Shareholders Meeting, the rights of the 217

Company shareholders are limited so that none of them can exercise at the General Shareholders Meeting more than one-fifth of the total number of votes at the Company as at the day of the General Shareholders Meeting. The limitation described in the preceding sentence does not apply to the State Treasury, Nafta Polska S.A., or their subsidiaries. The exercise of a voting right by a subsidiary is deemed as the exercise of that right by the parent entity within the meaning of the Polish Act on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organised Trading, and Public Companies, dated July 29th 2005 (“the Public Offering Act”), with the proviso that a parent entity and a subsidiary are also understood as any entity whose votes conferred by the shares held (directly or indirectly) in the Company may be aggregated with the votes of other entity or entities in accordance with the provisions of the Public Offering Act concerning holding, disposal or acquisition of significant blocks of shares in the Company. A shareholder whose voting right was limited in each case retains the right to exercise at least one vote.

During the General Shareholders Meeting each shareholder may submit draft resolutions concerning matters placed on the agenda of the General Shareholders Meeting.

Cancellation of a General Shareholders Meeting

A General Shareholders Meeting which has been convened at the request of an entitled party or whose agenda includes matters requested by an entitled party may be cancelled exclusively upon consent of such party. In all other cases the General Shareholders Meeting may be cancelled where there are extraordinary obstacles to its holding or where it is obviously pointless. The General Shareholders Meeting may be cancelled in the same manner as it has been convened, ensuring that any negative effects of its cancellation on the Company and its shareholders are mitigated to the largest possible extent, in any event no later than eighteen days prior to its originally scheduled date. The scheduled date of the General Shareholders Meeting may be changed in accordance with the same procedure in which the Meeting may be cancelled, also if the proposed agenda would remain unchanged.

21.2.6 Brief Description of the Provisions of the Issuer's Articles of Association or Rules of Procedure That May Have an Effect of Delaying, Deferring or Preventing a Change of Control over the Issuer

Save for the provisions discussed below and providing for limiting shareholders‟ voting rights at the General Shareholders Meeting, the Issuer‟s Articles of Association do not include any provision which would have an effect of delaying, deferring or preventing a change of control over the Issuer.

In accordance with Par. 10.3 of the Issuer‟s Articles of Association, as long as the State Treasury or Nafta Polska S.A. holds the Company shares conferring the rights to at least one-fifth of the total vote at the General Shareholders Meeting, the rights of the Company shareholders are limited so that none of them can exercise at the General Shareholders Meeting more than one-fifth of the total number of votes at the Company as at the day of the General Shareholders Meeting. The limitation described in the preceding sentence does not apply to the State Treasury, Nafta Polska S.A., or their subsidiaries. The exercise of a voting right by a subsidiary is deemed as the exercise of that right by the parent entity within the meaning of the Polish Act on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organised Trading, and Public Companies (“the Public Offering Act”), with the proviso that a parent entity and a subsidiary are also understood as any entity whose votes conferred by the shares held (directly or indirectly) in the Company may be aggregated with the votes of other entity or entities in accordance with the provisions of the Public Offering Act concerning holding, disposal or acquisition of significant 218 blocks of shares in the Company. A shareholder whose voting right was limited in each case retains the right to exercise at least one vote.

21.2.7 Provisions of the Issuer’s Articles of Association or Rules of Procedure Governing the Ownership Threshold above Which Shareholder Ownership Must Be Disclosed

The Issuer‟s Articles of Association and the rules of procedure effective at the Company do not provide for any ownership threshold above which shareholder ownership must be disclosed.

21.2.8 Description of the Conditions Imposed by the Issuer’s Articles of Association or Rules of Procedure Governing Changes in the Capital, Where Such Conditions Are More Stringent Than Is Required by Law

Save for the provisions limiting shareholders‟ voting rights at the General Shareholders Meeting (described in detail in Section 21.2.6. above), the Issuer‟s Articles of Association do not stipulate any conditions governing changes in the capital that would be more stringent than is required by law. Accordingly, pursuant to Par. 4.3 of the Issuer‟s Articles of Association, the share capital may be increased pursuant to a resolution of the General Shareholders Meeting by issuing new shares or increasing the par value of the existing shares. The share capital increase may be also financed with the Company‟s internally-generated funds in accordance with the provisions of the Commercial Companies Code. Further, pursuant to Par. 5 of the Articles of Association, the Issuer shares may be retired by virtue of a resolution of the General Shareholders Meeting, on the terms specified in such a resolution. The Issuer may, based on a resolution of the General Shareholders Meeting, purchase own shares for retirement.

22 Material Agreements Other than Agreements Entered into in the Ordinary Course of Business

The majority of agreements concluded by the LOTOS Group are closely connected with the ordinary course of the Group‟s business. Contacts of this type which are material to the LOTOS Group are described in Section 6.4 of the Registration Document.

However, since the beginning of 2007 the Issuer has entered into material agreements other than agreements executed in the ordinary course of business. These agreements are connected with the implementation of the 10+ Programme, described in Section 5.2 of the Registration Document, and relate to the technical execution and financing of the 10+ Programme. In the third quarter of 2010, the programme is to a large extent implemented, with elements of the constructed units being currently successively started up and placed in operation. Some of the provisions of the abovementioned agreements will remain material: in the agreements providing for the supply or construction of the units – provisions concerning the performance bond (in line with the market standards), and in the financing agreements – the provisions concerning repayment of the contracted credit facilities after the projects are completed.

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22.1 Material Agreements Relating to the 10+ Programme

The Company has executed three material agreements for the technical implementation of the 10+ Programme.

Contract with FLUOR S.A.

On June 19th 2007, Grupa LOTOS S.A. and FLUOR S.A. executed an engineering, procurement and construction contract to build the utilities and off-sites under the 10+ Programme. The scope of the construction is adjusted to the planned annual oil throughput capacity of 10.5 million tonnes. The contract terms do not differ from standard market terms for this type of contracts.

Contract with LURGI S.A.

On June 28th 2007, Grupa LOTOS S.A. and LURGI S.A. of Kraków executed an engineering, procurement and construction contract to construct a hydrogen generation unit based on the technology delivered by Lurgi AG of Frankfurt, as part of the implementation of the 10+ Programme of Grupa LOTOS S.A. The hydrogen generation unit will be supplying production facilities with the necessary hydrogen. The new unit is adapted to the planned annual oil throughput capacity of 10.5 million tonnes. The contract terms do not differ from standard market terms for this type of contracts.

Contract with LURGI S.A.

On July 19th 2007, Grupa LOTOS S.A. and Lurgi S.A. of Kraków executed an engineering, procurement and construction contract to build a crude distillation unit, the second unit of this type to be constructed at Grupa LOTOS S.A.‟s refinery in Gdańsk. The unit‟s annual capacity will be 4.5m tonnes of crude oil, which will make it possible to increase the oil throughput at Grupa LOTOS S.A. to. 10.5 million tonnes of crude oil p.a., that is by ca. 75%. The contract terms do not differ from standard market terms for this type of contracts.

22.2 Material Agreements for the Financing of the 10+ Programme

The Company has executed two material agreements for the financing of the 10+ Programme.

Credit Facility Agreement of December 20th 2007 for the Refinancing and Financing of Mandatory Stocks

The credit facility agreement was executed with a bank consortium comprising BANK POLSKA KASA OPIEKI S.A. of Warsaw, PKO BP S.A. of Warsaw, BRE BANK S.A. of Warsaw and RABOBANK POLSKA S.A. of Warsaw. The agreement provides for a four-year revolving credit facility for the total amount of USD 400,000 thousand, for the refinancing and financing of inventories of Grupa LOTOS S.A. The lending term under the agreement may be extended by the parties by one year. The basic security for the facility is an agreement creating a registered pledge over Grupa LOTOS S.A.‟s inventories (along with the assignment of rights under agreements on storage of inventories and under insurance agreements) and an agreement creating a pledge over cash receivables under an agreement for keeping bank accounts of Grupa LOTOS S.A., concluded in relation to the credit facility agreement (together with power of attorney to these accounts). The agreement provides for early termination by Grupa LOTOS S.A. and for the prepayment of the loan in whole or in part.

Credit Facility Agreement of June 27th 2008 for the Financing of the 10+ Programme

On June 27th 2008, Grupa LOTOS S.A. and a consortium of the following financial institutions: Banco Bilbao Vizcaya Argentaria S.A.; Banco Bilbao Vizcaya Argentaria S.A., London Branch; Banco Bilbao Vizcaya Argentaria S.A., Milan Branch; Bank Polska Kasa Opieki S.A.; Bank Zachodni WBK S.A.; Bank of Tokyo-Mitsubishi UFJ 220

(Holland) N.V.; BNP Paribas S.A.; Caja de Ahorros y Monte de Piedad de Madrid; Caja de Ahorros y Monte de Piedad de Madrid, Zweigniederlassung Wien; Calyon; DnB Nor Bank ASA; Fortis Bank S.A./N.V.; Fortis Bank S.A./N.V. - Succursale in Italia; ING Bank N.V. / ING Bank Śląski S.A.; KBC Bank N.V., Dublin Branch / Kredyt Bank S.A; Nordea Bank Finland Plc; Nordea Bank Polska S.A. / Nordea Bank AB (Publ); Powszechna Kasa Oszczędności Bank Polski Spółka Akcyjna; Rabobank Polska S.A. / Bank Gospodarki Żywnościowej S.A.; SACE S.p.A. - Servizi Assicurativi del Commercio Estero; Societe Generale S.A., Polish Branch; Société Générale S.A.; Sumitomo Mitsui Banking Corporation Europe Limited; the Bank of Tokyo-Mitsubishi UFJ, Ltd.; and the Royal Bank of Scotland Plc, executed a credit facility agreement to finance the implementation of the 10+ Programme and working capital of Grupa LOTOS S.A.

Bank Calyon was appointed senior facility agent, while Société Générale S.A., the Polish branch, was assigned the role of senior security agent. Concurrently, Grupa LOTOS S.A. executed a sub-agreement under the credit facility agreement, concerning a credit facility tranche guaranteed by SACE S.p.A. - Servizi Assicurativi del Commercio Estero. Parties to the agreement are: BNP Paribas S.A., Fortis Bank S.A./N.V., - Succursale in Italia, Banco Bilbao Vizcaya Argentaria S.A., Milan and SACE S.p.A. - Servizi Assicurativi del Commercio Estero.

The agreement provides for a long-term credit facility in the total amount of USD 1,750,000,000, comprising:

 investment credit facility of USD 975,000,000,

 working-capital facility of USD 200,000,000,

 investment credit facility of USD 425,000,000, guaranteed by SACE S.p.A. - Servizi Assicurativi del Commercio Estero,

 contingent term loan facility of USD 150,000,000.

The credit facility must be repaid not later than 12.5 years after the first interest payment date. The other terms and conditions of the credit facility agreement, including those pertaining to the security, do not differ from the standard terms and conditions used in agreements of such type.

Principally the credit facility is secured with:

 first-ranking mortgage over Grupa LOTOS S.A.‟s ownership title or perpetual usufruct right to the real property required for the conduct of operations by the existing and expanded Gdańsk refinery;

 agreement creating a registered pledge over sets of existing and future (acquired over the period of implementation of the 10+ Programme) movables, owned by Grupa LOTOS S.A. and forming a part of or closely related with the Gdańsk refinery or financed under the aforementioned credit facility, used in production, storage and distribution of petroleum products and crude oil, along with the infrastructure and necessary auxiliary equipment, and in particular on the movables comprising the basic production installations, auxiliary production installations, equipment used to blend products, loading facilities, transport pipelines, storage tanks, CHP plant, wastewater treatment plants, water intakes, and water, electricity, process steam and compressed air systems;

 agreement creating financial and registered pledges over Grupa LOTOS S.A.‟s claims under bank account agreements executed in connection with the financing of the 10+ Programme (the agreement creating the pledges does not cover claims under other bank account agreements concluded by Grupa LOTOS S.A.);

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 agreements for the assignment of the rights and debt claims of Grupa LOTOS S.A. arising under agreements related to the implementation of the 10+ Programme, agreements for the management of the 10+ Programme, hedging agreements, license agreements, insurance documents (related to the Gdańsk refinery and the 10+ Programme) as well as under sale agreements concluded by Grupa LOTOS S.A. with its subsidiaries, if the agreements‟ annual value exceeds PLN 10,000,000.

The documents creating the security for the benefit of Société Générale S.A., the Polish branch (senior security agent), were executed concurrently with the credit facility agreement.

22.3 Material Agreements Relating to the Financing of Subsidiaries – LOTOS Paliwa

Given the dynamic growth of the network of service stations selling fuel manufactured by the Company to retail customers, LOTOS Paliwa uses external financing to cover its capital expenditure.

Agreement with PKO BP S.A. and Pekao S.A. for the Financing and Refinancing of Capital Expenditure

On December 16th 2004, LOOTS Paliwa Sp. z o.o. concluded an agreement on a PLN 340,000,000 credit facility for the financing or refinancing of capital expenditure with Bank Polska Kasa Opieki S.A. and Powszechna Kasa Oszczędności Bank Polski S.A. The credit facility was granted for a period ending December 31st 2014. Under the agreement, LOTOS Paliwa agreed to provide the following security:

a) mortgage over the real estate, b) registered pledges over specified assets, c) assignment of claims under trade agreements, d) assignment of claims under insurance agreements relating to the real estate or assets encumbered with the registered pledge, e) assignment of claims and liabilities under lease agreements for real estate (or service stations), f) power of attorney to LOTOS Paliwa‟s bank accounts, g) the Issuer‟s representation, satisfactory to the security agent in terms of form and substance, to the effect that the Issuer assumes the obligations specified in the Agreement, h) representation of voluntary submission to enforcement.

The other terms of the agreement do not differ from standard terms used in this type of agreements.

Investment Credit Facility Agreements with PKO BP S.A. and Pekao S.A.

LOTOS Paliwa concluded two investment credit facility agreements, under which the company agreed to use the loan proceeds to finance and refinance capital expenditure on the construction of six service areas along the A2 and A4 motorways. The first agreement was concluded on November 24th 2009 with Powszechna Kasa Oszczędności Bank Polski S.A. The other was concluded on December 31st 2009 with Bank Polska Kasa Opieki S.A. Under the agreements the banks granted credit facilities totalling PLN 40,000,000 for a period ending December 31st 2019. The repayment of both facilities is secured by:

a) blanket ordinary mortgages and blanket ceiling mortgages established over the real estate specified in the agreements (service stations of LOTOS Paliwa),

b) registered pledge over movables comprising the equipment of the service stations encumbered with the mortgages,

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c) assignment of claims under insurance agreements relating to the real estate and movables referred to in item a) and b) above,

d) assignment of claims under sub-lease agreements concluded with McDonald‟s Sp. z o.o.,

e) letter of comfort issued by Grupa LOTOS S.A.,

f) blank promissory note with a promissory note declaration,

g) clause providing for debiting the Banks‟ claims from LOTOS Paliwa‟s current accounts,

h) LOTOS Paliwa‟s representation on voluntary submission to enforcement.

In connection with the agreements referred to above, on January 8th 2010, Powszechna Kasa Oszczędności Bank Polski S.A. and Bank Polska Kasa Opieki S.A. concluded an agreement under which they defined the rules of their cooperation in taking certain steps relating to the bilateral credit facility agreements they concluded with LOTOS Paliwa.

The provisions of the credit facility agreements and the security provided thereunder do not differ from standard terms customarily used in contacts of this type.

Agreement with Kredyt Bank S.A.

On March 4th 2002, LOTOS Paliwa and Kredyt Bank S.A. concluded an investment credit facility agreement, under which Kredyt Bank S.A. advanced to LOTOS Paliwa a PLN 60,000,000 credit facility for the financing of investing activities, for the period from March 4th 2002 to September 30th 2015. The Bank‟s claims under the agreement are secured by:

a) ordinary mortgages over LOTOS Paliwa‟s specified real estate,

b) assignment of claims under capital expenditure incurred by LOTOS Paliwa on the construction of individual service stations,

c) assignment of claims under insurance agreements relating to each newly built service station and insurance agreements relating to the service stations during the construction phase,

d) blank own promissory note,

e) power of attorney to a bank account,

f) LOTOS Paliwa‟s representation on voluntary submission to enforcement.

The provisions of the credit facility agreement and the security provided thereunder do not differ from standard terms customarily used in contacts of this type.

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23 Third Party Information and Statement by Experts and Declaration of any Interest

23.1 Experts’ Interests and Involvement in the Registration Document

The Registration Document does not contain any statements or reports by persons referred to as experts.

23.2 Confirmation that the Information Sourced from Third Parties Has Been Accurately Reproduced

This Prospectus contains information sourced from third parties. The Issuer confirms that such third party information has been accurately reproduced and, as far as the Issuer is aware and is able to ascertain from the information published by the respective third parties, no facts have been omitted which would render the reproduced information inaccurate or misleading. In the case of processing or aggregating of figures sourced from external sources, the Issuer has made every effort to reflect economic facts as faithfully as possible.

The external information sources used in this Prospectus are specified in Section 5.2.2 and 6.2.2.1 of the Registration Document.

24 Documents on Display

During the validity period of this Prospectus, the following documents or their copies will be on display at the Company‟s registered office:

 the Company‟s Articles of Association, Rules of Procedure for the General Shareholders Meeting, Rules of Procedure for the Supervisory Board, and Rules of Procedure for the Management Board  reports, letters, historical financial information and other documents referred to or cited in this Prospectus,  historical financial information of Grupa LOTOS and its subsidiaries for each of the three financial years preceding the publication of this Prospectus,

The Company‟s Articles of Association, Rules of Procedure for the General Shareholders Meeting, Rules of Procedure for the Supervisory Board, Rules of Procedure for the Management Board, historical financial information of Grupa LOTOS, and this Prospectus are also available in electronic form at www.lotos.pl.

25 Information on Holdings

For a detailed description of the Issuer‟s equity holdings in other companies see Sections 6.1 and 7.2 of the Registration Document.

224

IV SECURITIES NOTE

1 Responsible Persons

Persons responsible for the information contained in this Prospectus and their statements on responsibility are presented in Section 1 of the Registration Document.

2 Rick Factors

For a description of risk factors material to the securities to be admitted to trading, for the purpose of assessing the market risk related to these securities, see Chapter II of this Prospectus – Risk Factors.

3 Basic Information

3.1 Statement on Working Capital

We represent that in our opinion the level of the working capital of the Issuer‟s Group, understood as the ability of the Company and other members of the Group to gain access to cash and other available liquid resources to pay our liabilities in a timely manner, is sufficient to cover the requirements of the Issuer and the Group for the period of 12 months from the Prospectus Date.

3.2 Capitalisation and Indebtedness

The table below presents the LOTOS Group‟s equity and indebtedness as at September 30th 20101.

Table 79 LOTOS Group’s equity and indebtedness as at September 30th 2010 (PLN ‘000)

Sep 30 2010

Total current debt 659,348

- guaranteed 27,142

- secured 659,348

- non-guaranteed / unsecured -

Total non-current debt (net of current portion of non-current debt) 5,536,610

- guaranteed 996,175

- secured 5,536,610

- non-guaranteed / unsecured -

Total equity, including: 7,266,090

Share capital 129,873

Statutory reserve funds 1,311,348

Sep 30 2010

Retained earnings 5,794,682

Foreign exchange differences on translation 15,605

Non-controlling interests 14,582

Net debt in the short and medium term Sep 30 2010

A. Cash 428,153

B. Cash equivalents -199,956

C. Securities held for trading -

D. Liquidity (A) + (B) + (C) 228,197

E. Current financial receivables 42,185

F.1 Current liabilities to banks -

F.2. Current bank loans and borrowings 760,379

G. Current portion of non-current debt 92,425

H. Other current financial debt 6,500

I. Current financial debt 859,304

J. Current financial debt, net 189,010

K.1. Non-current liabilities to banks -

K.2. Non-current bank loans and borrowings 5,516,429

L. Bonds in issue -

M.1. Other non-current loans and borrowings 20,181

M.2. Other non-current financial liabilities (under lease) 224,264

N. Non-current financial debt, net (K1+K2) + (L) + (M1+M2) 5,760,874

O. Net financial debt (J) + (N) 5,949,884 Source: Issuer.

3.3 Interest of Natural and Legal Persons Involved in the Issue/Offering

This Prospectus does not constitute the basis of any issue or offering of securities. It has been drawn up for the purpose of admission of Series C Shares, subscribed for in a private placement, to trading on a regulated market.

The persons involved in the preparation of this Prospectus include:

 Kancelaria Prawna Domański i Wspólnicy Spółka Komandytowa of Gdańsk, a law office which provides ongoing legal services to Grupa LOTOS and acts as the Company‟s Legal Adviser involved in the preparation of parts of this Prospectus;

 Ipopema Securities S.A. of Warsaw, which is bound with the Company by an agreement whereby it acts as the Company‟s Offeror in connection with the introduction of Series C Shares to trading on the WSE.

Since no issue or offerring of securities is being carried out, there are no conflicting interests of natural or legal persons involved in the issue or offering that would be material to the issue or offering.

The legal persons named above, or the natural persons who were involved in the preparation of this Prospectus on their behalf, have no direct or indirect financial interest that would depend on the success of the issue or offering.

226

3.4 Reasons for the Offering and Use of Proceeds

This Prospectus does not relate to any issue or offering of shares. The sole purpose of this Prospectus is to support the seeking of admission of Series C Shares to trading on a regulated market.

On July 9th 2009, all the 16,173,362 Series C Shares in Grupa LOTOS were subscribed for by the State Treasury, represented by the Minister of the State Treasury, in exchange for a non-cash contribution. The main reason for the issue of Series C Shares in Grupa LOTOS was to enable Grupa LOTOS to gain full control over the LOTOS Group companies. Before the transaction, Grupa LOTOS held 69.00% of shares in LOTOS Petrobaltic, 80.04% of shares in LOTOS Czechowice and 80.01% of shares in LOTOS Jasło. Following the share capital increase and the transfer to the Company of the in-kind contribution in the form of shares in LOTOS Petrobaltic, LOTOS Czechowice and LOTOS Jasło, the Company came to hold 99.32% of shares in LOTOS Petrobaltic, 85.04% of shares in LOTOS Czechowice and 85.01% of shares in LOTOS Jasło.

