PKN ORLEN`s acquisition of Unipetrol

Polski Koncern Naftowy ORLEN S.A. („PKN ORLEN”), Central Europe’s largest downstream oil company, announces that PKN ORLEN on June 4, 2004 entered into an agreement with the National Property Fund of Czech Republic (“NPF”), to acquire, subject to appropriate regulatory approvals, 114,224,038 bearer shares of Unipetrol a.s., each having the nominal value of CZK 100 (“Unipetrol Shares”) representing approximately 62.99% of all issued and outstanding shares of Unipetrol, a.s (“Unipetrol”) (the “