The transfer to the Company of the in-kind contribution in the form of shares in LOTOS Petrobaltic, LOTOS Czechowice and LOTOS Jasło represented another stage in the business consolidation of the LOTOS Group. As a result of the transaction, Grupa LOTOS has gained full control over the companies (especially in the case of LOTOS Petrobaltic), while the transparency of the LOTOS Group has been enhanced. Additionally, the transaction resulted in strengthening the Company‟s capital, which is particularly important in the context of the ongoing financial crisis.

The Series C Shares were acquired by the Ministry of State Treasury in exchange for a non-cash contribution comprising:

 2,801,400 shares in LOTOS Petrobaltic, a company entered in the Register of Entrepreneurs maintained by the District Court for Gdańsk-Północ in Gdańsk, VII Commercial Division of the National Court Register under entry No. KRS 0000171101, with a par value of PLN 10 per share, representing 30.32% of the company‟s share capital;

 375,000 shares in LOTOS Czechowice, a company entered in the Register of Entrepreneurs maintained by the District Court for Katowice-Wschód in Katowice, VIII Commercial Division of the National Court Register under entry No. KRS 0000102608, with a par value of PLN 10 per share, representing 5% of the company‟s share capital;

 300,000 shares in LOTOS Jasło, a company entered in the Register of Entrepreneurs maintained by the District Court in Rzeszów, XII Commercial Division of the National Court Register under entry No. KRS 0000068125, with a par value of PLN 8 per share, representing 5% of the company‟s share capital.

In exchange for the shares in LOTOS Petrobaltic, LOTOS Czechowice and LOTOS Jasło, Grupa LOTOS issued a total of 16,173,362 Series C ordinary bearer shares, with a par value of PLN 1 per share.

227

4 Information Concerning the Securities to Be Admitted to Trading

4.1 Key Information on the Shares to Be Admitted to Trading

This Prospectus does not constitute the basis of any issue or public offering of shares in our Company.

This Prospectus has been prepared in accordance with Art. 7.1 of the Public Offering Act, in connection with the intention to seek admission and introduction to trading on the regulated market of the Warsaw Stock Exchange of 16,173,362 Series C Shares subscribed for by the State Treasury and issued as part of a share capital increase effected pursuant to the Annual General Shareholders Meeting‟s resolution of June 30th 2009 through a private placement with the State Treasury of 16,173,362 ordinary bearer shares, with a par value of PLN 1 and the issue price of PLN 22.07 per share.

By virtue of Resolution No. 35 of June 30th 2009, the Annual General Shareholders authorised the Company, represented by the Management Board, to:

 submit the required applications and notifications to the PFSA,

 execute an agreement with the Polish NDS concerning the registration of Series C Shares and allotment certificates for Series C Shares in the depository for securities operated by the Polish NDS,  submit applications for the admission and introduction of Series C Shares and allotment certificates for Series C Shares to trading on the WSE.

It is the Issuer‟s intention that Series C Shares should be introduced to trading on the official listing market operated by the Warsaw Stock Exchange (Giełda Papierów Wartościowych w Warszawie S.A.) under ISIN Code PLLOTOS00025, under which Series A and Series B shares of the Issuer are currently traded. Therefore, after the Polish NDS adopts a resolution to register Series C Shares in the NDS system, the Company will promptly apply for introduction of Series C Shares to stock-exchange trading.

As soon as the Polish NDS makes a decision on the registration of Series C Shares, the Company will apply for the introduction of Series C Shares to stock-exchange trading.

4.2 Legislation under Which the Securities Have Been Created

Series C Shares were issued under Art. 431.1 et seq. of the Commercial Companies Code, which stipulate that an increase in a company‟s share capital requires an amendment to its articles of association and is effected through an issue of new shares or increase in the par value of the existing shares.

In line with the Company‟s Articles of Association, its share capital may be increased pursuant to a resolution of the General Shareholders Meeting by issuing new shares or increasing the par value of the existing shares. A share capital increase may be also financed with the Company‟s internally-generated funds in accordance with the provisions of the Commercial Companies Code. Pursuant to Art. 430 and Art. 415.1 of the Commercial Companies Code, any amendment to the Articles of Association requires a resolution of the General Shareholders Meeting adopted with a majority of three-fourths of the votes. The Company‟s Articles of Association do not provide for more stringent requirements with respect to resolutions on an amendment to the Company‟s Articles of Association and issue of shares. Series C Shares were issued with the pre-emptive rights of the existing shareholders waived, in accordance with Art. 433.2 of the Commercial Companies Code. Series C Shares were 228 created under Art. 430.1 et seq. of the Commercial Companies Code, following an amendment of the Company‟s Articles of Association, by virtue of the Annual General Shareholders Meeting‟s Resolution No. 34 of June 30th 2009 concerning an increase of the Company‟s share capital through the issue of new Series C ordinary bearer share in a private placement addressed to the State Treasury, with the existing shareholders‟ pre-emptive rights waived, and an amendment of the Company‟s Articles of Association. The share capital increase was registered by the District Court for Gdańsk-Północ in Gdańsk, VII Commercial Division of the National Court Register, on July 17th 2009.

4.3 Type and Form of the Shares to Be Admitted to Trading

Series C Shares are ordinary bearer shares, existing in certificated form as global certificates. Series C Shares will be converted to book-entry form upon their registration with the Polish NDS – an entity responsible for the operation of the system for registration of securities under Art. 5 of the Act on Trading in Financial Instruments – on the basis of a relevant agreement concluded between the Company and the Polish NDS.

4.4 Currency of the Shares to Be Issued

Series C Shares were issued in PLN.

4.5 Description of the Rights Attached to the Securities, Including Any Limitations of Those Rights, and Procedure for the Exercise of Those Rights

The rights and obligations attached to the Company shares are defined in the Commercial Companies Code, the Company‟s Articles of Association and other applicable laws. For more detailed information, consult persons or entities authorised to provide legal advisory services.

Property Rights Attached to the Company Shares

The following property rights are attached to the Company shares:

1) Dividend Rights a) Dividend Yield or Method of Its Calculation, Frequency and Cumulative or Non-Cumulative Nature of Payments

Dividend rights are rights to share in the Company‟s profit, as disclosed in its audited financial statements and allocated for distribution among the shareholders by the General Shareholders Meeting (Art. 347.1 of the Commercial Companies Code). The profit is distributed pro rata to the number of shares held (Art. 347.2 of Commercial Companies Code). Pursuant to Par. 7.1 and Par.7.3 of the Company‟s Articles of Association, the Company‟s profit is allocated, among other things, to dividend payments. The body authorised to decide about profit distribution is the General Shareholders Meeting (Par. 9.3 of the Company‟s Articles of Association). The provisions of the Articles of Association do not authorise the Management Board to pay interim dividend. According to Par. 13.2.5 of the Articles of Association, the powers of the Supervisory Board include the right to review the Management Board‟s recommendations as to the distribution of profit or coverage of loss. The Issuer‟s Articles of Association do not provide for any preference with respect to dividend rights, which means that each share carries the right to dividend in the same amount.

The amount allocated for distribution among the shareholders may not exceed the profit for the last financial year, increased by retained earnings and the amounts transferred from statutory reserve funds and reserve capitals 229 created from profit that may be applied towards dividend payment. This amount should be reduced by any uncovered losses, the value of treasury shares, and by the amounts which – pursuant to statutory provisions or the Articles of Association – should be contributed from last year‟s profit to statutory reserve funds or capital reserves (Art. 348.1 of the Commercial Companies Code). There are no other legal regulations pertaining to the dividend yield, method of its calculation, frequency and cumulative or non-cumulative nature of payments. b) Date on which the Entitlement to Dividend Arises, Time Limit after Which the Entitlement Lapses

Dividend is paid out on the date specified in the General Shareholders Meeting‟s resolution. If no such date is specified in the General Shareholders Meeting‟s resolution, then dividend is paid out on the date set by the Supervisory Board. Dividend for a given financial year is payable to the shareholders who hold the shares on a date set by the General Shareholders Meeting (dividend record date). A dividend record date must be set within three months from the date of the resolution concerning distribution of profit (Art. 348.3 of the Commercial Companies Code). When setting a dividend record date and a dividend payment date, the General Shareholders Meeting should, however, take into consideration the regulations issued by the Polish NDS and the WSE.

The pertinent regulations are set out in Part Four, Section 2, of the Detailed Rules of Operation of the Polish NDS. First of all, two key terms defined in the Rules of the Polish NDS need to be clarified here:  Day D – the day at the end of which the registration accounts and account balances serve as the basis for determining persons eligible to receive distribution entitlements under securities, and for determining the value of those distribution entitlements.  Day W – the day on which distribution entitlements in the form securities are received by the participant for whom the Polish NDS keeps a registration account or – as the case may be – the day on which distribution entitlements in the form cash are transferred to the participant‟s cash account (Par. 79 of the Rules of the Polish NDS).

Under Par. 124 of the Detailed Rules of the Operation of the Polish NDS, the Issuer is obliged to notify the Polish NDS of the amount of dividend per share, as well as of Day D and Day W, not later than ten days before Day D. Day W may not fall earlier than ten days after Day D.

Furthermore, pursuant to Par. 26 of the WSE Rules, the issuers of financial instruments admitted to stock- exchange trading are required to immediately notify the WSE of their intentions to issue financial instruments whose admission to trading they are going to apply for and exercise rights attached to financial instruments that are already listed, as well as any decisions already made in that respect. They are also required to agree such decisions with the WSE to the extent to which they may affect the organisation and execution of the stock- exchange transactions. Dividend payments are made through the depository system of the Polish NDS, which subsequently transfers the dividend amounts directly to the securities accounts of the persons entitled to receive dividend, maintained by individual brokerage houses.

Following the adoption of a resolution on allocation of profit to dividend, the shareholders become entitled to claim dividend. The claim for dividend becomes enforceable on the date specified in the General Shareholders Meeting‟s resolution and becomes prescribed pursuant to the general rules of prescription. The law does not specify any time limit after which the right to dividend expires.

230 c) Dividend Restrictions and Procedures for Non-Resident Holders

For a discussion of dividend restrictions and procedures for non-resident holders, see Section 4.11.1.1.3 of the Securities Note.

2) Pre-emptive rights of the existing shareholders to acquire new issue shares pro rata to the number of shares already held by them. Subject to compliance with the requirements set out in Art. 433 of the Commercial Companies Code, whenever the interest of the Company so requires, the pre-emptive rights may be waived in full or in part by virtue of the General Shareholders Meeting‟s resolution adopted by a majority of at least four-fifths of the votes; the four-fifths majority is not required if the resolution to increase the share capital provides that all the new issue shares are to be acquired by a financial institution (an underwriter), which is obliged to subsequently offer them to the existing shareholders so they can exercise their pre-emptive rights on terms and conditions laid down in the resolution; the resolution stipulates that the new issue shares may be acquired by an underwriter in the event that the entitled shareholders fail to acquire all or some of the offered shares in exercise of their pre-emptive rights. The existing shareholders‟ pre-emptive rights may not be waived unless the waiver is provided for in the General Shareholders Meeting‟s agenda. 3) No other rights to share in the Issuer‟s profits are attached to the Issuer shares. 4) Right to share in any surplus assets in the event of the Company‟s liquidation; the Company‟s Articles of Association do not provide for any preference in that respect.

Good and Marketable Title to the Shares 1) Right to transfer the shares held. The Company‟s Articles of Association do not provide for any restrictions on transferability of the shares. 2) Right to encumber the shares with a pledge or usufruct rights. As long as shares in a public company encumbered with a pledge or usufruct rights are registered in the securities accounts maintained by an authorised entity specified in the applicable regulations on trading in financial instruments, the voting rights attached to the shares are exercisable by the shareholder (Art. 340.3 of the Commercial Companies Code). 3) The Company shares may be retired. 4) Registered shares may be converted into bearer shares at a shareholder‟s request, provided that the shareholder authorises the Management Board to place the bearer shares in deposit. 5) Bearer shares may not be converted into registered shares.

Corporate Rights Attached to the Company Shares The following corporate rights are attached to the Company shares: 1) Right to participate in the General Shareholders Meeting (Art. 412.1 of the Commercial Companies Code). 2) Right to vote at the General Shareholders Meeting. Each share confers the right to one vote at the General Shareholders Meeting (Art. 411.1 of the Commercial Companies Code), subject to the provisions of Par. 10.3 of the Company‟s Articles of Association, which stipulates that as long as the State Treasury or Nafta Polska S.A. holds the Company shares conferring the rights to at least one-fifth of the total vote at the General Shareholders Meeting, the rights of the Company shareholders are limited so that none of them can exercise at the General Shareholders Meeting more than one-fifth of the total number of votes at the Company as at the day of the General Shareholders Meeting. The limitation described in the preceding sentence does not apply to the State Treasury, Nafta Polska S.A., or their subsidiaries. The 231

exercise of a voting right by a subsidiary is deemed as the exercise of that right by the parent entity within the meaning of the Public Offering Act, with the proviso that a parent entity and a subsidiary are also understood as any entity whose votes conferred by the shares held (directly or indirectly) in the Company may be aggregated with the votes of other entity or entities in accordance with the provisions of the Public Offering Act concerning holding, disposal or acquisition of significant blocks of shares in the Company. A shareholder whose voting right was limited in each case retains the right to exercise at least one vote. 3) Right to request that the Extraordinary General Shareholders Meeting be convened and particular items be included in its agenda. This right is vested in a shareholder or shareholders holding at least one- twentieth of the Company‟s share capital (Art. 400.1 of the Commercial Companies Code). If the Extraordinary General Shareholders Meeting is not convened within two weeks of the submission of such a request to the Management Board, the Registry Court may authorise the requesting shareholders to convene the Extraordinary General Shareholders Meeting. In such case, the Registry Court appoints the Chairman of the Meeting. 4) Right to request that particular items be included in the agenda of the next General Shareholders Meeting. This right is vested in a shareholder or shareholders holding at least one-twentieth of the share capital. The request should be submitted to the Management Board not later than twenty one (21) days before the set date of the Meeting and include grounds for or a draft of a resolution concerning the matter requested to be included in the agenda. The request may be submitted in an electronic form (Art. 401.1 of the Commercial Companies Code). 5) A shareholder or shareholders in a public company representing at least one-twentieth of the share capital may, before the General Shareholders Meeting, submit to the company, in writing or in the electronic form, draft resolutions concerning items which have been or are to be included in the agenda. The company promptly publishes the draft resolutions on its website (Art. 401.4 of the Commercial Companies Code). 6) During the General Shareholders Meeting each shareholder may submit draft resolutions concerning the items on the agenda (Art. 401.5 of the Commercial Companies Code). 7) Right to appeal against a resolution of the General Shareholders Meeting if it is in conflict with the Articles of Association or good practice or is harmful to the company‟s interests or intended to harm a shareholder; (Art. 422.1 of the Commercial Companies Code). This right is vested in: the Management Board, the Supervisory Board and individual members of those bodies, a shareholder who voted against the resolution and, after it had been passed, requested that his/her objection be recorded in the minutes of the Meeting. The requirement of voting against the resolution does not apply to a holder of non-voting shares. This right is also vested in a shareholder illegitimately prevented from participation in the General Shareholders Meeting, a shareholder not present at the Meeting (only if General Shareholders Meeting was not duly convened or the objection refers to a resolution adopted on a matter not included in the agenda of the Meeting (Art. 422.2 of the Commercial Companies Code). An appeal against a resolution of the General Shareholders Meeting does not suspend registration proceedings. However, the Registry Court may suspend registration proceedings after a hearing. If an evidently groundless action for the repeal of o resolution of the General Shareholders Meeting was lodged, the court, acting upon the defendant company‟s motion, may award to the company an amount of up to tenfold litigation costs plus fee of one solicitor or legal counsel, payable by the plaintiff. The award does not exclude the right to claim compensation on general terms. In the case of a public company, the action for the repeal of a resolution of the General Shareholders Meeting should be lodged within a month from being informed about the resolution, however no later than within three months of its adoption. The persons or bodies referred to above also have the right to lodge an action against the company for the declaration of invalidity of a resolution of the General Shareholders Meeting. 232

8) Right to request block voting for the election of Supervisory Board members – pursuant to Art. 385.3 of the Commercial Companies Code, at the request of the shareholders representing at least one-fifth of the share capital, the Supervisory Board members should be appointed at the next General Shareholders Meeting through block voting. 9) A resolution on mandating an expert (a special-purpose auditor) to review, at the Issuer‟s expense, a specific issue related to the formation of a public company or the management of its business is adopted by the General Shareholders Meeting at the request of a shareholder or shareholders holding at least 5% of the total vote at the General Shareholders Meeting (Arts. 84 and 85 of the Public Offering Act). To this end, the shareholder(s) may request that an Extraordinary General Shareholders Meeting be convened or the adoption of such a resolution be placed on the agenda of the next General Shareholders Meeting. If the General Shareholders Meeting does not adopt a resolution in accordance with the request, or adopts such a resolution in breach of Art. 84.4 of the Public Offering Act, the requesting shareholder(s) may, within 14 days from the resolution date, apply to the registry court for appointment of a designated entity as the special-purpose auditor. 10) Right to be provided with information concerning the Company, within the scope and in the manner stipulated in the legal regulations, in particular in compliance with Art. 428 of the Commercial Companies Code. In the course of the General Shareholders Meeting, the Management Board is required to disclose information concerning the Company to a shareholder if the shareholder so requests, provided that such information is needed to assess a matter included in the agenda. A shareholder who was refused the requested information in the course of the General Shareholders Meeting and demanded that his/her objection be recorded in the minutes of the Meeting may move to the Registry Court for obliging the Management Board to provide the information (Art. 429.1 of the Commercial Companies Code). 11) Right to a deposit certificate issued to the name of a given shareholder from the entity keeping the shareholder‟s securities account, in accordance with the legal provisions governing trade in financial instruments, and right to a certificate issued to the name of a given shareholder and confirming his/her right to participate in the General Shareholders Meeting of a public company. These rights are vested in a shareholder holding shares in book-entry form in a public company (Art. 328.6 of the Commercial Companies Code). 12) Right to request to be provided with copies of the Directors‟ Report on the Company‟s operations and of the financial statements, including copies of the Supervisory Board‟s report and the auditor‟s report no later than 15 days prior to the General Shareholders Meeting (Art. 395.4 of the Commercial Companies Code). 13) Right to review, at the offices of the Management Board, the list of shareholders entitled to participate in the General Shareholders Meeting and request a copy of the list (to be prepared at the shareholder‟s expense) (Art. 407.1 of the Commercial Companies Code). Right of a shareholder in a public company to request that the list of shareholders be sent to the shareholder via e-mail free of charge (Art. 401.11 of the Commercial Companies Code). 14) Right to request to be provided with copies of proposals concerning the issues included in the agenda one week prior to the General Shareholders Meeting (Art. 407.2 of the Commercial Companies Code). 15) Right to request that the attendance list of the General Shareholders Meeting be reviewed by a dedicated committee comprising at least three members. Such a request may be submitted by shareholders holding a tenth of the share capital represented at the General Shareholders Meeting. The requesting shareholders have the right to appoint one member of the committee (Art. 410.2 of the Commercial Companies Code). 16) Right to review the minutes of the General Shareholders Meeting and request copies of resolutions certified by the Management Board (Art. 421.3 of the Commercial Companies Code). 233

17) Right to bring an action for redress of damage inflicted on the Company, on the terms stipulated in Art. 486 of the Commercial Companies Code, if the Company has failed to bring an action for redressing the damage within one year from the date on which the harmful act was revealed. 18) Right to review documents and demand to be provided, at the Company‟s offices and free of charge, with copies of documents referred to in Art. 505.1 of the Commercial Companies Code (in the case of a merger), Art. 540.1 of the Commercial Companies Code (in the case of a demerger) and Art. 561.1 of the Commercial Companies Code (transformation of the Company). 19) Right to review the Share Register and to request an excerpt therefrom against the return of preparation cost (Art. 341.7 of the Commercial Companies Code). 20) Right to request any commercial company that is a shareholder of the Issuer to provide information in writing on whether it is or was the parent entity or a subsidiary of a given commercial company or a cooperative that is a shareholder of the Issuer. Furthermore, the Issuer‟s shareholder entitled to submit such request may also request disclosure of information on the number of the Issuer shares or votes at the Issuer‟s General Shareholders Meeting held by such commercial company, also as a pledgee, usufructuary or under agreements with other persons (Art. 6.4 of the Commercial Companies Code).

4.6 Resolutions, Authorisations and Approvals on the Basis of Which New Securities Have Been Issued

Series C Shares in Grupa LOTOS S.A. have been issued under the following resolution adopted by the Company‟s Annual General Shareholders Meeting held on June 30th 2009:

RESOLUTION NO. 34

of the Annual General Shareholders Meeting of Grupa LOTOS S.A.

dated June 30th 2009 concerning an increase in the Company’s share capital through the issue of new Series C ordinary bearer shares by way of a private placement addressed to the State Treasury, with the pre-emptive rights of the existing shareholders waived, and the introduction of relevant amendments to the Company’s Articles of Association

Acting pursuant to Art. 431.1, Art. 431.2.1), Art. 432 and Art. 433.2 of the Commercial Companies Code, in conjunction with Par. 9.5) and Par. 9.10) of the Company‟s Articles of Association, and in reference to Resolution No. 4 of the Extraordinary General Shareholders Meeting of February 20th 2008, the General Shareholders Meeting resolves as follows:

234

Par. 1

1. The share capital of Grupa LOTOS S.A. shall be increased from PLN 113,700,000.00 (one hundred and thirteen million seven hundred thousand złoty) to PLN 129,873,362.00 (one hundred and twenty-nine million eight hundred and seventy-three thousand three hundred and sixty-two złoty) on the following terms:

1) the capital increase shall be effected by the issue of 16,173,362 (sixteen million one hundred and seventy-three thousand three hundred and sixty-two) new Series C ordinary bearer shares with a par value of PLN 1.00 (one złoty) per share;

2) the issue price of Series C Shares shall be PLN 22.07 (twenty-two złoty and seven grosz) per share;

3) all Series C Shares shall be offered to the Company‟s shareholder, the State Treasury, as part of a private placement under Art. 431.2.1 of the Commercial Companies Code, with the other shareholders‟ pre-emptive rights to acquire Series C Shares waived;

4) all Series C Shares shall be subscribed for by the State Treasury and covered in full by non-cash contributions with the total estimated value of PLN 356,946,108.00 (three hundred and fifty-six million nine hundred and forty-six thousand one hundred and eight złoty) in the form of the following shares held by the State Treasury:

 2,801,400 (two million eight hundred and one thousand four hundred) shares in Przedsiębiorstwo Poszukiwań i Eksploatacji Złóż Ropy i Gazu Petrobaltic S.A. of Gdańsk, with a par value of PLN 10.00 (ten złoty) per share,

 375,000 (three hundred and seventy-five thousand) shares in LOTOS Czechowice S.A. of Czechowice- Dziedzice, with a par value of PLN 10.00 (ten złoty) per share, and

 300,000 (three hundred thousand) shares in LOTOS Jasło S.A. of Jasło, with a par value of PLN 8.00 (eight zloty) per share;

5) after Series C Shares have been fully paid up, Grupa LOTOS S.A. undertakes to return to the State Treasury the amount of PLN 8.66 (eight złoty and sixty-six grosz) representing the difference between the total estimated value of the non-cash contribution and the total issue price;

6) Series C Shares shall carry the right to dividend starting from the dividend the right to which will arise, under Art. 348.2 of the Commercial Companies Code, on or after the date of registration of the issue of Series C Shares by the Registry Court.

2. The Management Board of Grupa LOTOS S.A. is hereby authorised:

1) to submit to the State Treasury an offer to subscribe for Series C Shares and pay them with the non-cash contribution referred to in Par. 1.1.4 above, on the terms stipulated herein;

2) to execute, following acceptance of the offer by the State Treasury, a share subscription agreement on the terms stipulated herein, not later then two months from the date of this resolution.

Par. 2

1. Having familiarised itself with the opinion of the Management Board of Grupa LOTOS S.A. stating the reasons for the waiver of the other shareholders‟ pre-emptive rights to Series C Shares and specifying the rules to be followed in determining the issue price of the Shares, included in the Management Board‟s Resolutions

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No. 80/VI/2009 and 81/VI/2009, as well as being guided by the best interests of the Company, the General Shareholders Meeting hereby waives in full the pre-emptive rights to Series C Shares vested in the other shareholders.

2. “Opinion of the Management Board of Grupa LOTOS Spółka Akcyjna of Gdańsk on the waiver of pre-emptive rights to Series C Shares and determination of the issue price of the Shares” is attached as an appendix to this resolution.

Par. 3

1. In connection with the share capital increase, Par. 4.1 of the Company‟s Articles of Association shall be amended to read as follows:

„1. The share capital amounts to PLN 129,873,362.00 (one hundred and twenty-nine million eight hundred and seventy-three thousand three hundred and sixty-two złoty) and is divided into 129,873,362 (one hundred and twenty-nine million eight hundred and seventy-three thousand three hundred and sixty-two) shares with a par value of PLN 1 (one złoty) per share, including:

 78,700,000 (seventy eight million seven hundred thousand) Series A ordinary registered shares, numbered from A-00000001 to A-7870000,

 35,000,000 (thirty five million) Series B ordinary bearer shares, numbered from B-00000001 to B-35000000 and

 16,173,362 (sixteen million one hundred and seventy-three thousand three hundred and sixty-two) Series C ordinary bearer shares, numbered from C-00000001 to C-16173362.”

2. The Company‟s Management Board is hereby authorised to apply to the registry court for registering the amendments to the Company‟s Articles of Association under Art. 431.4 of the Commercial Companies Code.

Par. 4

This resolution shall take effect as of the date of its adoption.

Appendix to Resolution No. 34 of the Annual General Shareholders Meeting of Grupa LOTOS S.A. dated June 30th 2009

Opinion of the Management Board of Grupa LOTOS Spółka Akcyjna of Gdańsk on the waiver of pre- emptive rights to Series C Shares and determination of the issue price of the Shares

Acting pursuant to Art. 433.2 of the Commercial Companies Code, the Company‟s Management Board hereby submits its opinion on the waiver of pre-emptive rights to Series C Shares and determination of the issue price of the Shares:

The Company‟s Management Board intends to carry out a private placement of Series C Shares, addressed exclusively to the State Treasury, which would pay for the Shares with a non-cash contribution in the form of:

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 375,000 (three hundred and seventy-five thousand) shares in LOTOS Czechowice S.A. of Czechowice- Dziedzice, with a par value of PLN 10.00 (ten złoty) per share, and

 300,000 (three hundred thousand) shares in LOTOS Jasło S.A. of Jasło, with a par value of PLN 8.00 (eight zloty) per share.

The contribution of shares in the aforementioned companies to Grupa LOTOS S.A. is consistent with the Council of Ministers‟ policy with respect to Grupa LOTOS S.A., presented in the document The Policy of the Government of the Republic of Poland for the Oil Industry, issued in 2007.

The Company‟s Management Board would like to emphasise that the payment for the newly issued shares with the non-cash contribution referred to above is also consistent with the Strategy of the LOTOS Group, which provides for the acquisition of shares in the aforementioned companies. The non-cash contribution in exchange for the shares in the increased share capital of Grupa LOTOS S.A. is a solution more favourable to Grupa LOTOS S.A., as it does not require any cash outflow from the Company.

The discussed transaction would streamline the shareholder structure of Grupa LOTOS S.A. and secure the possibility of raising external financing for the Company and its Group.

Private placement of Series C Shares exclusively with the State Treasury would result in an increase in the Company‟s value and contribute to the strengthening of the Company‟s position in relation to its competitors and business partners. It would also contribute to the Company‟s growth.

Accordingly, the Management Board believes that it is in the Company‟s interest that the other shareholders‟ pre- emptive rights to Series C Shares should be waived in their entirety.

The issue price of Series C Shares has been set at PLN 22.07 per share. The manner of determining the issue price is discussed in the Report of the Management Board of Grupa LOTOS S.A. of Gdańsk on an increase in the Company‟s share capital in exchange for a non-cash contribution, approved under the Management Board‟s Resolution No. 79/VI/2009 dated June 5th 2009.

4.7 Date of Issue of Series C Shares

Series C Shares were issued on July 9th 2009, and the related increase of the Issuer‟s share capital was recorded in the Register of Entrepreneurs of the National Court Register on July 17th 2009.

No securities planned to be issued are covered by this Prospectus.

4.8 Restrictions on Transferability of the Securities

The Company‟s Articles of Association do not provide for any restrictions on transferability of the shares.

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4.8.1 Obligations, Requirements and Restrictions under the Public Offering Act and the Act on Trading in Financial Instruments

Trading in the shares of the Issuer as a public company is subject to the restrictions specified in the Public Offering Act and the Act on Trading in Financial Instruments, which together with the Act on Capital Market Supervision have replaced the Polish Act on Public Trading in Securities.

The securities covered by an approved issue prospectus may be traded on a regulated market only after they have been admitted to trading on such market. Public offerings of or trading in securities or other financial instruments on a regulated market in the Republic of Poland require the intermediation of an investment firm.

Persons Subject to Restrictions

1) Members of the management board, supervisory board, commercial proxies or attorneys-in-fact of the issuer, its employees, auditors and other persons related to the issuer under any mandate or any other contract of a similar nature may not acquire or dispose of, for their own account or for the account of a third party, any of the issuer shares, derivative rights relating thereto or other financial instruments related to such shares, nor may they execute, for their own account or for the account of a third party, any other legal transactions which lead or might lead to the disposal of such financial instruments during a restricted period. 2) Persons specified in Art. 156.1.1a) of the Act on Trading in Financial Instruments, acting as a governing body of a legal person, may not undertake during a restricted period any actions aimed at acquiring or disposing by such legal person, for its own account or for the account of a third party, of any of the issuer shares, derivative rights relating thereto or other financial instruments related to such shares, nor may they undertake actions which lead or might lead to the disposal of such financial instruments by that legal person for its own account or for the account of a third party.

The restrictions do not apply to any actions undertaken: 1. by an entity conducting brokerage activities, mandated by a person referred to in Art. 156.1.1a) of the Act on Trading in Financial Instruments to manage the portfolio of financial instruments on a discretionary basis, i.e. without any interference of the person in the process of making investment decisions, or 2. in performance of an agreement providing for an obligation to acquire or dispose of any of the issuer shares, derivative rights relating thereto or other financial instruments related to such shares, executed in writing, with the date certified by a notary public, falling before the start of a given restricted period, or 3. as a result of a person referred to in Art. 156.1.1a) of the Act on Trading in Financial Instruments having tendered shares in response to a tender offer to acquire or exchange shares in accordance with the Public Offering Act, or 4. in connection with the obligation of a person referred to in Art. 156.1.1a) of the Act on Trading in Financial Instruments to announce a tender offer to acquire or exchange shares in accordance with the Public Offering Act, or 5. following the exercise of pre-emptive rights by an existing shareholder of the issuer, or

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6. in connection with an offering addressed to employees of the issuer or members of the issuer‟s governing bodies constituted by virtue of its articles of association, provided that the information on the offering was available to the public prior to the start of a given restricted period.

Persons who are members of an issuer‟s management and supervisory bodies, commercial proxies, other persons who hold management posts in the organisational structure of an issuer, and who have permanent access to inside information related, whether directly or indirectly, to the issuer, and are authorised to make decisions concerning the issuer‟s development and business prospects are required to notify the Polish Financial Supervision Authority and the issuer of any transactions executed by them or by persons related to them, as referred to in Art. 160.2 of the Act on Trading in Financial Instruments, for their own account, whereby they acquire or dispose of any issuer shares, derivative rights relating thereto and other financial instruments related to the issuer shares admitted or sought to be admitted to trading on a regulated market.

Restricted Period

A restricted period is: a) the period between the time of obtaining by a natural person specified in Art. 156.1.1a) of the Act on Trading in Financial Instruments of inside information concerning the issuer or the financial instruments, and meeting the conditions specified in Art. 156.4 of the Act on Trading in Financial Instruments and the time when such information is made public, b) in the case of an annual report – the period of two months preceding the publication of such report or, if shorter, the period between the end of a given financial year and the publication of such report, with the proviso that the restriction does not apply if the person had no access to the financial information which served as the basis for the preparation of the report, c) in the case of a semi-annual report – the period of one month preceding the publication of such report or, if shorter, the period between the end of a given half year and the publication of such report, with the proviso that the restriction does not apply if the person had no access to the financial information which served as the basis for the preparation of the report, d) in the case of a quarterly report – the period of two weeks preceding the publication of such report or, if shorter, the period between the end of a given quarter and the publication of such report, with the proviso that the restriction does not apply if the person had no access to the financial information which served as the basis for the preparation of the report.

Significant Blocks of Shares

1) Any shareholder who:

a) has reached or exceeded 5%, 10%, 15%, 20%, 25%, 33%, 331/3%, 50%, 75% or 90% of the total vote in a public company, or

b) held at least 5%, 10%, 15%, 20%, 25%, 33%, 331/3%, 50%, 75% or 90% of the total vote in a public company, and as a result of a reduction of its shareholding, holds 5%, 10%, 15%, 20%,

25%, 33%, 331/3%, 50%, 75% or 90% or less of the total vote, respectively,

is required to promptly notify the Polish Financial Supervision Authority and the company of the fact within four days from the date on which the shareholder becomes, or by exercising due care could have become, aware of such change, and if the change results from the acquisition of shares in a public

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company effected in a transaction concluded on a regulated market – within six trading days of the transaction date.

The notification requirement also arises if:

1. a shareholder‟s holding of over 10% of the total vote has changed by at least: a) 2% of the total vote – in the case of a public company whose shares have been admitted to trading on the official stock-exchange market, b) 5% of the total vote – in the case of a public company whose shares have been admitted to trading on another regulated market; 2. a shareholder‟s holding of over 33% of the total vote has changed by at least 1% of the total vote.

The notification should include the date and type of the event which led to the change in the shareholding, the number of shares held prior to the change and their percentage share in the company‟s share capital, the number of votes attached to the shares and their percentage share in the total vote, the number of shares currently held and their percentage share in the company‟s share capital, and the number of votes attached to the shares and their percentage share in the total vote. A notification submitted after a shareholder has reached or exceeded the 10% threshold should also include the indication of any intent to further increase the share in the total vote in the period of 12 months following the notification date, and the purpose of such increase. The shareholder submitting the notification is also required to notify the Polish Financial Supervision Authority and the company of any change of the declared intent or purpose, within three days of such a change.

Furthermore, the notification should contain details of subsidiaries controlled by the shareholder submitting the notification which hold the company shares and of persons referred to in Art. 87.1.3c) of the Public Offering Act.

2) The notification requirement does not arise if, upon the settlement by the depository for securities of a series of transactions executed on a regulated market on a single day, the change in the share of the total vote in a public company as at the end of the settlement date does not result in reaching or exceeding any shareholding threshold which triggers the notification requirement.

Tender Offers

1) In the event of acquisition of a number of shares in a public company which increases a shareholder‟s share in the total vote by more than 10% within a period shorter than 60 days – in the case of a shareholder holding less than 33% of the total vote at the company, or by more than 5% within a period shorter than 12 months – in the case of a shareholder holding 33% or more of the total vote at the company, such acquisition may be effected only by way of a tender offer to acquire or exchange the shares in a number of not less than 10% or 5% of the total vote, respectively. The obligations referred to above do not apply if the shareholder acquires shares in primary trading, through a non-cash contribution or as a result of a merger or demerger of a company.

2) A shareholder may exceed 33% of the total vote in a public company only as a result of a tender offer to acquire or exchange shares in such company, concerning a number of shares which confers the right to at least 66% of the total vote, unless a shareholder exceeds the 33% threshold as a result of a tender 240

offer referred to in Art. 74 of the Public Offering Act. If a shareholder exceeds the thresholds of 33% of the total vote as a result of an indirect acquisition of shares, subscription for new issue shares, acquisition of shares in a public offering, non-cash contribution to the company, merger or demerger of the company, introduction of amendments to the company‟s articles of association, expiry of preference rights attached to shares, or otherwise as a result of a legal event other than a legal transaction, the shareholder, or the entity which has indirectly acquired the shares, is required, within three months from exceeding the 33% threshold, to: 1. announce a tender offer to acquire or exchange the company shares, concerning a number of shares conferring the right to 66% of the total vote, or 2. dispose of a sufficient number of shares so as to hold shares conferring the right to not more than 33% of the total vote unless within that period the share of such shareholder, or the entity which has indirectly acquired the shares in the total vote decreases below 33% of the total vote as a result of a share capital increase, introduction of amendments to the company‟s articles of association, or expiry of preference rights attached to shares held. If a shareholder exceeds the 33% threshold as a result of inheritance, then the obligation referred to above applies only if following such an acquisition the shareholder‟s share in the total vote increases further. The time to perform the obligation commences on the day of the event leading to an increase in the shareholder‟s share in the total vote.

3) A shareholder may exceed 66% of the total vote in a public company only as a result of a tender offer to acquire or exchange the residual shares in the company. If a shareholder exceeds the above threshold as a result of an indirect acquisition of shares, subscription for new issue shares, acquisition of shares in a public offering, non-cash contribution to the company, merger or demerger of the company, introduction of amendments to the company‟s articles of association, expiry of preference rights attached to shares, or otherwise as a result of a legal event other than a legal transaction, the shareholder, or the entity which has indirectly acquired the shares, is required, within three months from exceeding the 66% threshold, to announce a tender offer to acquire or exchange the remaining shares in the company unless within that period the share of such a shareholder, or the entity which has indirectly acquired the shares, in the total vote decreases below 66% as a result of a share capital increase, amendments to the company‟s articles of association, or expiry of preference rights attached to such shareholder‟s shares. If a shareholder exceeds the 66% threshold as a result of inheritance, the obligation referred to above applies only if following such acquisition the shareholder‟s share in the total vote increases further; the time for the performance of the obligation commences on the day of the event leading to an increase in the shareholder‟s share in the total vote (Art. 74.5 of the Public Offering Act).

4) If within six months from a tender offer a shareholder acquires further shares in the company at a price higher than the price set in the tender offer otherwise than by way of a tender offer or as a result of the performance of the obligation referred to in Art. 83 of the Public Offering Act, then the shareholder is obliged, within a month from such acquisition, to pay the difference in the share price to all persons that sold shares by accepting the tender offer, except for the persons from whom the shares were acquired at a reduced price in the case referred to in Art. 79.4 of the Public Offering Act. The provisions of Art 74.3 of the Public Offering Act apply accordingly to an entity which indirectly acquired shares in a public company.

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5) Pursuant to Art. 75.2 of the Public Offering Act, the obligations referred in Art. 72 and Art. 73 of the Public Offering Act do not apply if the shareholder acquires shares from the State Treasury through an initial public offering, within three years from the closing of the sale of the shares by the State Treasury through an initial public offering. Art. 75.3 further specifies that the obligations referred to in Art. 72 through Art. 74 of the Act do not apply if the shareholder acquires shares: a) of a company whose shares have been introduced only to trading on a multilateral trading facility or which are not traded in an organised trading system; b) from a member of the same group of companies; in this case, the provisions of Art. 5 of the Public Offering Act do not apply; c) by way of the procedure provided for in bankruptcy and recovery regulations, or enforcement proceedings; d) under an agreement on creation of financial collateral between qualifying entities, concluded on the terms and conditions defined in the Act on Certain Types of Financial Collateral of April 2nd 2004 (Dz.U. No. 91, item 871, of 2005 No. 83, item 719 and No. 183, item 1538 and of 2009 No. 42, item 341); e) encumbered with a pledge in order to satisfy a pledgee entitled, under other statutes, to satisfy its claims by foreclosure of the pledged asset; f) by inheritance, except for the cases referred to in Art. 73.3 and Art. 74.5 of the Public Offering Act.

Until the pledge expires, the encumbered shares cannot be traded, with the exception of their acquisition in performance of an agreement on the creation of financial collateral within the meaning of the Act on Certain Types of Financial Collateral of April 2nd 2004. The procedure defined in regulations issued under Art. 94.1.1 of the Act on Trading in Financial Instruments shall apply to such shares.

Only the following financial instruments may be acquired in exchange for shares covered by a tender offer to exchange shares, referred to in Art. 72 and Art. 73 of the Public Offering Act: (i) in book-entry form: shares in another company, depository receipts and mortgage bonds, (ii) Treasury bonds. In the case of a tender offer referred to in Art. 74 of the Public Offering Act, only shares in another company in book-entry form or other transferable securities in book-entry form conferring voting rights in the company may be acquired in exchange for shares covered by a tender offer to exchange shares. If the tender offer is made for the residual shares in a company, the terms of the tender offer must include an option for the shareholders accepting the offer to sell the shares at a price defined in accordance with Art. 79.1-3 of the Public Offering Act.

A tender offer is announced after collateral is created for not less than 100% of the value of the shares covered by the tender offer. The collateral should be documented with a certificate issued by a bank or another financial institution which granted, or intermediated in the granting of, the collateral. A tender offer is announced and carried out through the agency of an entity conducting brokerage activities in the Republic of Poland, which is obligated, no later than 14 business days before the opening of the subscription period, to simultaneously notify the Polish Financial Supervision Authority (PFSA) and the company operating the regulated market on which given shares are listed, of the intent to announce the tender offer, attaching a copy of the tender offer to the notification. A tender offer may not be abandoned, unless another entity announces a tender offer for the same shares after the first tender offer is announced. A tender offer for residual shares in a given company may be abandoned only if another entity announces a tender offer for residual shares in the company at a price not lower than the price of 242

the first tender offer. After the tender offer is announced, the entity obligated to announce the tender offer and the management board of the company whose shares are covered by the tender offer should provide information on the tender offer, including its contents, to the representatives of trade unions active at the company, and if there are no such trade unions, directly to employees. Upon receipt of the notification, the PFSA may, not later than three business days before the opening of the subscription period, request that within a specified period of not less than two days, the tender offer be amended or supplemented as necessary or that clarifications on its wording be provided (Art. 78.1 of the Public Offering Act).

In the period between the notification referred to above and the closing of the tender offer, the entity obligated to announce the tender offer and the entities referred to in Art. 79.2.1 of the Public Offering Act: 1. may acquire shares in the company whose shares are covered by the tender offer only as part of the tender offer and in a manner defined therein; 2. may not dispose of shares in the company whose shares are covered by the tender offer, or enter into any agreement under which they would be obligated to dispose of the shares, during the tender offer; 3. may not indirectly acquire shares in the public company whose shares are covered by the tender offer.

The share price offered in the tender offer referred to in Art. 72 through Art. 74 of the Public Offering Act may not be lower than average market price from the six months preceding the announcement of the tender offer in which the shares were traded on the main market, or average market price from a shorter period, if the shares were traded on the main market for a period shorter than six months. The share price proposed in the tender offer may not be lower than:

a) the highest price paid for the shares covered by the tender offer by the entity obligated to announce the tender offer, its subsidiary or parent entity, or an entity with which it concluded the agreement referred to in Art. 87.1.5 of the Public Offering Act, within 12 months preceding the announcement of

the tender offer, or b) the highest value of assets or rights which the entity obligated to announce the tender offer or entities referred to in item 1 above delivered in exchange for the shares covered by the tender offer within 12 months preceding the announcement of the tender offer.

The detailed rules governing determination of the share price are provided in Art. 79 of the Public Offering Act.

Special Provisions

1) Pursuant to Art. 87.1 of the Public Offering Act, the obligations defined in Chapter 4 of the Public Offering Act also apply to:

1. any shareholder who reaches or exceeds a threshold of the total vote defined in the Public Offering Act as a result of acquisition or disposal of depository receipts issued in connection with shares in a public company;

2. an investment fund – also if it reaches or exceeds a given threshold of the total vote defined therein in connection with shares held jointly by: 243

a) other investment funds managed by the same investment fund company, b) other investment funds established outside of the territory of the Republic of Poland, managed by the same company; 3. a shareholder who reaches or exceeds a given threshold of the total vote defined therein in connection with shares held:

a) by a third party in its own name but upon instruction or for the benefit of the shareholder, except shares acquired in performance of the activities referred to in Art. 69.2.2 of the Act on Trading in Financial Instruments,

b) as part of activities consisting in the management of portfolios including one or more financial instruments, in accordance with the provisions of the Act on Trading in Financial Instruments and the Act on Investment Funds, in relation to shares in a managed securities portfolio, under which the shareholder, as the manager, may exercise voting rights at the general shareholders meeting on behalf of the principals,

c) by a third party with which the shareholder entered into an agreement on the transfer of right to exercise voting rights;

4. a proxy who, in its capacity as a representative of a shareholder at the general shareholders meeting, has been authorised to exercise voting rights conferred by shares in a public company, unless the shareholder provided binding written instructions on how the proxy is to vote;

5. jointly all entities bound by a written or oral agreement on acquisition of shares in a public company or on voting in concert at the general shareholders meeting or on conducting a fixed policy with respect to the company, even if only one of the entities has taken or has intended to take actions giving rise to such obligations;

6. entities which enter into the agreement referred to in item 5, holding shares in a public company whose aggregate number confers the right to such a number of votes which results in reaching or exceeding a given threshold of the total vote defined in those regulations.

The obligations specified in the provisions of Chapter 4 of the Public Offering Act arise also if the voting rights are attached to securities deposited or registered with an entity which may dispose of them at its own discretion (Art. 87.2 of the Public Offering Act). In the cases referred to in Art. 87.1.5-6 of the Public Offering Act, the obligations may be performed by one party to the agreement designated by the other parties thereto.

The existence of the agreement referred to in Art. 87.1.5 of the Public Offering Act is presumed if the shares in a public company are held by:

a) spouses, their descendants or ascendants, siblings, or persons related through marriage in the same line or degree of kinship, or relatives under adoption, custody or guardianship; b) persons living in the same household;

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c) principal or its proxy other than an investment firm, authorised to dispose of or acquire shares in a securities account; d) related undertakings as defined in the Accountancy Act of September 29th 1994.

2) Until a shareholder performs the obligations defined in the provisions of Art. 73.2-3 or Art. 74.2 and 72.5 of the Public Offering Act, the shareholder may not directly or indirectly acquire or subscribe for shares in the public company in which the shareholder exceeded the threshold defined in those provisions.

3) Furthermore, it should be noted that Art. 90 of the Public Offering Act defines a catalogue of situations where the provisions of Chapter 4 of the Public Offering Act are waived. The waiver applies to particular entities or to particular situations

Liability for non-compliance with obligations stipulated in applicable laws and regulations

1) The Act on Trading in Financial Instruments regulates liability for failure to comply with the obligations laid down in Section 2.3 of this Prospectus in the following manner: a) the Polish Financial Supervision Authority may impose, by way of an administrative decision, a fine of up to PLN 200,000 on any of the persons specified in Art. 156.1.1a of the Act on Trading in Financial Instruments (the members of the management board, supervisory board, commercial proxies or attorneys-in-fact of the issuer, its employees, qualified auditors or other persons related to the issuer under any mandate contract or any legal relation of a similar nature), who during the restricted period perform acts specified in Art. 159.1 or Art. 159.1a of the Act on Trading in Financial Instruments (Art. 174.1 of the Act on Trading in Financial Instruments), b) the Polish Financial Supervision Authority may impose, by way of a decision, a fine of up to PLN 100,000 on any person who fails to perform or improperly performs the obligation specified in Art. 160.1 of the Act on Trading in Financial Instruments, unless such person:

1. has commissioned an authorised entity conducting brokerage activities to manage such person‟s securities portfolio as a result of which such person has no knowledge of the transactions executed by the portfolio manager; 2. did not or could not know, despite exercising due care, of the execution of the transaction (Art. 175.1 of the Act on Trading in Financial Instruments).

2) The Public Offering Act regulates liability for failure to comply with the obligations specified in Sections 4) to 10) above in the following manner: a) according to Art. 89 of the Public Offering Act, a shareholder may not exercise voting rights conferred by:  shares in a public company, which are the subject of a legal transaction or other legal event as a result of which the shareholder will reach or exceed a certain threshold of the total vote in breach of the obligations specified in Art. 69 or Art. 72, respectively, of the Public Offering Act;  all shares in a public company, if the shareholder exceeded a certain share in the total vote in breach of the obligations specified, in Art. 73.1 or Art. 74.1, respectively, of the Public Offering Act,

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 shares in a public company acquired as part of a tender offer at a price determined in breach of Art. 79 of the Public Offering Act.

A shareholder who exceeded a certain share in the total vote in the cases specified in Art. 73.2 or Art. 73.3, or Art. 74.2 or Art. 74.5, respectively, of the Public Offering Act, may not exercise the voting rights conferred by all the shares of a public company unless it has complied with all the obligations specified by those regulations in a timely manner.

The proscription to exercise the voting rights referred to in Art. 89.1.2 and Art. 89.2 of the Public Offering Act, also applies to all the shares in a public company held by subsidiary undertakings of a shareholder or an entity who acquired the shares in breach of the obligations specified in Art. 73.1 or Art. 74.1 or failed to perform the obligations specified in Art. 73.2 or Art. 73.3 or Art. 74.2 or Art. 74.5 (Art. 89.2a of the Public Offering Act).

If shares in a public company are acquired or subscribed for in breach of the proscription referred to in Art. 77.4.3 or Art. 88a, or not in accordance with Art. 77.4.1, the entity which acquired or subscribed for such shares, and the related undertakings of such an entity may not exercise the voting rights conferred by such shares (Art. 89.2b of the Public Offering Act).

The voting rights conferred by shares of a public company exercised in breach of the proscription referred to in Art. 89.1 to Art. 89.2b of the Public Offering Act are disregarded when counting the votes cast on a general shareholders meeting‟s resolution, subject to provisions of other acts of law. b) Pursuant to Art. 97 of the Public Offering Act, the Polish Financial Supervision Authority may, by virtue of a decision, impose a fine of up to PLN 1,000,000 on any person who:  acquires or disposes of securities in breach of the proscription referred to in Art. 67 of the Public Offering Act,  fails to make a notification referred to in Art. 69 of the Public Offering Act within the time prescribed or makes such a notification in breach of the provisions of Art. 69,  exceeds the defined threshold of the total vote in breach of the conditions referred to in Art. 72 through Art. 74 of the Public Offering Act,  fails to meet the conditions referred to in Art. 76 or Art. 77 of the Public Offering Act,  fails to announce or carry out a tender offer within the time prescribed, or dispose of shares within the time prescribed in the events referred to in Art. 73.2 and Art. 73.3 of the Public Offering Act,  fails to announce or carry out a tender offer within the time prescribed, or dispose of shares within the time prescribed in the events referred to in Art. 74.2 or Art. 74.5 of the Public Offering Act,  fails to announce or carry out a tender offer within the time prescribed, or dispose of shares within the time prescribed in the event referred to in Art. 90a.1 of the Public Offering Act,  despite receiving the request referred to in Art. 78, fails to introduce necessary changes in or supplements to the contents of the tender offer or fails to deliver explanations concerning the contents within the time prescribed,  in the cases specified in Art. 74.3 of the Public Offering Act, fails to pay a difference in the share price within the time prescribed, 246

 in the tender offer referred to in Art. 72 through Art. 74 or Art. 91.6, proposes a price lower than a price determined under Art. 79 of the Public Offering Act,  acquires or subscribes for, directly or indirectly, shares in breach of Art. 77.4.1 or Art. 77.4.3 or Art. 88a of the Public Offering Act,  acquires his own shares in breach of the procedures, dates and conditions specified in Art. 72 through Art. 74, Art. 79 or Art. 91.6 of the Public Offering Act,  effects a mandatory buyout in breach of the principles referred to in Art. 82 of the Public Offering Act,  fails to comply with the request referred to in Art. 83 of the Public Offering Act,  despite the obligation specified in Art. 86.1 of the Public Offering Act, fails to make documents available to the special-purpose auditor or furnish explanations to it,  fails to comply with the obligation referred to in Art. 90a.3 of the Public Offering Act,  commits the acts specified in the above items, while acting on behalf or in the interest of a legal person or an unincorporated organisation. The fine may be imposed separately for each act specified above, as well as separately on each entity bound by the agreement referred to in Art. 87.1.5 of the Public Offering Act. In the decision referred to above, the Financial Supervision Authority may determine a deadline for the repeated performance of the obligation or action which is required under applicable regulations and the breach of which was the reason for imposing the fine. If the obligation or action is not performed by such deadline, the Financial Supervision Authority may again, by way of a decision, impose a fine. The decision is issued after a relevant investigation is held.

4.8.1.1 Obligations Relating to Acquisition of Shares Arising under the Competition and Consumer Protection Act

1) Pursuant to the Competition and Consumer Protection Act, an intended business concentration must be notified to the President of the Office of Competition and Consumer Protection if the aggregate worldwide turnover of the undertakings participating in the concentration in the financial year immediately preceding the year of notification exceeds the equivalent of EUR 1,000,000,000 or the aggregate turnover generated in the Republic of Poland by the undertakings participating in the concentration in the financial year immediately preceding the year of notification exceeds the equivalent of EUR 50,000,000 (Art. 13.1 of the Competition and Consumer Protection Act). When looking at the turnover figures specified above, both the turnover of the undertakings directly participating in the concentration and the turnover of the undertakings which belong to the groups of those directly participating in the concentration are taken into consideration (Art. 16.1 of the Competition and Consumer Protection Act). 2) The obligation arising under Art. 13.1 of the Competition and Consumer Protection Act relates to any intended: 1. combination of two or more independent undertakings; 2. acquisition of direct or indirect control over one or more undertakings by one or more undertakings through acquisition of or subscription for shares, other securities, or otherwise; 3. establishment of a joint undertaking by the undertakings; 4. acquisition by an undertaking of a part of the assets of another undertaking (the whole or part of the enterprise) if the turnover generated by these assets in the Republic of Poland in any of the two financial years preceding the year of the notification exceeded the equivalent of EUR 10,000,000.

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3) Pursuant to Art. 15 of the Competition and Consumer Protection Act, a concentration effected by a subsidiary undertaking shall be understood as concentration effected by the parent entity. The obligation to notify the President of the Office of Competition and Consumer Protection of any intended concentration does not apply if: 1. the turnover generated in the Republic of Poland by the undertaking over which control is to be taken over pursuant to Art. 13.2.2 of the Competition and Consumer Protection Act in any of the two financial years immediately preceding the notification does not exceed the equivalent of EUR 10,000,000; the turnover figure includes both the turnover of the undertaking over which control is to be taken over and its subsidiary undertakings, 2. the intended concentration consists in a temporary acquisition of or subscription for shares which are intended to be resold by a financial institution, provided that the scope of such institution‟s business includes investments in other undertakings‟ shares on its own or third party‟s account, and further provided that the shares will be resold within one year from the date of the acquisition or subscription and that: a) this institution does not exercise the rights attached to the shares, with the exception of the right to dividend, or b) it exercises such rights exclusively in order to prepare the sale of the whole or part of the undertaking, its assets or the shares; 3. the intended concentration consists in a temporary acquisition of or subscription for shares by an undertaking in order to secure a claim, provided that the undertaking does not exercise the rights under these shares, except for the right of resale; 4. the intended concentration results from bankruptcy proceedings, save for the cases where the party intending to assume control is a competitor of the target company or is a member of a group of companies whose members are competitors of the target company; 5. the intended concentration consists in a merger within one group of companies.

Any intended concentration is subject to notification:

1. jointly by the merging undertakings – in the case referred to in Art. 13.2.1 of the Competition and Consumer Protection Act; 2. by the undertaking assuming control – in the case referred to in Art. 13.2.2 of the Competition and Consumer Protection Act; 3. jointly by all the undertakings participating in the establishment of a joint undertaking – in the case referred to in Art. 13.2.3 of the Competition and Consumer Protection Act; 4. by the undertaking acquiring a part of the assets of another undertaking – in the case referred to in Art. 13.2.4 of the Competition and Consumer Protection Act.

4) The undertakings whose intended concentration is subject to notification are obliged to withhold from effecting the concentration until the President of the Office of Competition and Consumer Protection issues his or her decision or until the time when such decision should be issued lapses. 5) The President of the Office of Competition and Consumer Protection authorises or prohibits a concentration by way of a decision. The decisions made by the President of the Office of Competition and Consumer Protection expire if the concentration is not effected within two years from the date of issuing the relevant clearance. 6) The President of the Office of Competition and Consumer Protection may, by way of a decision, impose a fine of not more than 10% of the revenue earned in the financial year preceding the date of the decision if an 248

undertaking effects a concentration without obtaining the President‟s clearance (even if that is done unintentionally). 7) The President of the Office of Competition and Consumer Protection may, by way of a decision, impose a fine of up to the equivalent of EUR 50,000,000 if, e.g., an undertaking gives untrue data (even if that is done unintentionally) in the application referred to in Art. 23 of the Competition and Consumer Protection Act or in the notification referred to in Art. 94.2 of the Competition and Consumer Protection Act. 8) The President of the Office of Competition and Consumer Protection may, by way of a decision, impose a fine of up to the equivalent of EUR 10,000 for each day of delay in execution of a court ruling issued in a case related to concentration, practices infringing upon the collective consumers interests and concentration; the fine is imposed as of the date specified in the decision. 9) The President of the Office of Competition and Consumer Protection may, by way of a decision, impose a fine of up to fifty times the average salary on a person who holds a managerial position in or is a member of a governing body of an undertaking if such person, e.g., fails – intentionally or unintentionally – to notify an intended concentration. 10) In the case of failure to provide notification of the intended concentration, or in the case of failure to execute a decision prohibiting concentration, the President of the Office of Competition and Consumer Protection may, by way of a decision, specifying the final date for its execution in accordance with the conditions stipulated therein, order that the merged undertaking should be de-merged in accordance with the terms set forth in the decision; the undertaking‟s assets should be disposed of in whole or in part, the shares conferring control over an undertaking or undertakings should be disposed of or the undertaking over which such undertakings exercise joint control should be dissolved. Such a decision may be issued exclusively within the five years as of the effective date of the concentration. In the case of failure to execute the decision referred to in Art. 21.1 or Art. 21.4 of the Competition and Consumer Protection Act, the President of the Office of Consumer and Competition Protection may, by way of a decision, de-merge the undertaking. Provisions of Art. 528 through Art. 550 of the Commercial Companies Code apply to the de-merger accordingly. The President of the Competition and Consumer Protection Office is entitled to exercise the powers of corporate bodies of the companies participating in the de-merger. The President of the Competition and Consumer Protection Office may also move to the court for the invalidation of the agreement or for undertaking legal remedies designed to restore the former state of affairs. The President of the Polish Competition and Consumer Protection Office sets an amount of a fine having regard to, in particular, the duration, extent and circumstances of the previous violation of provisions of the Act on Competition and Consumer Protection.

4.8.1.2 Obligations under Council Regulation (EC) No. 139/2004

1) Other obligations related to control of concentrations are imposed under Council Regulation (EC) No. 139/2004 of January 20th 2004 on the control of concentrations between undertakings. The Regulation applies to concentrations with “a Community dimension”, which are deemed to exist where the aggregate turnover of the undertakings concerned exceeds specific thresholds. Transactions required to be notified to the European Commission are exempt (with certain exceptions) from the obligation to notify the intended concentration to the President of the Office of Competition and Consumer Protection. The scope of the Regulation includes only such concentrations which bring about a lasting change in the control of the undertakings concerned as a result of: the merger of two or more previously independent undertakings, the acquisition of direct or indirect control over the undertaking or parts of the undertaking (by purchase of/subscription for shares or other securities, or otherwise) by one or more undertakings or by one or more

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persons already controlling at least one undertaking, or else the establishment of a joint venture performing on a lasting basis all the functions of an autonomous economic entity. The Regulation defines acquisition of control as any direct or indirect acquisition of rights which, either separately or in combination and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking. 2) Concentrations with a Community dimension must be notified to the European Commission prior to their implementation and following: a) the conclusion of the relevant agreement, b) the announcement of the public takeover bid, or c) the acquisition of a controlling interest. 3) A concentration is deemed to have a „Community dimension” where: a) the combined aggregate worldwide turnover of all the undertakings concerned is more than EUR 5,000 million, and b) the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR 250 million, unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.

4) A concentration where the thresholds laid down above are not met has a Community dimension if: a) the combined aggregate worldwide turnover of all the undertakings concerned is more than EUR 2,500 million, b) in each of at least three Member States, the combined aggregate turnover of all the undertakings concerned is more than EUR 100 million, c) in each of at least three Member States included for the purpose of point (b), the aggregate turnover of each of at least two of the undertakings concerned is more than EUR 25 million; and d) the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR 100 million.

unless each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.

4.9 An Indication of the Existence of Any Mandatory Takeover Bids and/or Squeeze- Out and Sellout Rules in Relation to the Securities

For information on mandatory takeover bids, see Section 4.8 of this Securities Note.

The Public Offering Act defines both the mandatory buy-out (squeeze out) and the mandatory sellout.

Pursuant to Art. 82 of the Public Offering Act, a shareholder in a public company, who individually or jointly with its subsidiaries, parent entities, or entities with which the shareholder has concluded the agreement referred to in Art. 87.1.5 of the Public Offering Act, has reached or exceeded 90% of the total vote in the company, has the right to demand within three months of reaching or exceeding the threshold that the other shareholders sell all the shares held in the company (mandatory buyout). Acquisition of shares in a mandatory buyout does not require the consent of any shareholder to whom the demand is addressed. A mandatory buyout is announced after security is created for not less than 100% of the value of the shares covered by the mandatory buyout. The security should be documented with a certificate issued by a bank or another financial institution which granted, or intermediated in the granting of, the security. A mandatory buyout is announced and carried out through the agency of an entity conducting brokerage activities in the Republic of Poland, which is obligated, not later than 14 business days prior

250 to the commencement of the mandatory buyout, to simultaneously notify the PFSA and the company operating the regulated market on which given shares are listed, or if the company shares are listed on more than one regulated market – all such companies, of the intent to announce the mandatory buyout. Information on the mandatory buyout is attached to the notification. An announced mandatory buyout may not be abandoned.

Pursuant to Art. 83.1 of the Public Offering Act, a shareholder in a public company has the right to demand that the shareholder‟s shares be acquired by another shareholder who reaches or exceeds 90% of the total vote in the company. Such a demand must be made in writing within three months of reaching or exceeding the above threshold by another shareholder.

In the event that information on reaching or exceeding the threshold percentage of the total vote referred to in Art. 83.1 of the Public Offering Act has not been published in accordance with Art. 70.1 thereof, the time limit for submitting the relevant demand runs from the day when a shareholder in a public company who has the right to demand mandatory sellout learnt or, acting with due diligence, could have learnt of reaching or exceeding the threshold by another shareholder (Art. 83.1 a of the Public Offering Act).

The obligation to respond, within 30 days from the date of the demand, shall rest jointly and severally on the shareholder who reaches or exceeds 90% of the total vote and its subsidiaries and parent entities (art. 83.2 of the Public Offering Act).

The obligation to acquire the shares from the shareholder rests also jointly and severally on every party to the agreement referred to in Art. 87.1.5 of the Public Offering Act if the parties to the agreement jointly hold, together with their subsidiaries and parent entities, at least 90% of the total vote (Art. 83.3 of the Public Offering Act).

4.10 Indication of Public Takeover Bids by Third Parties in Respect of the Issuer’s Equity Which Have Occurred During the Last Financial Year and the Current Financial Year

No public takeover bids have occurred in respect to the Issuer during the last and the current financial years.

4.11 In Respect of the Country of Registered Office of the Issuer and the Country(ies) Where the Offer is Being Made or Admission to Trading is Being Sought: Information on Taxes on the Income from the Securities Withheld at Source; Indication as to whether the Issuer Assumes Responsibility for the Withholding of Taxes at the Source

This Prospectus contains a general description only of the tax treatment of income related to the holding of shares. For detailed information, investors are advised to consult their tax, financial and legal advisers.

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4.11.1 Tax Treatment of Income from Dividend and Sale of Shares

4.11.1.1 Income Tax on Dividend

1) Taxation of Domestic Income of Legal Persons

Pursuant to Art. 22.1 of the Corporate Income Tax Act, dividend income received from legal entities having their registered office or management in the Republic of Poland is subject to corporate income tax at a flat rate of 19%.

It should be noted that Art. 22 of the Corporate Income Tax Act provides for certain exemptions from income tax on dividend. The exemption may be claimed subject to certain conditions, relating for instance to a period of holding the shares (an uninterrupted period of two years) or a minimum 10% interest in the Issuer‟s equity, and on condition that a taxpayer confirms his or her residence for tax purposes by submitting a certificate of tax residence. Additionally, dividend income and other income from profit distributions made by the Issuer is exempt from income tax if it is earned by a company which is subject to income tax on its entire income in Poland, regardless of where such income is earned. The exemption is also applied if an uninterrupted period of two years of holding the shares (in the amount specified above) by a company deriving income from profit distributions made by the Issuer expires after the income is obtained. However, if the condition which requires the holding of shares (in the amount specified above) for an uninterrupted period of two years is not satisfied, a company deriving income from dividend and other profit distributions made by the Issuer is obliged to pay the tax at the rate of 19%, plus late interest, by the 20th day of the month following the month in which it lost the right to claim the exemption. The interest is accrued from the day following the day on which the exemption is applied for the first time.

In the light of Art. 26.1 of the Corporate Income Tax Act, the flat-rate income tax is remitted by the company which pays out dividend.

2) Personal Income Tax – Polish Tax Residents and Non-Residents

Income of natural persons from profit distributions made by the Issuer comprises dividend and other profit distributions made by the Issuer.

Pursuant to Art. 30a.1.4) of the Personal Income Tax, dividend income earned in Poland is subject to income tax at a flat rate of 19% of the income earned.

In accordance with Art. 30a.2 of the Personal Income Tax, the application of Polish fiscal regulations relating to dividend income accounts for any double tax treaties to which the Republic of Poland is party. It is possible to apply the tax rate provided for in the relevant double tax treaty or to refrain from withholding (paying) tax in accordance with such treaty, provided that the taxpayer confirms his/her residence for tax purposes by submitting a certificate of tax residence issued by the competent tax authority.

As a rule, double tax treaties contain provisions according to which dividend income is subject to tax both in the country of the registered office of the dividend payer, and in the country of residence of the dividend recipient. However the amount of tax to be levied in the source country is limited – the rates of withholding tax at the source generally range from 5% to 15%.

By the 20th day of the month following the month in which the amounts are withheld (paid), tax remitters transfer the amounts withheld and the flat-rate income tax to an account of the tax office relevant for the remitter‟s registered office or – if the remitter does not have a registered office – its principal place of business.

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Furthermore, by the end of January of the year directly following a given fiscal year, each tax remitter is obliged to submit annual tax returns in the prescribed form to the tax office relevant for the remitter‟s registered office or – if the remitter does not have a registered office – its principal place of business.

By the end of February of the year directly following a given fiscal year, each of the tax remitters referred to above is obliged to submit to the taxpayers referred to: 1) in Art. 3.1 of the Personal Income Tax Act, and to the tax offices competent for the taxpayer‟s place of residence - personal information about the amount of income,

2) in Art. 3.2a of the Personal Income Tax Act, and to the tax office competent for the taxation of foreign residents - personal information prepared in the prescribed form.

If the tax remitter discontinues its activities before the end of February of the year directly following a given fiscal year, the tax remitter is required to submit the above information by the day on which its discontinues its activities.

At a written request of the taxpayer referred to in Art. 3.2a of the Personal Income Tax Act, the tax remitter is obliged – within 14 days of the request submission – to prepare and deliver to the taxpayer and to the tax office competent for the taxation of foreign residents - personal information prepared in the prescribed form.

3) Taxation of Dividend Received by Foreign Legal Persons

Profit distributions made to foreign legal persons by Polish legal persons are subject to income tax at a flat rate of 19% (nineteen percent). However, it is possible to apply the tax rate provided for in the relevant double tax treaty or to refrain from withholding (paying) tax in accordance with such treaty, provided that the taxpayer confirms its residence for tax purposes by submitting a certificate of tax residence.

In addition, in the light o Art. 22. 4 – 6 of the Corporate Income Tax Act, dividend income and other income from profit distributions made by legal persons is exempt from income tax if all of the following conditions are met: i. dividend or other profit distributions made by a legal person are paid out by an entity that is a corporate income taxpayer having their registered office or management in the Republic of Poland,

ii. income from dividend or other profit distributions referred to in item (i) above is earned by an entity that is subject to corporate income tax on its entire income, regardless of where such income is earned, in the Republic of Poland, a European Union member state other than the Republic of Poland or another member state of the European Economic Area,

iii. the company referred to in item (ii) above holds directly not less than 10% of shares in the share capital of the company referred to in item (i) above,

iv. income from dividend or other profit distributions is received by:

a) the company referred to in item (ii) above, or

b) a foreign branch of the company referred to in item (ii) above.

The exemption referred to in Art. 22.4 of the Corporate Income Tax Act may be claimed if a company deriving income from dividend and other profit distributions made by a legal person having their registered office or management in the Republic of Poland holds shares (in the amount specified in Art. 22.4.3 of the Corporate Income Tax Act) in the company that makes such distributions for an uninterrupted period of two years.

Such exemption also applies if the uninterrupted period of two years of holding shares in the amount specified in Art. 22.4.3 of the Corporate Income Tax Act by the company earning income from profit distributions made by a 253 legal person having its registered office or management in the Republic of Poland expires after the date such income is earned. If the condition which requires the holding of shares in the amount specified in Art. 22.4.3 of the Corporate Income Tax Act for an uninterrupted period of two years is not satisfied, the company referred to in Art. 22.4.2 of the Corporate Income Tax Act is obliged to pay the tax, plus late interest, on the income specified in Art. 22.1 at the rate of 19% of the income earned, by the 20th day of the month following the month in which it lost its right to claim the exemption. The interest is accrued from the day following the day on which the exemption is applied for the first time.

The provisions of Art. 22.4-4b of the Corporate Income Tax Act apply accordingly to:

1) cooperatives established under Regulation 1435/2003/EC on the Statute for the European Cooperative Society (SCE), dated July 22nd 2003, (Official Journal of the European Union l 207 of August 18th 2003);

2) to income referred to in Art. 22.1 of the Corporate Income Tax Act paid out by companies referred to in Art. 22.4.1 of the Corporate Income Tax Act to companies which are subject to income tax on their entire income in the Swiss Confederation, regardless of where such income is earned, with the reservation that the direct equity interest in the company referred to in Art. 22.4.1 of the Corporate Income Tax Act is set at no less than 25%.

Additionally, the provisions of Art. 22.4-4c of the Corporate Income Tax Act apply accordingly to entities listed in Appendix 4 to the Corporate Income Tax Act, with the reservation that in the case of the Swiss Confederation the provisions of Art. 22.4-4c of the Corporate Income Tax Act apply only is the condition specified in Art. 22.4c.2 of the Corporate Income Tax Act is met.

4.11.2 Taxation of Income on Sale of Shares

1) Corporate Income Tax Applicable to Polish Tax Residents

Income tax is payable when sale of shares results in earning income which is the difference between the amount earned through the sale and the costs incurred to earn the income. The gain on sale of shares generated by corporate tax payers is aggregated with other income and is subject to taxation in accordance with general rules, as provided for in Art. 19 of the Corporate Income Tax Act, that is at a 19% tax rate. Expenditure incurred to acquire the shares does not represent a tax-deductible cost when incurred, however, it is taken into account in the calculation of income on sale of shares against consideration (Art. 16.1.8 of the Corporate Income Tax Act).

2) Personal Income Tax Applicable to Polish Tax Residents

Pursuant to Art. 30b of the Personal Income Tax Act, gain on sale of shares against consideration is taxable. As a rule, the taxable income is the difference between the amount earned through the sale of shares, and the costs incurred to earn the income (namely, the costs incurred on the acquisition of shares).

Income earned on the territory of Poland on sale of shares is subject to income tax at a 19% (nineteen per cent) tax rate. A natural person is obliged to personally declare such income and calculate the tax payable in a separate annual tax return, and pay it to the appropriate tax office by April 30th of the following year. A natural person does not have to pay a withholding tax in the year in which the shares are sold. Gain on sale of shares is not aggregated with other income earned by a natural person and is to be disclosed in a separate annual tax return (Art. 45.1a.1 of the Personal Income Tax Act).

Pursuant to Art. 9.6 of the Personal Income Tax Act, the amount of losses, if any, incurred in a financial year on sale of shares against consideration may be deducted from gain on such transactions earned in the subsequent

254 five financial years, provided that income earned in a given year may not be reduced by more than 50% of the amount of the incurred loss.

3) Personal and Corporate Income Tax Applicable to Polish Non-Residents

As a rule, gain on sale of shares by a foreign tax resident with a place of residence or registered office in a country with which Poland has concluded a double tax treaty is not subject to taxation in Poland, as long as the relevant double tax treaty so provides.

4.11.2.1 Taxation of Income on Sale of Allotment Certificates against Consideration

Allotment certificates are classified as securities pursuant to Art. 3.1 of the Polish Act on Trading in Financial Instruments and Art. 5a.11 of the Polish Personal Income Tax Act. Tax treatment of income on sale of allotment certificates against consideration is identical with the tax treatment of income on sale of shares earned by natural persons. Income on sale of allotment certificates against consideration earned by legal entities is subject to taxation on the same rules as income on sale of shares.

4.11.2.2 Taxation of Income on Sale of Pre-Emptive Rights against Consideration

Pre-emptive rights are classified as securities pursuant to Art. 3.1 of the Polish Act on Trading in Financial Instruments and Art. 5a.11 of the Polish Personal Income Tax Act. Tax treatment of income on sale of pre-emptive rights against consideration is identical with the tax treatment of income on sale of shares earned by natural persons. Income on sale of pre-emptive rights against consideration earned by legal entities is subject to taxation on the same rules as income on sale of shares.

4.11.2.3 Duty on Actions under Civil Law

As a rule, shares may be sold on the Warsaw Stock Exchange through the agency of entities conducting brokerage business, which act on their own behalf but on an investor‟s account in executing a transaction. Pursuant to Art. 9.9 of the Act on Duty on Actions under Civil Law of September 9th 2000 (Dz. U. of 2010 No. 101, item 649) exemption from duty on actions under civil law applies to the sale of property rights in the form of financial instruments:

a) to investment firms or foreign investment firms,

b) through the agency of investment firms or foreign investment firms,

c) in organised trading,

d) outside organised trading through investment firms and foreign investment firms if the property rights were acquired by the companies in organised trading, in accordance with the provisions of the Act on Trading in Financial Instruments of July 29th 2005 (Dz.U. No. 183, item 1538, as amended).

The disposal of shares admitted to organised trading, without the intermediation of an entity conducting brokerage business, is subject to duty on actions under civil law at the rate of 1%. A tax payer is obliged, within 14 days as of the date on which tax liability arises, to pay the applicable duty on actions under civil law and submit the relevant tax return. This obligation applies to the buyer of the shares.

4.11.2.4 Tax Remitter’s Liability

Pursuant to Art. 30.1 of the Tax Legislation Act of August 29th 1997 (consolidated text in Dz.U. of 2005, No. 8, item 60, as amended), an entity that fails to fulfil its duty to compute and withhold tax from a taxpayer and to pay such tax to the tax authority by the appropriate deadline, is liable for the tax amount that has not been withheld or has been withheld but not paid. The remitter is liable up to the full value of its assets. The rules concerning the tax 255 remitter‟s liability do not apply only if other regulations provide otherwise or if the tax was not withheld for reasons attributable to the taxpayer.

4.11.2.5 Taxation of Inheritances and Donations

Pursuant to the Polish Act on Inheritances and Donations, the acquisition by natural persons of property rights through inheritance or donation, including rights related to the holding of shares, is subject to taxation if: a) at the time of opening of the inheritance or conclusion of the donation agreement the heir or donee was a Polish citizen or was permanently domiciled in Poland, or b) the property rights related to the shares are exercised in the territory of Poland.

The rates of the tax on inheritances and donations vary depending on the degree of blood relationship or another type of personal relationship between the testator and the heir or between the donor and the donee.

5 Information on the Terms of the Offering

This Prospectus was not prepared for the purposes of a public offering of Company securities, but in connection with the introduction of Issuer Series C Shares to trading on a regulated market. Series C Shares have already been subscribed for in a private placement. On July 17th 2009, the District Court for Gdańsk-Północ in Gdańsk, 8th Commercial Division of the National Court Register, registered the Issuer‟s share capital increase through the issue of Series C shares. Offering details are presented in Section 3.4 of the Securities Note.

6 Admission to Trading and Dealing Arrangements

6.1 Regulated Market

The Issuer plans to introduce16,173,362 Series C Shares to trading on the official stock-exchange listing market, i.e. the main market operated by the WSE. To achieve this objective, the Company‟s Management Board will, immediately upon receiving the decision of the Polish Financial Supervision Authority approving this Prospectus, apply to the Polish NDS and subsequently to the WSE for registration of the Series C Shares with the Polish NDS (conversion of the shares into book-entry form) and their introduction to trading on the WSE.

It is the Issuer‟s intention that the shares should be registered with the Polish NDS under ISIN code: PLLOTOS00025, under which the Company shares already listed on the WSE are traded.

If the Issuer and the Series C Shares meet all requirements specified in the WSE Rules and in the Minister of Finance‟s Regulation on Detailed Requirements for an Official Stock-Exchange Listing Market and Issuers of Securities Admitted to Trading on Such Market of May 12th 2010 (Dz. U. No. 84, item 547), Series C Shares should be introduced to trading on the main market within two weeks from this Prospectus approval date.

As at this Prospectus approval date, 113,630,889 Issuer Series A and Series B Shares are traded on the official listing market operated by the Warsaw Stock Exchange, under ISIN code: PLLOTOS00025.

The Issuer Series A and Series B Shares are traded on the WSE‟s main market. The Shares are listed in the continuous trading system under the abbreviated name LTS and classified into Segment 250 PLUS (comprising

256 shares of companies whose market capitalisation exceeds EUR 250m). The Shares are also included in the WIG and WIG20 indices.

6.2 Information on Placing of Other Issuer Securities

The Issuer does not conduct any private placement or public subscription for any other securities concurrently with the introduction of Series C Shares to trading on a regulated market.

6.3 Secondary Market Trading Agents

Dom Maklerski Banku PKO BP S.A. and Dom Maklerski Unicredit CAIB Poland S.A. are the two entities operating on the WSE, referred to as the market makers, which have undertaken to act as trading intermediaries on the secondary market to ensure liquidity of the Company Shares through quotations of buy and sell offers, under an agreement executed with the WSE.

6.4 Stabilising Actions

The Issuer did not offer to undertake any actions aimed at stabilising the price of the Issuer Shares on the WSE and does not intend to perform such actions.

7 Selling Securities Holders

This Prospectus does not constitute a basis for any offering of securities. The Prospectus was prepared only for the purposes of seeking admission of Series C Shares to trading on a regulated market.

To the best of the Issuer‟s knowledge, no lock-up agreements have been concluded by the existing shareholders as at the Prospectus approval date.

8 Costs of the Issue

This Prospectus was not prepared in respect of a new issue of the Issuer securities.

The cost of admission and introduction of Series C Shares to trading on a regulated market is estimated at PLN 1,300,000 (VAT exclusive). The amount comprises the costs of legal, notarial and advisory services of PLN 1,200,000, fees and commissions for introducing Series C Shares to trading on a regulated market, payable to the WSE and the Polish NDS, as well as other costs, including administrative fees, totalling PLN 100,000.

9 Dilution

No dilution will occur, since this Prospectus was not prepared in respect of a new issue of the Issuer securities.

On the basis of this Prospectus, the Issuer intends to seek admission of Series C Shares to trading on a regulated market. The Series C Shares were offered without the Issuer being required to prepare, approve and publish a

257 prospectus. All Series C Shares have been subscribed for in a private placement by the State Treasury and account for 12.45% of all Issuer shares.

10 Additional Information

10.1 Scope of Advisers’ Activities Related to the Issue

The scope of the advisers‟ activities related to the issue is discussed in Section 3.3 of the Securities Note.

10.2 Indication of Other Information Contained in the Securities Note Which Was Audited or Reviewed by Qualified Auditors and with Respect to Which Qualified

Auditors Prepared a Report

No additional information was prepared, which would be audited or reviewed by qualified auditors.

10.3 Information on Experts Whose Statements or Reports Are Contained in the Securities Note

The Securities Note does not contain any statements or representations of persons referred to as experts.

10.4 Representation on Reliability of Information Provided by Third Parties and Sources of Such Information

The Securities Note contains no information provided by third parties.

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V Annexes

1 Articles of Association

ARTICLES OF ASSOCIATION OF GRUPA LOTOS SA

consolidated text

including amendments introduced by virtue of Resolutions No. 24 – 32 and 34 of the Ordinary General Shareholders Meeting

of June 30th 2009

Par. 1

General Provisions

1. The Company was established upon transformation of the state-owned enterprise Gdańskie Zakłady Rafineryjne of Gdańsk on the terms provided for in the regulations governing privatisation of state- owned enterprises.

2. The founder of the Company is the State Treasury.

3. The Company operates under the name Grupa LOTOS Spółka Akcyjna. The Company may use the abbreviated name Grupa LOTOS SA.

4. When exercising the rights and performing the obligations of the Company as the parent company for its subsidiaries, the Company‟s governing bodies shall comply with the following:

 besides its own financial statements, the Company shall prepare consolidated financial statements and subject them to appropriate procedures provided for by law,

 the articles of association of the subsidiaries shall include provisions (to be determined taking due account of the type of the conducted or planned activity) specifying the rights and obligations of these subsidiaries‟ governing bodies in such a way that their authority to assume obligations or dispose of rights is not greater than that of the parent company‟s Management Board.

Par. 2

Registered Office and Area of Operations

1. The Company‟s registered office is situated in Gdańsk

2. The Company operates in Poland and abroad.

Par. 3

Business Profile

1. In accordance with the Polish classification of business activities, the Company‟s business profile comprises:

1) 06 Extraction of crude petroleum and natural gas,

2) 09.1 Support activities for petroleum and natural gas extraction,

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3) 18.12 Other printing,

4) 19 Manufacture of coke and refined petroleum products,

5) 20.11 Manufacture of industrial gases,

6) 20.13 Manufacture of other inorganic basic chemicals,

7) 20.14 Manufacture of other organic basic chemicals,

8) 20.16 Manufacture of plastics in primary forms,

9) 22.22 Manufacture of plastic packing goods,

10) 25.91 Manufacture of steel drums and similar containers,

11) 33.11 Repair of fabricated metal products,

12) 33.12 Repair of machinery,

13) 33.14 Repair of electrical equipment,

14) 33.2 Installation of industrial machinery and equipment,

15) 35 Electricity, gas, steam and air conditioning supply,

16) 36 Water collection, treatment and supply,

17) 37 Sewerage,

18) 38 Waste collection, treatment and disposal activities; materials recovery,

19) 39 Remediation activities and other waste management services,

20) 42.2 Construction of utility projects,

21) 43.2 Electrical, plumbing and other construction installation activities,

22) 43.99 Other specialised construction activities n.e.c.,

23) 46.12 Agents involved in the sale of fuels, ores, metals and industrial chemicals,

24) 46.71 Wholesale of solid, liquid and gaseous fuels and related products,

25) 46.75 Wholesale of chemical products,

26) 46.9 Non-specialised wholesale trade,

27) 47.3 Retail sale of automotive fuel in specialised stores,

28) 47.99 Other retail sale not in stores, stalls or markets,

29) 49.2 Freight rail transport,

30) 49.41 Freight transport by road,

31) 49.5 Transport via pipeline,

32) 50.2 Sea and coastal freight water transport,

33) 52.1 Warehousing and storage,

34) 52.21 Service activities incidental to land transportation,

35) 52.22 Service activities incidental to water transportation, 260

36) 52.23 Service activities incidental to air transportation,

37) 52.24 Cargo handling,

38) 58.1 Publishing of books, periodicals and other publishing activities,

39) 58.29 Other software publishing,

40) 61.1 Wired telecommunications activities,

41) 61.9 Other telecommunications activities,

42) 62 Computer programming, consultancy and related activities,

43) 63.1 Data processing, hosting and related activities,

44) 63.99 Other information service activities n.e.c.,

45) 64.99 Other financial service activities, except insurance and pension funding n.e.c.,

46) 66.12 Security and commodity contracts brokerage,

47) 66.19 Other activities auxiliary to financial services, except insurance and pension funding,

48) 68.1 Buying and selling of own real estate,

49) 68.2 Renting and operating of own or leased real property,

50) 69.2 Accounting, bookkeeping and auditing activities; tax consultancy,

51) 70 Activities of head offices; management consultancy activities,

52) 71.12 Engineering activities and related technical consultancy,

53) 71.2 Technical testing and analysis,

54) 72.19 Other research and experimental development on natural sciences and engineering,

55) 73 Advertising and market research,

56) 74.1 Specialised design activities,

57) 74.9 Other professional, scientific and technical activities n.e.c.,

58) 77.1 Renting and leasing of motor vehicles,

59) 77.32 Renting and leasing of construction and civil engineering machinery and equipment,

60) 77. 33 Renting and leasing of office machinery and equipment (including computers),

61) 77.34 Renting and leasing of water transport equipment,

62) 77.39 Renting and leasing of other machinery, equipment and tangible goods n.e.c.,

63) 77.4 Leasing of intellectual property and similar products, except copyrighted works,

64) 78.1 Activities of employment placement agencies,

65) 78.3 Other human resources provision,

66) 80 Security and investigation activities,

67) 81 Services to buildings and landscape activities,

68) 82.1 Office administrative and support activities, 261

69) 82.2 Activities of call centres,

70) 82.92 Packaging activities,

71) 82.99 Other business support service activities n.e.c.,

72) 84.25 Fire service activities,

73) 85.59 Other education n.e.c.,

74) 95.1 Repair of computers and communication equipment.

2. Should any of the Company‟s business activities require a permit or licence, the Company shall undertake such activities after the permit or licence is obtained.

3. Subject to the provisions of these Articles of Association, the Company may take any legal and factual actions permitted by law.

Par. 4

Share Capital and Shares

1. The share capital amounts to PLN 129,873,362.00 (one hundred and twenty nine million, eight hundred and seventy three thousand, three hundred and sixty two złoty) and is divided into 129,873,362 (one hundred and twenty nine million, eight hundred and seventy three thousand, three hundred and sixty two) shares with a par value of PLN 1 (say: one) złoty per share, including:

1) 78,700,000 (seventy eight million, seven hundred thousand) Series A ordinary registered shares, numbered from A-00000001 to A-7870000,

2) 35,000,000 (thirty five million) Series B ordinary bearer shares, numbered from B-00000001 do B- 35000000, and

3) 16.173.362 (sixteen million, one hundred and seventy three thousand, three hundred and sixty two) Series C ordinary bearer shares, numbered form C-00000001to C-16173362.

2. At a shareholder‟s request, registered shares may be converted into bearer shares, provided that the Company‟s Management Board is authorised by the shareholder to place the bearer shares in a depository. Notwithstanding the above, upon admission of the Company shares to public trading it is not necessary to authorise the Management Board to place registered shares converted into bearer shares in book-entry form in a depository. Bearer shares may not be converted into registered shares.

3. The share capital may be increased pursuant to a resolution of the General Shareholders Meeting by issuing new shares or increasing the par value of the existing shares. The share capital increase may be also financed with the Company‟s internally-generated funds in accordance with the provisions of the Commercial Companies Code.

Par. 5

Share Retirement

The Company shares may be retired by virtue of a resolution of the General Shareholders Meeting, on the terms specified in such a resolution. The Company may, based on a resolution of the General Shareholders Meeting, purchase own shares for retirement.

Par. 6

Reserve Funds and Capital Reserves

1. The reserve funds are created with contributions from profit. The annual contributions to the reserve funds may not represent less than 8% (eight percent) of the annual profit. Contributions to the reserve funds may be discontinued if the value of the reserve funds exceeds one third of the share capital.

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The reserve funds serve to cover balance sheet losses that may arise in connection with the Company‟s operations, and to increase the share capital.

2. By virtue of resolutions of the General Shareholders Meeting, the Company may create and liquidate special accounts, including the reserve account.

Par. 7

Distribution of Profit

1. The Company‟s profits shall be allocated to dividend, capitals and funds of the Company, as well as to other purposes, on the terms defined by the General Shareholders Meeting.

2. The dividend record date shall be set by the General Shareholders Meeting.

3. The dividend payment date shall be set in the resolution of the General Shareholders Meeting. Otherwise the Supervisory Board shall announce the payment date.

Par. 8

General Shareholders Meeting

1. General Shareholders Meetings shall be held at the Company registered office.

2. The Management Board shall convene the General Shareholders Meeting in the circumstances provided for in the Articles of Association or in the Commercial Companies Code.

3. The Ordinary General Shareholders Meeting shall be held no later than within six months after the end of the financial year.

4. An Annual General Shareholders Meeting shall be convened by the Management Board on its own initiative. The Supervisory Board may convene the Annual General Shareholders Meeting if the Management Board fails to convene it within the time specified in Par. 8.3 of the Company‟s Articles of Association.

5. An Extraordinary General Shareholders Meeting shall be convened by the Management Board on its own initiative. The Supervisory Board may convene the Extraordinary General Shareholders Meeting if the Supervisory Board deems it appropriate. An Extraordinary General Shareholders Meeting may also be convened by shareholders representing no less than half of the Company‟s share capital or no less than half of the total vote at the Company.

6. Shareholder(s) representing at least one-twentieth of the share capital may request that an Extraordinary General Shareholders Meeting be convened, and that particular items be placed on the agenda of such an Extraordinary General Shareholders Meeting. Any such requests shall be made in writing or in the electronic form and submitted to the Management Board. If an Extraordinary General Shareholders Meeting is not convened within two weeks as of the submission of such a request to the Management Board, the Registry Court may authorise the requesting shareholders to convene the Extraordinary General Shareholders Meeting.

7. A General Shareholders Meeting shall be convened by publishing an announcement on the Company‟s website and in the manner prescribed for disclosure of current information under the Act on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organised Trading, and Public Companies. The announcement should be published at least twenty-six days before the date of the General Shareholders Meeting.

8. The General Shareholders Meeting shall adopt rules for the meeting procedure and manner of adoption of resolutions.

Par. 9

Powers of the General Shareholders Meeting

The powers of the General Shareholders Meeting include in particular: 263

1) Review and approval of the annual financial statements of the Company, the annual report on the Company‟s operations, as well as of the consolidated financial statements of the Group and report on the Group‟s operations, for the previous financial year,

2) approval of discharge of duties by Members of the Supervisory Board and Management Board,

3) making decisions with respect to profit distribution or coverage of loss, as well as on the use of fund/special accounts created out of profits, subject to specific regulations which provide for a different use of such funds/special accounts,

4) appointment and removal of the Supervisory Board Members and definition of the rules of remuneration of the Supervisory Board Members,

5) share capital increase and reduction,

6) any decisions concerning claims for repair of damage inflicted in the establishment of the Company or in exercise of supervision or management,

7) disposal and lease of a business or its organised part and creation of limited property rights in a business or its organised part,

8) approval of purchase of real estate, perpetual usufruct rights or an interest in real estate, whose value, determined on the basis of valuation by an appraiser, exceeds PLN 5,000,000, as well as approving disposal of real estate, perpetual usufruct rights or an interest in real estate, whose value, determined on the basis of valuation by an appraiser, exceeds PLN 200,000,

9) issuing consent to encumber and dispose of shares in Przedsiębiorstwo Poszukiwań i Eksploatacji Złóż Ropy i Gazu Petrobaltic SA and shares in Przedsiębiorstwo Przeładunku Paliw Płynnych Naftoport Sp. z o.o.,

10) amendment to the Articles of Association,

11) creation and liquidation of special accounts, including the reserve account,

12) deciding on retirement of shares or purchase of shares for retirement, and defining the terms of such retirement,,

13) bonds issue,

14) dissolution, liquidation and transformation of the Company or merger with another company,

15) approval of purchase of shares issued by the Company (treasury shares) and creation of pledge on treasury shares in the circumstances defined in Art. 362.1.2 of the Commercial Companies Code,

16) approval of the implementation of incentive plans.

Par. 10

Voting Rights

1. Unless the Commercial Companies Code provides otherwise and subject to the provisions below, the General Shareholders Meeting shall adopt resolutions by way of an absolute majority of votes. In the presence of shareholders representing at least one-half of the Company‟s share capital, the General Shareholders Meeting may adopt, by way of a four-fifths majority of the votes cast, resolutions concerning the following issues:

1) dissolving the Company,

2) transferring the Company registered office abroad,

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3) changing the Company‟s business profile as to limit its ability to manufacture, process and sell refined petroleum products,

4) selling or leasing the Company‟s business or its organised part whose profile includes the manufacture, processing and sale of refined petroleum products, as well as encumbering such business or a part thereof with limited property rights,

5) merging with another company,

6) dividing the Company,

7) establishing share preference,

8) establishing a European company, joining such a company or transforming the Company into a European Company,

9) amending the provision of Par. 10.1 of these Articles of Association.

2. Subject to the provisions of Par. 10.3 below, one Company share confers the right to one vote at the General Shareholders Meeting.

3. As long as the State Treasury or Nafta Polska S.A. holds the Company shares conferring the rights to at least one-fifth of the total vote at the General Shareholders Meeting, the rights of the Company shareholders shall be limited so that neither of them can exercise at the General Shareholders Meeting more than one-fifth of the total number of votes at the Company as at the day the General Shareholders Meeting is held. The limitation described in the preceding sentence does not apply to the State Treasury, Nafta Polska S.A., or their subsidiaries. For the purposes of the this sub- paragraph, the exercise of a voting right by a subsidiary is deemed as the exercise of that right by the parent entity within the meaning of the Act on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organised Trading, and Public Companies dated July 29th 2005 (the Public Offering Act), with the proviso that a parent entity and a subsidiary are also understood as an entity whose votes conferred by the shares held (directly or indirectly) in the Company may be aggregated with the votes of other entity or entities in accordance with the provisions of the Public Offering Act concerning holding, disposal or acquisition of significant blocks of shares in the Company. A shareholder whose voting right was limited shall in each case retain the right to exercise at least one vote.

4. Subject to the relevant provisions of the Commercial Companies Code, a material change may be introduced in the Company‟s business profile without the buy out of the Company shares held by shareholders who do not agree to such a change.

Par. 11 Supervisory Board

1. The Supervisory Board shall be composed of six to nine Members, including the Chairman, the Deputy Chairman and the Secretary. The General Shareholders Meeting shall determine the size of the Supervisory Board.

2. The Supervisory Board shall be appointed and removed from office by the General Shareholders Meeting. Notwithstanding the above, as long as the State Treasury remains a shareholder in the Company, the State Treasury, represented by the appropriate minister, shall be entitled to appoint and remove one Member of the Supervisory Board.

3. The term of office of the Supervisory Board shall be a joint term of three years. One or all Supervisory Board Members may be removed from office at any time prior to the lapse of the term of office.

4. The General Shareholders Meeting shall appoint the Chairman of the Supervisory Board. The Supervisory Board shall appoint the Deputy Chairman and the Secretary from among the remaining Supervisory Board Members.

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Par. 12 Supervisory Board Meetings

1. Supervisory Board meetings shall be held when needed, however, not less frequently than once every two months. Furthermore, the Chairman of the Supervisory Board should convene a meeting at the written request of the Management Board or a Supervisory Board Member, which includes the proposed agenda for the meeting. The meeting should be convened within two weeks as of the date the request is received, or otherwise, the party making the request may independently convene a Supervisory Board meeting, specifying the date, place and proposed agenda of such meeting. Notwithstanding the above, if the Management Board submits a written request to convene a meeting of the Supervisory Board to discuss urgent matters, the Chairman of the Supervisory Board should convene such meeting within two days from receipt of the request. In such circumstances, the Chairman of the Supervisory Board may shorten the deadline specified in Par. 12.2 to two days, specifying the manner of delivery of invitations to the Supervisory Board meeting. Between meetings of the Supervisory Board, declarations of will and letters addressed to the Supervisory Board shall be accepted by the Chairman of the Supervisory Board, and in his absence – by the Deputy Chairman.

2. A Supervisory Board meeting shall be convened by way of a written invitation which should be sent out to the Supervisory Board Members at least seven days prior to the date of the meeting, subject to the provisions contained in Par. 12.1.

3. A Supervisory Board meeting may be held provided that all its Members have been duly invited. A Supervisory Board meeting may also be held without being formally convened if all its Members are present and agree to the meeting being held and to its agenda. The Supervisory Board may also adopt resolutions by voting in writing or using means of remote communication, subject to Art. 388.4 of the Commercial Companies Code. If a resolution is to be adopted in this way, a draft resolution must be first presented to all members of the Supervisory Board; resolutions so adopted shall be presented at the next meeting of the Supervisory Board together with the voting results.

4. Subject to Par. 14.4 of these Articles of Association, a Supervisory Board resolution shall be adopted by way of an absolute majority of the valid votes cast in the presence of at least one-half of the Supervisory Board Members.

Par. 13

Powers of the Supervisory Board

1. The Supervisory Board shall adopt the Rules of Procedure defining its organisation and the procedure for the performance of its duties.

2. The Supervisory Board shall exercise day-to-day supervision over the Company‟s business. Moreover, the powers of the Supervisory Board shall include:

1) appointing to and removing from office the President, the Vice-Presidents, and other Management Board Members, and laying down the rules of remuneration and its rates for the Management Board Members, unless provided otherwise by a special provision of law,

2) suspending in office, for a good reason, any or all Management Board Members, and delegating Supervisory Board Member(s) to temporarily act in place of the Management Board Members who cannot perform their duties,

3) approving the Rules of Procedure of the Management Board,

4) mandating a chartered auditor to audit the financial statements of the Company and its Group, in accordance with the provisions of the Polish Accountancy Act,

5) reviewing financial statements, to verify both their compliance with accounting books and documents as well as with the factual state of affairs, the Director‟s Report, and the Management Board‟s recommendations concerning the distribution of profit or coverage of loss,

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and submitting a written report on the findings of the above review to the General Shareholders Meeting,

6) issuing an opinion on all issues submitted for review to an Ordinary or Extraordinary General Shareholders Meeting,

7) granting consent to Management Board Members to serve on the managing or supervisory bodies of other undertakings and to receive remuneration on account of this service,

8) granting approval to implement investment projects and to contract liabilities related thereto, if the value of the resulting expenditure or encumbrances exceeds the equivalent of one-half of the Company‟s share capital,

9) defining the scope, level of detail and deadlines for submission of annual budgets and long-term strategies by the Management Board,

10) approving strategies of Grupa LOTOS S.A. and the LOTOS Group,

11) issuing an opinion on annual budgets,

12) awarding annual bonuses to the Management Board President, Management Board Vice- Presidents and Management Board Members, unless provided otherwise by a special provision of law,

13) adopting resolutions approving the rules governing the management of special accounts.

3. The Management Board must obtain approval of the Supervisory Board for the following issues:

1) establishing a foreign branch, within the meaning of the provisions of Double-Tax Treaties signed by Poland,

2) selling property, plant and equipment whose value exceeds the equivalent of one-twentieth of the net value of the Company‟s assets,

3) unless such an action requires approval of the General Shareholders Meeting – contracting another liability or making another disposal whose value – whether in a single or a series of related legal actions, other than actions comprising day-to-day management – exceeds the equivalent of one-half of the Company‟s share capital,

4) executing equity investments abroad if their value exceeds the equivalent of one-twentieth of the Company‟s share capital, and all investments in tangible and intangible assets,

5) exercising the Company‟s voting rights at the General Shareholders Meetings of all subsidiaries and other companies, if the value, determined on the basis of the acquisition cost, of the shares the Company holds in a given company exceeds the equivalent of one-fifth of the Company‟s share capital – in the case of voting on the following issues:

 distribution of profit or coverage of loss,

 increasing or reducing the share capital,

 merging with another company or transforming the company,

 selling or leasing the company‟s business and encumbering it with limited property rights,

 amending the articles of association.

6) establishing companies under commercial law and acquiring interests in companies, as well as making contributions to cover shares in companies or selling shares, if the value, determined on the basis of the acquisition cost, of the Company‟s to-date equity investment in a given company

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or of the Company‟s equity investment upon acquisition of the shares, exceeds the equivalent of one-twentieth of the Company‟s share capital, except for acquisitions of shares by way of conversion of claims pursuant to the provisions of the Polish Act on Financial Restructuring of Enterprises and Banks, dated February 3rd 1993, or in public trading in securities,

7) purchasing real estate, perpetual usufruct rights or an interest in real estate, whose value, determined on the basis of valuation by an appraiser, does not exceed PLN 5,000,000, as well as selling real estate, perpetual usufruct rights or an interest in real estate, whose value, determined on the basis of valuation by an appraiser, does not exceed PLN 200,000.

Par. 14

Management Board

1. The Management Board shall be composed of three to seven Members, including the President and Vice-Presidents.

2. Supervisory Board shall appoint the President of the Management Board, the Vice-Presidents and the other Management Board Members.

3. The term of office of the Management Board shall be a joint term of three years. The Supervisory Board may, for good reasons, remove or suspend from office the President, Vice-Presidents, or any other Management Board Member or the entire Management Board at any time prior to the lapse of the term of office.

4. Supervisory Board shall adopt resolutions on appointment to or removal from office of any or all Management Board Members by way of a vote cast in the presence of at least two-thirds of the Supervisory Board Members.

5. A Management Board Member‟s mandate may also expire following a Member‟s resignation. A notice of resignation by a Management Board Member shall be submitted not later than fourteen (14) days prior to the expiry date specified in the Member‟s resignation notice as the date as of which the resignation takes effect.

Par. 15

Representation of the Company

1. The following persons may make declarations of will on behalf of the Company:

 two Members of the Management Board acting jointly,

 Member of the Management Board acting jointly with a commercial proxy.

2. Contraction of liability and disposal of assets with a value of up to PLN 100,000 (one hundred thousand złoty) may be made on the basis of a declaration of will made and signed by a single Member of the Management Board.

Par. 16

Powers and Operating Procedures of the Company’s Management Board

1. By way of a resolution, the Management Board shall adopt the Organisational Rules for the Company.

2. By way of a resolution, the Management Board shall adopt the Management Board Rules of Procedure, stipulating in detail the organisation of the Management Board and the procedure for managing the Company‟s affairs by the Management Board; the Management Board Rules of Procedure, as well as each amendment thereto shall take effect upon approval by the Supervisory Board.

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3. Any matters falling outside the scope of ordinary management, matters specified in the Management Board Rules of Procedure, matters which pursuant to these Articles of Association or legal regulations should be resolved by the Supervisory Board or General Shareholders Meeting as well as any matters with respect to which at least one of the Management Board Members raised an objection shall require a resolution of the Management Board.

4. Management of the Company‟s affairs by the Management Board is subject to limitations resulting from legal regulations, these Articles of Association and the General Shareholders Meeting‟s resolutions.

5. The Management Board shall be obliged to prepare and adopt (by way of a resolution) annual budgets and long-term strategies, in the form and scope, and by the dates specified by the Supervisory Board.

6. The Management Board of the Company shall be obliged to prepare:

1) the Company‟s financial statements for the previous financial year, prepared in compliance with the requirements of the Polish Accountancy Act, together with the Directors‟ Report on the Company‟s activities for the previous financial year – not later than within three months after the balance-sheet date;.

2) the Company‟s Group‟s consolidated financial statements for the previous financial year together with the Directors‟ Report on the Group‟s operations for the previous financial year – not later than within five months from the balance-sheet date.

7. A representative of the Supervisory Board delegated by the Supervisory Board shall conclude employment contracts with the President, Vice-Presidents and the other Members of the Management Board, on the terms and conditions stipulated in resolutions of the Supervisory Board or General Shareholders Meeting. Other legal transactions between the Company and Members of its Management Board shall be executed in the same manner.

Par. 17

Duration of the Company

Financial Year

1. The Company has been established for an unspecified period.

2. The Company‟s financial year shall correspond to the calendar year.

Par. 18

Other Provisions

1. The Company‟s announcements required under law and these Articles of Association shall be published in Monitor Sądowy i Gospodarczy, unless stipulated otherwise by generally binding provisions of law.

2. Throughout these Articles of Association, the expression the “Group” shall be used as defined in accountancy regulations.

3. Unless the wording, meaning or purpose of individual provisions hereof requires otherwise, whenever used in these Articles of Association the expression “the Company” shall refer to Grupa LOTOS Spółka Akcyjna.

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2 Definitions and Acronyms

AEDC Norske AEDC AS, an interest holder in the YME field

Energy Market Agency Agencja Rynku Energii S.A. of Warsaw

Series A Shares 78,630,889 Series A bearer shares with a par value of PLN 1 per share and 69,111 Series A registered shares with a par value of PLN 1 per share

Series B Shares 35,000,000 Series B ordinary bearer shares with a par value of PLN 1 per share

Series C Shares 16,173,362 Series C ordinary bearer shares with a par value of PLN 1 per share

B2B Business to business, the wholesale distribution channel

Middle East Geographical area where three continents, i.e. Europe, Asia and Africa, meet

CDU Crude Distillation Unit – a unit for atmospheric distillation of crude oil

Issue price Issue price of Series C Shares, set by the Annual General Shareholders Meeting in Resolution No. 34 of June 30th 2009 at PLN 22.07

CONCAWE CONservation of Clean Air and Water in Europe, performs surveys and keeps a record of results concerning transmission network behaviour for the European petroleum industry

DAO De-Asphalted Oil, a lighter fraction produced by the ROSE unit and constituting input for the MHC unit due diligence An exhaustive project analysis, including an analysis of the related opportunities and risks

ETS Directive Directive concerning the European Union greenhouse gas emissions trading scheme (Emissions Trading Scheme)

Prospectus Date, Prospectus date The date the Prospectus was approved

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Issuer, Grupa LOTOS S.A., the Company Grupa LOTOS S.A.

EPC Engineering-Procurement-Construction, a type of contract providing for comprehensive project execution

EUR Euro, the monetary unit of the European Union

FAME Fatty acid methyl esters

GBP British pound, the monetary unit of Great Britain

GDDKiA Gdaoska Dyrekcja Dróg Krajowych i Autostrad (Gdaosk Directorate of National Roads and Motorways)

WSE Giełda Papierów Wartościowych w Warszawie S.A. (Warsaw Stock Exchange)

The LOTOS Group, the Issuer’s Group The Group of which Grupa LOTOS S.A. is the Parent Company

The Petrobaltic Group The Group of which LOTOS Petrobaltic S.A. is the parent company

HDS see term: Inst. 500, Inst. 520, HDS below

HGU see term: Inst. 250, Inst. 270, HGU below

Hydrocracking A hydrocarbon conversion technology used at the Gdaosk refinery

Hydrodesuphurisation A diesel desuphurisation technology used at the Issuer’s refinery

Inst. 100 Crude distillation unit (CDU) at the Gdaosk refinery

Inst. 1100 Propane deasphalting of vacuum residue unit at the Gdaosk refinery

Inst. 120, CDU/VDU Crude distillation unit / vacuum distillation unit (CDU/VDU) at the Gdaosk refinery

Inst. 1200 Furfurol extraction unit at the Gdaosk refinery

Inst. 1300 Solvent dewaxing unit at the Gdaosk refinery

Inst. 1400 Oil hydrorefining unit at the Gdaosk refinery

Inst. 150, Inst. 930, MHC Mild hydrocracking unit at the Gdaosk refinery

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Inst. 1800 Crude oil tank park at the Gdaosk refinery

Inst. 200 Gasoline hydrodesulphurisation and separation unit at the Gdaosk refinery

Inst. 2000 Storage tank park at the Gdaosk refinery

Inst. 250, Inst. 270, HGU Hydrogen generation unit at the Gdaosk refinery

Inst. 260 Hydrogen recovery unit at the Gdaosk refinery

Inst. 2700 CHP plant at the Gdaosk refinery

Inst. 2750 Condensate collection unit at the Gdaosk refinery

Inst. 2800 Central heating unit at the Gdaosk refinery

Inst. 2900, Inst. 2930, Inst. 2950 Water preparation facility at the Gdaosk refinery

Inst. 300, Inst. 310, Merox Aviation fuel production unit at the Gdaosk refinery

Inst. 3000, Inst. 3010, Inst. 3050 Cooling water system at the Gdaosk refinery

Inst. 3100 Compressed air generation unit at the Gdaosk refinery

Inst. 3200, Inst. 3210 Nitrogen generation unit at the Gdaosk refinery

Inst. 350 Light gasoline isomerisation unit at the Gdaosk refinery

Inst. 3700 Fuel oil system at the Gdaosk refinery

Inst. 3750 Fuel gas system at the Gdaosk refinery

Inst. 410, Inst 440 Naphtha reforming units at the Gdaosk refinery

Inst. 500, Inst. 520, HDS Diesel hydrodesulphurisation unit at the Gdaosk refinery

Inst. 650 Amine washing and amine regeneration unit at the Gdaosk refinery

Inst. 700 LPG separation unit at the Gdaosk refinery

Inst. 810, Inst. 820, Inst. 830, Inst. 9800, Inst. Sulphur production unit at the Gdaosk refinery 9810, Inst. 9820

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Inst. 860, Inst. 9860 Sour water stripper unit at the Gdaosk refinery

Inst. 900 Vacuum distillation unit (VDU) at the Gdaosk refinery

Inst. 9700 LPG washing unit at the Gdaosk refinery

Inst. 9850, ASR Amine-sulphur recovery unit

ISCG, Vemco, Trend Micro, Landmark Companies supplying licensed software to Grupa LOTOS S.A. Graphics, ManageEngine, Koma Nord Sp. z o.o., Adobe, Quest Software

Isocracking Hydrocarbon conversion technology used at Gdaosk refinery’s units (Hydrocracker, MHC)

Parent Company Grupa LOTOS S.A.

Jet-A1 Aviation fuel

Civil Code Polish Civil Code (Kodeks Cywilny)

ASR see term: Inst. 9850, ASR below

KBR Kellog, Brown & Root, the company providing the licence for the heavy residue gasification technology, implemented by the Issuer as part of the 10+ Programme

Polish NDS Krajowy Depozyt Papierów Wartościowych S.A. of Warsaw (Polish National Depository for Securities)

Know-how A term referring to specific technical knowledge in a given area

Commercial Companies Code Polish Commercial Companies Code (Dz.U. of 2000, No. 94, item 1037, as amended) (Ustawa z dnia 15 września 2000 r. Kodeks spółek handlowych (Dz.U. z 2000 r. Nr 94, poz. 1037, z późn. zm.))

PFSA Polish Financial Supervision Authority (Komisja Nadzoru Finansowego)

Licence (sense 1) An administrative document issued by a licensing authority, authorising its holder to conduct specific business activity

Licence holder Holder of a licence

273

National Court Register, KRS Polish National Court Register (Krajowy Rejestr Sądowy)

LDS LOTOS Diesel Service, a network of self-service fuel pumps

LIBOR London Interbank Offered Rate, an interest rate on loans offered between banks in London

Licence (sense 2) A legal document or agreement setting forth the terms and conditions to use a proprietary product, trademark or patent

LOTOS Asfalt LOTOS Asfalt Sp. z o.o. of Gdaosk, a subsidiary of Grupa LOTOS S.A.

LOTOS Biopaliwa LOTOS Biopaliwa Sp. z o.o. of Czechowice – Dziedzice, a subsidiary of Grupa LOTOS S.A.

LOTOS Czechowice LOTOS Czechowice S.A. of Czechowice – Dziedzice, a subsidiary of Grupa LOTOS S.A.

LOTOS Eko-Energia LOTOS Eko-Energia Sp. z o.o. of Gdaosk, a subsidiary of Grupa LOTOS S.A.

LOTOS EPN, LOTOS E&P LOTOS Exploration & Production Norge AS of Stavanger

LOTOS Gaz LOTOS Gaz S.A. of Mława, a subsidiary of Grupa LOTOS S.A.

LOTOS Jasło LOTOS Jasło S.A. of Jasło, a subsidiary of Grupa LOTOS S.A.

LOTOS Kolej LOTOS Kolej Sp. z o.o. of Gdaosk, a subsidiary of Grupa LOTOS S.A.

LOTOS Lab LOTOS Lab Sp. z o.o. of Gdaosk, a subsidiary of Grupa LOTOS S.A.

LOTOS Ochrona LOTOS Ochrona Sp. z o.o. of Gdaosk, a subsidiary of Grupa LOTOS S.A.

LOTOS Oil LOTOS Oil Sp. z o.o. of Gdaosk, a subsidiary of Grupa LOTOS S.A.

LOTOS Paliwa LOTOS Paliwa Sp. z o.o. of Gdaosk, a subsidiary of Grupa LOTOS S.A.

LOTOS Parafiny LOTOS Paliwa Sp. z o.o. of Jasło, a subsidiary of Grupa LOTOS S.A.

LOTOS Park Technologiczny LOTOS Park Technologiczny Sp. z o.o. of Jasło, a subsidiary of Grupa LOTOS S.A.

274

LOTOS Petrobaltic, Petrobaltic LOTOS Petrobaltic S.A., formerly Przedsiębiorstwo Poszukiwao i Eksploatacji Złóż Ropy i Gazu "Petrobaltic" S.A.

LOTOS RC Serwis LOTOS Rc Serwis Sp. z o.o. of Czechowice - Dziedzice

LOTOS Serwis LOTOS Serwis Sp. z o.o. of Gdaosk, a subsidiary of Grupa LOTOS S.A.

LOTOS Straż LOTOS Straż Sp. z o.o. of Gdaosk, a subsidiary of Grupa LOTOS S.A.

LOTOS Tank LOTOS Tank Sp. z o.o. of Gdaosk, a subsidiary of Grupa LOTOS S.A.

LPG a popular motor fuel

LTL Litas, the monetary unit of Lithuania

Refining margin Difference between the price obtained for crude oil refining products when sold and the price of crude oil purchase

MHC See term: Inst. 150, Inst. 930, MHC below

Microsoft Microsoft Corp.

Minister of Environment Minister competent to deal with issues relating to the environment

MSA Motorway service area

B3 Offshore Mine Production and transmission facilities used by LOTOS Petrobaltic S.A. to extract hydrocarbons from the B3 field

Ministry of State Treasury Polish Ministry of State Treasury

IAS/IFRS International Accounting Standards / International Financial Reporting Standards

Nafta Polska Nafta Polska S.A.

Naftoport Przedsiębiorstwo Przeładunku Paliw Płynnych Naftoport Sp. z o.o.

Nature 2000 A programme to create a common network of protected areas in the territory of the European Union

NBP National Bank of Poland

275

NIT National Indicative Target

NOK Norwegian crown, the monetary unit of the Kingdom of Norway

Offeror Ipopema Securities S.A. of Warsaw pp Percentage points

Package of Anti-Crisis Measures Package of measures implemented at the LOTOS Group in 2009

Premium fuels, Dynamic fuels LOTOS Dynamic 98, LOTOS Dynamic Diesel

Patent Exclusive right to use an invention

Pentor RI Pentor Research International S.A. of Warsaw

GDP Gross Domestic Product

PLASTEKOL Organizacja Odzysku S.A. PLASTEKOL Organizacja Odzysku S.A. of Jasło, a subsidiary of LOTOS Jasło S.A.

PLN Polish złoty, the monetary unit of Poland

PLZ Old Polish złoty, the monetary unit of Poland before the redenomination in 1995

PMC Project management consultant

Port Północny Przedsiębiorstwo przeładunkowo-składowe Port Północny Sp. z o.o. ppm parts per million – measure of the concentration of diluted chemical solutions

Energy Law Polish Energy Law of April 10th 1997 (Dz. U. of 2006, No. 89, item 625, as amended) (Ustawa z dnia 10 kwietnia 1997 r. - Prawo energetyczne (Dz.U. z 2006 r. Nr 89, poz. 625 z późn. zm.))

10+ Programme A programme to extend and upgrade the Gdaosk refinery

YME Project A project to develop the YME field on the Norwegian Continental Shelf

Prospective (P90/P50/P10) One of the categories in the SPE petroleum resources classification

276

Prospectus This issue prospectus

Contingent (1C/2C/3C) One of the categories in the SPE petroleum resources classification

Council of Ministers Council of Ministers of the Republic of Poland

Supervisory Board, Issuer’s Supervisory Board Supervisory Board of Grupa LOTOS S.A.

RC Ekoenergia RC Ekoenergia Sp z o.o.

REACH Regulation (EC) No 1907/2006 of the European Parliament and of the Council relating to chemicals and their safe use. It deals with Registration, Evaluation and Authorisation of Chemicals

RESPECT Index A Warsaw Stock Exchange Index evaluating economic standing of companies which have been recognised in a survey as socially responsible; dividend income and returns from pre-emptive rights are included in calculation of the index

ROSE Residuum Oil Supercritical Extraction, vacuum heavy residue processing (deasphalting) unit

RP Republic of Poland

Government Security Centre An institution set up on the basis of Art. 10 of the Polish Crisis Management Act of April 26th 2007 and the Regulation of the President of the Council of Ministers of July 10th 2008 concerning organisation and manner of operation of the Government Security Centre

SAP SAP Polska Sp. z o.o.

SAP NetWeaver SAP's integrated technology platform and technical foundation for SAP applications

SGS Shell Global Solutions

State Treasury Ministry of the State Treasury

SPE Society of Petroleum Engineers, an international association

Company, Issuer, Grupa LOTOS Grupa LOTOS S.A.

277

Company’s Articles of Association, Issuer’s Articles of Association of Grupa LOTOS S.A. Articles of Association, Articles of Association

Commercial Partnership Programme Franchise system offered by LOTOS Paliwa Sp. z o.o.

Talisman Energy Norge AS Operator of the YME field on the Norwegian Continental Shelf

UAB LOTOS Baltija UAB LOTOS Baltija of Vilnius, a subsidiary of Grupa LOTOS S.A.

U&O Utilities and off-sites

Office of Competition and Consumer Urząd Ochrony Konkurencji i Konsumentów (Polish Office of Competition Protection, UOKiK and Consumer Protection)

Energy Regulatory Office Urząd Regulacji Energetyki (Polish Energy Regulatory Office)

USD US dollar, the monetary unit of the United States of America

Act on Remunerating Persons Who Manage Polish Act on Remunerating Persons Who Manage Certain Legal Entities Certain Legal Entities (Compensation Cap Act) dated March 3rd 2000 (Dz. U. of 2000, No. 26, item 306, as amended) (Ustawa z dnia 3 marca 2000 r. o wynagradzaniu osób kierujących niektórymi podmiotami prawnymi (Dz.U. z 2000 r. Nr 26, poz.306 z późn. zm))

Act on Trading in Financial Instruments Polish Act on Trading in Financial Instruments dated July 29th 2005 (Dz. U. of 2005, No. 183, item 1538, as amended) (Ustawa z dnia 29 lipca 2005 o obrocie instrumentami finansowymi, (Dz.U. z 2005 r. Nr 183, poz. 1538, z późn. zm.))

Public Offering Act Polish Act on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organised Trading, and Public Companies, dated July 29th 2005 (Dz. U. of 2009, No. 185, item 1439, as amended) (Ustawa z dnia 29 lipca 2005 roku o ofercie publicznej i warunkach wprowadzania instrumentów finansowych do zorganizowanego systemu obrotu oraz o spółkach publicznych (Dz.U. z 2009 r. Nr 185, poz. 1439, z późn. zm.))

Personal Income Tax Act Polish Personal Income Tax Act dated July 26th 1991 (Dz.U. of 2010, No. 51, item 307, as amended) (Ustawa z dnia 26 lipca 1991 r. o podatku dochodowym od osób fizycznych (Dz.U. z 2010 r. Nr 51, poz. 307, z późn. zm.))

278

Corporate Income Tax Act Polish Corporate Income Tax Act of February 15th 1992 (Dz.U. of 2000, No. 54, item 654, as amended) (Ustawa z dnia 15 lutego 1992 r. o podatku dochodowym od osób prawnych (Dz.U. z 2000 r. Nr 54, poz. 654, z późn. zm.))

VDU Vacuum Distillation Unit – a unit for vacuum distillation of crude oil

EC European Community

WIG 20 Warsaw Stock Exchange Index covering 20 companies listed at the WSE

Wintershall Wintershall Norge ASA of Norway, an YME field interest holder

Reserves (1P/2P/3P) One of the categories in the SPE petroleum resources classification

GM, General Shareholders Meeting General Shareholders Meeting of Grupa LOTOS S.A.

YME an oil field in the Norwegian Continental Shelf in which the Issuer’s Group holds a 20% interest

Crude Oil Distillation Complex Crude Oil Distillation Complex in the Issuer’s refinery in Gdaosk

Hydrocracker Complex Hydrocracker Complex in the Issuer’s refinery in Gdaosk mandatory stocks Mandatory stocks set up pursuant to the Polish Act on Stocks of Crude Oil, Petroleum Products and Natural Gas, as well as on the Rules to be Followed in the Event of a Threat to National Fuel Security or a Disruption on the Petroleum Market, dated February 16th 2007 (Dz.U. No. 52, item 343) (Ustawa z dnia 16 lutego 2007 r. o zapasach ropy naftowej, produktów naftowych i gazu ziemnego oraz zasadach postępowania w sytuacjach zagrożenia bezpieczeostwa paliwowego paostwa i zakłóceo na rynku naftowym (Dz. U. Nr 52, poz. 343))

TPA Third Party Access, the principle pursuant to which owners or operators of network infrastructure should grant access to such facilities to third parties so that such third parties can supply goods or services to their customers (relevant for power transmission, telecommunications services, railway services, etc.).

279

3 Excerpt From the National Court Register (KRS)

CODo GD/07.09/82/2010 Registering Officer: RÓŻAŃSKA DOROTA

CENTRAL INFORMATION DEPARTMENT NATIONAL COURT REGISTER ul. Piekarnicza 10 80126 Gdańsk

NATIONAL COURT REGISTER (KRS)

as at September 7th 2010, 11:25:49 hrs No. KRS: 0000106150 CURRENT EXCERPT FROM THE REGISTER OF ENTREPRENEURS

Date of registration in KRS April 10th 2002

Last entry Entry No. 42 Date of entry August 5th 2010

File No. GD.VII NS-REJ.KRS/13564/10/256

DISTRICT COURT GDAŃSK-PÓŁNOC IN GDAŃSK, Court: 7TH COMMERCIAL DIVISION OF THE NATIONAL COURT REGISTER

Section 1

Subsection 1 – Company data

1. Legal form JOINT-STOCK COMPANY

2. Industry Identification Number REGON: 190541636; NIP: 5830000960 (REGON)/ Tax Identification Number (NIP)

3. Company name GRUPA LOTOS SPÓŁKA AKCYJNA

4. Previous registration RHB 6553 DISTRICT COURT IN GDAŃSK

5. Does the entrepreneur conduct NO business activity with other entities under an agreement establishing a partnership under civil law?

6. Does the company have the status of ---- a public benefit organisation?

280

Subsection 2 – Principal place of business and registered address

1. Principal place of business country: POLAND, province: PROVINCE OF GDAŃSK, county: CITY OF GDAŃSK, municipality: CITY OF GDAŃSK, city/ town: GDAŃSK 2. Registered address ul. ELBLĄSKA, building no. 135, office no. ---; town/city: GDAŃSK, postal code: 80-718 GDAŃSK, country POLAND

Subsection 3 – Branches

No entries

Subsection 4 – Articles of Association

1. Information on execution of or 1 NOTARIAL DEED OF SEPTEMBER 18TH 1991, NOTARY OFFICE NO.15 IN amendments to the Articles of Association WARSAW, NUMBER IN THE REGISTER OF NOTARIAL DEEDS: REP. A NO. 8932/91;

NOTARIAL DEED OF MARCH 14TH 2002, DRAWN UP BY NOTARY PUBLIC GRAŻYNA WÓJTOWICZ OF NOTARY OFFICE IN GDAŃSK, NUMBER IN THE REGISTER OF NOTARIAL DEEDS: REP. A NO. 1266/2002

AMENDMENTS TO PAR. 2.2, PAR. 3 IN THE TITLE, PAR. 3.1, PAR. 3.4, PAR. 4.1, PAR. 5.1, PAR. 7.4, PAR. 7.7.5, PAR. 8.10.9, PAR. 8.11.3-6, PAR. 3. .1, PAR. 7.2, PAR. 7.8, PAR. 7.10, PAR. 7.7.2, PAR. 7.7.7, PAR. 8.5,

ADDITION OF PAR. 7.7.17 AND PAR. 7.7.18

2 NOTARIAL DEED OF JUNE 5TH 2002, NUMBER IN THE REGISTER OF NOTARIAL DEEDS: REP. A NO. 2414/2002, DRAWN UP BY NOTARY PUBLIC ADAM WASAK OF THE NOTARY OFFICE IN GDAŃSK, UL. WAJDELOTY 18, OFFICE NO. 1.

ADDITION OF PAR. 8.10.13

3 NOTARIAL DEED OF OCTOBER 28TH 2002 AND NOVEMBER 26TH 2002, NUMBER IN THE REGISTER OF NOTARIAL DEEDS: REP. A NO. 5280/2002, DRAWN UP BY NOTARY PUBLIC ADAM WASAK OF THE NOTARY OFFICE IN GDAŃSK, UL. WAJDELOTY 18, OFFICE NO. 1.

DELETION OF PAR. 7.7.8 AND CHANGE OF THE NUMBERING OF PAR. 7.7.9-18 TO PAR. 7.7.8-17

AMENDMENTS TO PAR. 2.2, PAR. 7.7.8, PAR. 7.8, PAR. 7.9, PAR. 8.10.10, PAR. 8.10.11, PAR. 8.10.12

ADDITION OF PAR. 8.11.7

4 NOTARIAL DEED OF OCTOBER 28TH 2002 AND NOVEMBER 26TH 2002, NUMBER IN THE REGISTER OF NOTARIAL DEEDS: REP. A NO. 5280/2002, DRAWN UP BY NOTARY PUBLIC ADAM WASAK OF THE NOTARY OFFICE IN GDAŃSK, UL. WAJDELOTY 18, OFFICE NO. 1.

AMENDMENTS TO PAR. 1.3

5 NOTARIAL DEED OF MAY 29TH 2003, NUMBER IN THE REGISTER OF NOTARIAL DEEDS: REP. A NO. 2692/2003, DRAWN UP BY NOTARY PUBLIC ADAM WASAK OF THE NOTARY OFFICE IN GDAŃSK, UL. WAJDELOTY 18, OFFICE NO. 1.

ADDITION OF PAR. 2.2.62-68 TO PAR. 2.2.1

AMENDMENTS TO PAR. 9.10, PAR. 9.11

281

6 NOTARIAL DEED OF JUNE 23RD 20084, NUMBER IN THE REGISTER OF NOTARIAL DEEDS: REP. A NO. 3599/2004, DRAWN UP BY NOTARY PUBLIC ADAM WASAK OF THE NOTARY OFFICE IN GDAŃSK, UL. WAJDELOTY 18, OFFICE NO. 1.

AMENDMENTS TO PAR. 2.2.2.1

7 NOTARIAL DEED OF MARCH 23RD 2005, NUMBER IN THE REGISTER OF NOTARIAL DEEDS: REP. A NO. 1329/2005, DRAWN UP BY NOTARY PUBLIC ADAM WASAK OF THE NOTARY OFFICE IN GDAŃSK, UL. WAJDELOTY 18, OFFICE NO. 1, POSTAL CODE 80-437 GDANSK

ADOPTION OF THE CONSOLIDATED TEXT OF THE ARTICLES OF ASSOCIATION CONTAINING NEW NUMBERING AS A RESULT OF THE FOLLOWING AMENDMENTS:

AMENDMENTS TO PAR. 3, PAR. 4, PAR. 5, PAR. 6;

AMENDMENTS OF PAR. 7.4, ADDITION OF PAR. 7.7, CHANGE OF THE NUMBERING OF PAR.7.7 TO PAR. 7.8. AND ITS AMENDMENT, CHANGE OF THE NUMBERING OF PAR.7.8 TO PAR. 7.9 AND ITS AMENDMENT, CHANGE OF THE NUMBERING OF PAR.7.9 TO PAR. 7.10, CHANGE OF THE NUMBERING OF PAR.7.10 TO PAR. 7.11 AND ITS AMENDMENT;

AMENDMENTS TO PAR. 8.1, PAR. 8.3, PAR.5, DELETION OF PAR. 8.10.7 AND CHANGE OF THE NUMBERING OF PAR. 8.10.8-13 TO PAR. 8.10.7-12, AMENDMENT TO PAR. 8.11.3, PAR. 8.11.7, PAR. 9.3

8 NOTARIAL DEED OF MARCH 23RD 2005, NUMBER IN THE REGISTER OF NOTARIAL DEEDS: REP. A NO. 1329/2005, DRAWN UP BY NOTARY PUBLIC ADAM WASAK OF THE NOTARY OFFICE IN GDAŃSK, UL. WAJDELOTY 18, OFFICE NO. 1, POSTAL CODE 80-437 GDANSK

AMENDMENTS TO PAR. 10.2

ADDITION OF PAR. 10.3

CHANGE OF THE NUMBERING OF PAR. 10.3-4 TO PAR.10.4-5

9 NOTARIAL DEED OF APRIL 26TH 2005, NUMBER IN THE REGISTER OF NOTARIAL DEEDS: REP. A NO. 1995/2005, DRAWN UP BY NOTARY PUBLIC ADAM WASAK OF THE NOTARY OFFICE IN GDAŃSK

AMENDMENTS TO PAR. 8.5, PAR. 10.1, PAR. 11.2, PAR. 12.1, PAR. 12.3 OF THE ARTICLES OF ASSOCIATION

10 NOTARIAL DEED OF JUNE 13TH 2005, NUMBER IN THE REGISTER OF NOTARIAL DEEDS: REP. A NO. 3005/2005, DRAWN UP BY NOTARY PUBLIC ADAM WASAK OF THE NOTARY OFFICE IN GDAŃSK, UL. WAJDELOTY 18, OFFICE NO. 1

CLARIFICATION OF THE WORDING OF PARS. 4.1.1-2 OF THE ARTICLES OF ASSOCIATION

11 NOTARIAL DEED OF AUGUST 23RD 2005, NUMBER IN THE REGISTER OF NOTARIAL DEEDS: REP. A NO. 4608/2005, DRAWN UP BY TRAINEE NOTARY PUBLIC KATARZYNA OGONOWSKA, DEPUTY OF ADAM WASAK OF THE NOTARY OFFICE IN GDAŃSK, UL. WAJDELOTY 18, OFFICE NO. 1

ADDITION OF PAR. 3.1.80

AMENDMENTS TO PAR. 12.2, PAR. 12.4, PAR. 16.6.1-2

12 NOTARIAL DEED OF JANUARY 30TH 2006, NUMBER IN THE REGISTER OF NOTARIAL DEEDS: REP. A NO. 474/2006, DRAWN UP BY TRAINEE NOTARY PUBLIC KATARZYNA OGONOWSKA, DEPUTY OF ADAM WASAK OF THE NOTARY OFFICE IN GDAŃSK, UL. WAJDELOTY 18, OFFICE NO. 1

AMENDMENTS TO PAR. 1.3, SENTENCE 2

ADDITION OF PAR. 13.4

282

13 NOTARIAL DEED OF MAY 28TH 2007, NUMBER IN THE REGISTER OF NOTARIAL DEEDS: REP. A NO. 3746/2007, DRAWN UP BY NOTARY PUBLIC ADAM WASAK OF THE NOTARY OFFICE IN GDAŃSK, UL. WAJDELOTY 18, OFFICE NO. 1, POSTAL CODE 80-437

CHANGE OF THE TITLE OF PAR. 1, ADDITION OF PAR. 1.4, AMENDMENTS TO PAR. 3.1-3 AND DELETION OF PAR. 3.4, AMENDMENTS TO PAR. 6.2, PAR. 9 SUB-PARAGRAPH 11, ADDITION OF SENTENCE 6 TO PAR.12.1, ADDITION OF PAR.13.2.13, PAR. 14.5, AMENDMENTS TO PAR.16.3

14 NOTARIAL DEED OF JANUARY 22ND 2008 AND FEBRUARY 20TH 2008, NUMBER IN THE REGISTER OF NOTARIAL DEEDS: REP. A NO. 1723/2008, DRAWN UP BY NOTARY PUBLIC ADAM WASAK OF THE NOTARY OFFICE IN GDAŃSK, UL. WAJDELOTY 18, OFFICE NO. 1

ADDITION OF SUB-PARAGRAPH 19 TO PAR. 9

AMENDMENT OF PAR. 13.2.10

DELETION OF PAR. 13.4

15 NOTARIAL DEED OF JUNE 30 2008, NUMBER IN THE REGISTER OF NOTARIAL DEEDS: REP. A NO. 4652/2008, DRAWN UP BY NOTARY PUBLIC ADAM WASAK OF THE NOTARY OFFICE IN GDAŃSK, UL. WAJDELOTY 18, OFFICE NO. 1, POSTAL CODE 80-437

AMENDMENTS TO PAR.15.2 OF THE ARTICLES OF ASSOCIATION

16 NOTARIAL DEED OF JUNE 30TH 2009, NUMBER IN THE REGISTER OF NOTARIAL DEEDS: REP. A NO. 2135/2009, DRAWN UP BY NOTARY PUBLIC KATARZYNA OGONOWSKA OF THE NOTARY OFFICE IN GDAŃSK, UL. DMOWSKIEGO 10B, OFFICE NO. 3

AMENDMENTS TO PAR. 3.1, PAR. 10.3, PAR. 13.2.1, PAR. 13.2.12, PAR. 14.2, PAR. 16.7;

ADDITION OF PAR. 7.3;

DELETION OF SUB-PARAGRAPHS 15,16,18 IN PAR. 9

17 NOTARIAL DEED OF JUNE 30TH 2009, NUMBER IN THE REGISTER OF NOTARIAL DEEDS: REP. A NO. 2135/2009, DRAWN UP BY NOTARY PUBLIC KATARZYNA OGONOWSKA OF THE NOTARY OFFICE IN GDAŃSK, UL. DMOWSKIEGO 10B, OFFICE NO. 3

AMENDMENT TO PAR. 4.1

18 NOTARIAL DEED OF JUNE 30TH 2009, NUMBER IN THE REGISTER OF NOTARIAL DEEDS: REP. A NO. 2135/2009, DRAWN UP BY NOTARY PUBLIC KATARZYNA OGONOWSKA OF THE NOTARY OFFICE IN GDAŃSK, UL. DMOWSKIEGO 10B, OFFICE NO. 3

AMENDMENT TO PAR.18.1, PAR. 4.1, PAR. 8.4-6

ADDITION OF PAR.8.7

DELETION OF PAR.10.4

283

Subsection 5 1. Period of time for which the company UNSPECIFIED has been established 2. Journal designated for placing --- company announcements, other than Monitor Sądowy i Gospodarczy 4. Do the Articles of Association grant NO personal rights to specific shareholders or interest in the company’s income or assets other than resulting from the shares held? 5. Do bondholders have the right to share NO in profits?

Subsection 6 – Establishing the company

No entries

Subsection 7 – Information on the sole shareholder No entries

Subsection 8 – Company’s share capital 1. Amount of share capital PLN 129,873,362.00 2. Amount of authorised share capital --- 3. Total number of outstanding shares 129,873,362 4. Par value per share PLN 1 5. Amount of capital paid PLN 129,873,362.00 6. Par value of conditional share capital --- increase Part 1 Information on contribution in kind 1. Value of shares acquired in 1 PLN 16,173,362.00 exchange for contribution in kind

Subsection 9 – Issue of shares 1. 1. Series of shares A 2. Number of shares in the series 78,700,000 3. Type of preference and the number of preference shares, or NON-PREFERENCE SHARES information that the shares are non-preference shares 2. 1. Series of shares B 2. Number of shares in the series 35,000,000 3. Type of preference and the number of preference shares, or NON-PREFERENCE SHARES information that the shares are non-preference shares 3. 1. Series of shares C 2. Number of shares in the series 16,173,362 3. Type of preference and the number of preference shares, or NON-PREFERENCE SHARES information that the shares are non-preference shares

284

Subsection 10 – Information on adoption of a resolution on an issue of convertible bonds

No entries

Subsection 11

1. Is the Management or Administration --- Board authorised to issue subscription warrants? Section 2

Subsection 1 - Governing body authorised to represent the company

1. Name of the governing body authorised MANAGEMENT BOARD to represent the company 2. Form of representation PERSONS AUTHORISED TO MAKE DECLARATIONS OF WILL ON BEHALF OF THE COMPANY: - TWO MEMBERS OF THE MANAGEMENT BOARD ACTING JOINTLY - A MEMBER OF THE MANAGEMENT BOARD ACTING JOINTLY WITH A COMMERCIAL PROXY - A DECLARATION OF WILL AND SIGNATURE OF ONE OF THE MEMBERS OF THE MANAGEMENT BOARD SUFFICE TO INCUR LIABILITIES AND MAKE DISPOSALS UP TO PLN 100 THOUSAND Part 1 Information on members of the governing body 1 1. Surname / Name of company OLECHNOWICZ 2. First and middle name PAWEŁ 3. Personal Identification Number 52010214919 (PESEL)/Industry Identification Number (REGON) 4. KRS No. **** 5. Function in the body authorised PRESIDENT OF THE MANAGEMENT BOARD to represent the company 6. Has the person been suspended NO from duties? 7. Suspension end date --- 2 1. Surname / Name of company SOKOŁOWSKI 2. First name and middle name MAREK PAWEŁ 3. Personal Identification Number 49021905817 (PESEL)/Industry Identification Number (REGON) 4. KRS No. **** 5. Function in the body authorised VICE-PRESIDENT OF THE MANAGEMENT BOARD to represent the company 6. Has the person been suspended NO from duties? 7. Suspension end date --- 3 1. Surname / Name of company MACHAJEWSKI 2. First name and middle name MARIUSZ 3. Personal Identification Number 69043010551 (PESEL)/Industry Identification Number (REGON) 4. KRS No. **** 5. Function in the body authorised VICE-PRESIDENT OF THE MANAGEMENT BOARD to represent the company 6. Has the person been suspended NO from duties? 7. Suspension end date --- 4 1. Surname / Name of company SZOZDA 2. First name and middle name MACIEJ JAKUB

285

3. Personal Identification Number 57042603155 (PESEL)/Industry Identification Number (REGON) 4. KRS No. **** 5. Function in the body authorised VICE-PRESIDENT OF THE MANAGEMENT BOARD to represent the company 6. Has the person been suspended NO from duties? 7. Suspension end date ---

Subsection 2 – Supervisory body

1. Name of the governing body SUPERVISORY BOARD Part 1 Information on members of the governing body 1 1. Surname SKWARKO 2. First name and middle name WIESŁAW 3. Personal Identification Number 62011004132 (PESEL) 2 1. Surname STAROSTA 2. First name and middle name LESZEK STANISŁAW 3. Personal Identification Number 46093003236 (PESEL) 3 1. Surname HIRSZEL 2. First name and middle name MAŁGORZATA 3. Personal Identification Number 72010300986 (PESEL) 4 1. Surname WARDZIŃSKI 2. First name and middle name RAFAŁ MARCIN 3. Personal Identification Number 77041602214 (PESEL) 5 1. Surname PAWŁOWSKI 2. First name and middle name OSKAR ANDRZEJ 3. Personal Identification Number 74032102698 (PESEL) 6 1. Surname RUMIŃSKI 2. First name and middle name MICHAŁ BARTOSZ 3. Personal Identification Number 74050301657 (PESEL) 7 1. Surname SIBRECHT OŚKA 2. First name and middle name EWA JOANNA 3. Personal Identification Number 67061800363 (PESEL) 8 1. Surname LOREK 2. First name and middle name RAFAŁ SEBASTIAN 3. Personal Identification Number 72071617296 (PESEL)

Subsection 3 – Commercial Proxies

1 1. Surname KOWALCZYK 2. First name and middle name WOJCIECH JERZY 3. Personal Identification Number 51112504997 (PESEL) 4. Type of proxy JOINTLY WITH A MEMBER OF THE MANAGEMENT BOARD 2. 1. Surname LOEWE 2. First name and middle name ADAM LEON 3. Personal Identification Number 58082003475 (PESEL) 4. Type of proxy JOINTLY WITH A MEMBER OF THE MANAGEMENT BOARD

286

3 1. Surname NESKA 2. First name and middle name JACEK ROBERT 3. Personal Identification Number 71021805910 (PESEL) 4. Type of proxy POWER OF PROXY TO REPRESENT THE COMPANY AND TO MAKE DECLARATIONS OF WILL ON BEHALF OF THE COMPANY JOINTLY WITH A MEMBER OF THE MANAGEMENT BOARD

SECTION 3

Subsection 1 – Business profile

1. Entrepreneur’s business profile 1 06 EXTRACTION OF CRUDE PETROLEUM AND NATURAL GAS 09.1 SUPPORT ACTIVITIES FOR PETROLEUM AND NATURAL GAS 2 EXTRACTION 3 18.12 OTHER PRINTING 4 19 MANUFACTURE OF COKE AND REFINED PETROLEUM PRODUCTS 5 20.11 MANUFACTURE OF INDUSTRIAL GASES 6 20.13 MANUFACTURE OF OTHER INORGANIC BASIC CHEMICALS 7 20.14 MANUFACTURE OF OTHER ORGANIC BASIC CHEMICALS 8 20.16 MANUFACTURE OF PLASTICS IN PRIMARY FORMS 9 22.22 MANUFACTURE OF PLASTIC PACKING GOODS 10 25.91 MANUFACTURE OF STEEL DRUMS AND SIMILAR CONTAINERS 11 33.11 REPAIR OF FABRICATED METAL PRODUCTS 12 33.12 REPAIR OF MACHINERY 13 33.14 REPAIR OF ELECTRICAL EQUIPMENT 14 33.2 INSTALLATION OF INDUSTRIAL MACHINERY AND EQUIPMENT 15 35 ELECTRICITY, GAS, STEAM AND AIR CONDITIONING SUPPLY 16 36 WATER COLLECTION, TREATMENT AND SUPPLY 17 37 SEWERAGE 38 WASTE COLLECTION, TREATMENT AND DISPOSAL ACTIVITIES; 18 MATERIALS RECOVERY 19 39 REMEDIATION ACTIVITIES AND OTHER WASTE MANAGEMENT SERVICES 20 42.2 CONSTRUCTION OF UTILITY PROJECTS 43.2 ELECTRICAL, PLUMBING AND OTHER CONSTRUCTION INSTALLATION 21 ACTIVITIES 22 43.99 OTHER SPECIALISED CONSTRUCTION ACTIVITIES N.E.C. 46.12 AGENTS INVOLVED IN THE SALE OF FUELS, ORES, METALS AND 23 INDUSTRIAL CHEMICALS 46.71 WHOLESALE OF SOLID, LIQUID AND GASEOUS FUELS AND RELATED 24 PRODUCTS 25 46.75 WHOLESALE OF CHEMICAL PRODUCTS 26 46.9 NON-SPECIALISED WHOLESALE TRADE 27 47.3 RETAIL SALE OF AUTOMOTIVE FUEL IN SPECIALISED STORES 28 47.99 OTHER RETAIL SALE NOT IN STORES, STALLS OR MARKETS 29 49.2 FREIGHT RAIL TRANSPORT 30 49.41 FREIGHT TRANSPORT BY ROAD 31 49.5 TRANSPORT VIA PIPELINE 32 50.2 SEA AND COASTAL FREIGHT WATER TRANSPORT 33 52.1 WAREHOUSING AND STORAGE 34 52.21 SERVICE ACTIVITIES INCIDENTAL TO LAND TRANSPORTATION 35 52.22 SERVICE ACTIVITIES INCIDENTAL TO WATER TRANSPORTATION 36 52.23 SERVICE ACTIVITIES INCIDENTAL TO AIR TRANSPORTATION 37 52.24 CARGO HANDLING 58.1 PUBLISHING OF BOOKS, PERIODICALS AND OTHER PUBLISHING 38 ACTIVITIES 39 58.29 OTHER SOFTWARE PUBLISHING 40 61.1 RADIO BROADCASTING 41 61.9 OTHER TELECOMMUNICATIONS ACTIVITIES 42 62 COMPUTER PROGRAMMING, CONSULTANCY AND RELATED ACTIVITIES 43 63.1 DATA PROCESSING, HOSTING AND RELATED ACTIVITIES 44 63.99 OTHER INFORMATION SERVICE ACTIVITIES N.E.C. 64.99 OTHER FINANCIAL SERVICE ACTIVITIES, EXCEPT INSURANCE AND 45 PENSION FUNDING N.E.C. 46 66.12 SECURITY AND COMMODITY CONTRACTS BROKERAGE 287

66.19 OTHER ACTIVITIES AUXILIARY TO FINANCIAL SERVICES, EXCEPT 47 INSURANCE AND PENSION FUNDING 48 68.1 BUYING AND SELLING OF OWN REAL ESTATE 49 68.2 RENTING AND OPERATING OF OWN OR LEASED REAL PROPERTY 69.2 ACCOUNTING, BOOKKEEPING AND AUDITING ACTIVITIES; TAX 50 CONSULTANCY 70 ACTIVITIES OF HEAD OFFICES; MANAGEMENT CONSULTANCY 51 ACTIVITIES 52 71.12 ENGINEERING ACTIVITIES AND RELATED TECHNICAL CONSULTANCY 53 71.2 TECHNICAL TESTING AND ANALYSIS 72.19 OTHER RESEARCH AND EXPERIMENTAL DEVELOPMENT ON SOCIAL 54 SCIENCES AND HUMANITIES 55 73 ADVERTISING AND MARKET RESEARCH 56 74.1 SPECIALISED DESIGN ACTIVITIES 74.9 OTHER PROFESSIONAL, SCIENTIFIC AND TECHNICAL ACTIVITIES 57 N.E.C. 58 77.1 RENTING AND LEASING OF MOTOR VEHICLES 77.32 RENTING AND LEASING OF CONSTRUCTION AND CIVIL ENGINEERING 59 MACHINERY AND EQUIPMENT 77. 33 RENTING AND LEASING OF OFFICE MACHINERY AND EQUIPMENT 60 (INCLUDING COMPUTERS) 61 77.34 RENTING AND LEASING OF WATER TRANSPORT EQUIPMENT 77.39 RENTING AND LEASING OF OTHER MACHINERY, EQUIPMENT AND 62 TANGIBLE GOODS N.E.C. 77.4 LEASING OF INTELLECTUAL PROPERTY AND SIMILAR PRODUCTS, 63 EXCEPT COPYRIGHTED WORKS 64 78.1 ACTIVITIES OF EMPLOYMENT PLACEMENT AGENCIES 65 78.3 OTHER HUMAN RESOURCES PROVISION 66 80 SECURITY AND INVESTIGATION ACTIVITIES 67 81 SERVICES TO BUILDINGS AND LANDSCAPE ACTIVITIES 68 82.1 OFFICE ADMINISTRATIVE AND SUPPORT ACTIVITIES 69 82.2 ACTIVITIES OF CALL CENTRES 70 82.92 PACKAGING ACTIVITIES 71 82.99 OTHER BUSINESS SUPPORT SERVICE ACTIVITIES N.E.C. 72 84.25 FIRE SERVICE ACTIVITIES 73 85.59 OTHER EDUCATION N.E.C. 74 95.1 REPAIR OF COMPUTERS AND COMMUNICATION EQUIPMENT

Subsection 2 – Information on documents submitted

Type of document Consecutive Submission date For the period number in the box 1. Information on submitting the annual 1 JUNE 10TH 2002 JANUARY 1ST 2001-DECEMBER 31ST 2001 financial statements

2 JUNE 3RD 2003 JANUARY 1ST 2002-DECEMBER 31ST 2002

3 JULY 7TH 2004 JANUARY 1ST 2003-DECEMBER 31ST 2003

4 MAY 25TH 2005 JANUARY 1ST 2004-DECEMBER 31ST 2004

5 JUNE 22ND 2006 JANUARY 1ST 2005-DECEMBER 31ST 2005

6 JUNE 4TH 2007 JANUARY 1ST 2006-DECEMBER 31ST 2006

7 JULY 17TH 2008 JANUARY 1ST 2007-DECEMBER 31ST 2007

8 JULY 7TH 2009 JANUARY 1ST 2008-DECEMBER 31ST 2008

9 JULY 7TH 2010 JANUARY 1ST 2009-DECEMBER 31ST 2009 288

2. Information on submitting the auditor’s opinion 1 ***** JANUARY 1ST 2001-DECEMBER 31ST 2001

2 ***** JANUARY 1ST 2002-DECEMBER 31ST 2002

3 ***** JANUARY 1ST 2003-DECEMBER 31ST 2003

4 ***** JANUARY 1ST 2005-DECEMBER 31ST 2005

5 ***** JANUARY 1ST 2006-DECEMBER 31ST 2006

6 ***** JANUARY 1ST 2007-DECEMBER 31ST 2007

7 ***** JANUARY 1ST 2008-DECEMBER 31ST 2008

8 ***** JANUARY 1ST 2009-DECEMBER 31ST 2009 3. Information on submitting a resolution 1 ***** JANUARY 1ST 2001-DECEMBER 31ST 2001 or decision approving the financial statements 2 ***** JANUARY 1ST 2002-DECEMBER 31ST 2002

3 ***** JANUARY 1ST 2003-DECEMBER 31ST 2003

4 ***** JANUARY 1ST 2004-DECEMBER 31ST 2004

5 ***** JANUARY 1ST 2005-DECEMBER 31ST 2005

6 ***** JANUARY 1ST 2006-DECEMBER 31ST 2006

7 ***** JANUARY 1ST 2007-DECEMBER 31ST 2007

8 ***** JANUARY 1ST 2008-DECEMBER 31ST 2008

9 ***** JANUARY 1ST 2009-DECEMBER 31ST 2009 4. Information on submitting the report on 1 ***** JANUARY 1ST 2001-DECEMBER 31ST 2001 the company’s operations 2 ***** JANUARY 1ST 2002-DECEMBER 31ST 2002

3 ***** JANUARY 1ST 2003-DECEMBER 31ST 2003

4 ***** JANUARY 1ST 2004-DECEMBER 31ST 2004

5 ***** JANUARY 1ST 2005-DECEMBER 31ST 2005

6 ***** JANUARY 1ST 2006-DECEMBER 31ST 2006

7 ***** JANUARY 1ST 2007-DECEMBER 31ST 2007

8 ***** JANUARY 1ST 2008-DECEMBER 31ST 2008

9 ***** JANUARY 1ST 2009-DECEMBER 31ST 2009

289

Subsection 3 – Financial statements/reports of the company’s Group

Type of document Consecutive Submission date For the period number in the box 1. Annual consolidated financial statements 1 JUNE 4TH 2007 JANUARY 1ST 2006-DECEMBER 31ST 2006

2 JULY 17TH 2008 JANUARY 1ST 2007-DECEMBER 31ST 2007

3 JULY 7TH 2009 JANUARY 1ST 2008-DECEMBER 31ST 2008

4 JULY 7TH 2010 JANUARY 1ST 2009-DECEMBER 31ST 2009 2. Auditor’s opinion

1 ***** JANUARY 1ST 2006-DECEMBER 31ST 2006

2 ***** JANUARY 1ST 2007-DECEMBER 31ST 2007

3 ***** JANUARY 1ST 2008-DECEMBER 31ST 2008

4 ***** JANUARY 1ST 2009-DECEMBER 31ST 2009 3. Resolution or decision approving the annual 1 ***** JANUARY 1ST 2006-DECEMBER 31ST 2006 consolidated financial statements 2 ***** JANUARY 1ST 2007-DECEMBER 31ST 2007

3 ***** JANUARY 1ST 2008-DECEMBER 31ST 2008

4 ***** JANUARY 1ST 2009-DECEMBER 31ST 2009 4. Report on the operations of the Parent 1 ***** JANUARY 1ST 2006-DECEMBER 31ST 2006 Company

2 ***** JANUARY 1ST 2009-DECEMBER 31ST 2009

Subsection 4 – Business profile defined in the Articles of Association of a public benefit organisation

No entries

SECTION 4

Subsection 1 – Payments in arrears No entries

Subsection 2 – Claims No entries

Subsection 3 – Information on protection of the debtor’s assets in bankruptcy proceedings; on dismissing bankruptcy petition on the grounds that the assets of the insolvent debtor do not suffice to cover the costs of the proceedings No entries

290

Subsection 4 – Discontinuation of enforcement proceedings against the entrepreneur on the grounds that the proceeds from the enforcement proceedings will not suffice to cover the costs of the proceedings No entries

SECTION 5

Subsection 1 – Custodian No entries

SECTION 6

Subsection 1 – Liquidation No entries

Subsection 2 – Information on dissolution or invalidation of the company No entries

Subsection 3 – Receivership No entries

Subsection 4 – Information on mergers, demergers or transformations 1 1. Type Acquisition of a company 2. Description of mergers, THE MERGER IS EXECUTED THROUGH THE TRANSFER OF ALL THE demergers or transformations ASSETS OF LOTOS PARTNER SP. Z O.O. (THE ACQUIREE) TO GRUPA LOTOS S.A. (THE ACQUIRER) – MERGER THROUGH ACQUISITION, UNDER ART.492.1.1 OF THE COMMERCIAL COMPANIES CODE, ON THE BASIS OF RESOLUTION NO. 31 OF MAY 28TH 2007 ADOPTED BY THE GENERAL SHAREHOLDERS MEETING OF GRUPA LOTOS S.A., INCLUDED IN THE NOTARIAL DEED OF MAY 28TH 2007, NUMBER IN THE REGISTER OF NOTARIAL DEEDS: REP. A NO. 3746/2007, DRAWN UP BY NOTARY PUBLIC ADAM WASAK, AND ON THE BASIS OF THE RESOLUTION OF THE EXTRAORDINARY GENERAL SHAREHOLDERS MEETING OF LOTOS PARTNER SP. Z O.O. DATED MAY 16TH 2007, INCLUDED IN THE NOTARIAL DEED DRAWN UP BY TRAINEE NOTARY PUBLIC MAŁGORZATA IMACH (NOTARY OFFICE OF ADAM WASAK IN GDAŃSK, UL. WAJDELOTY 18, OFFICE NO. 1), NUMBER IN THE REGISTER OF NOTARIAL DEEDS: REP. A NO. 3411/2007

Part 1 Information on entities established as a result of mergers, demergers or transformations or entities acquiring all or part of the company’s assets

1 1. Company name GRUPA LOTOS SPÓŁKA AKCYJNA 2. Register in which the NATIONAL COURT REGISTER (KRS) company is entered 3. Entry no. 0000106150 4. Court keeping the register ***** 5. Industry Identification 190541636 Number (REGON) V.3.1.1.1.1.1.1 Part 2 Information on entities whose assets are acquired in whole or in part as a result of mergers or demergers

291

1 1. Company name LOTOS PARTNER SPÓŁKA Z OGRANICZONĄ ODPOWIEDZIALNOŚCIĄ 2. register in which the NATIONAL COURT REGISTER (KRS) company is entered 3. Entry no. 0000025606 4. Court keeping the register ***** 5. Industry Identification 017307449 Number (REGON)

Subsection 5 – Bankruptcy proceedings No entries

Subsection 6 – Arrangement proceedings No entries

Subsection 7 – Remedial proceedings No entries

Subsection 8 – Suspension of business activity No entries

Gdańsk, September 7th 2010, 11:25:49 hrs Seal with the Polish national emblem

Signature:

Dorota Różańska

292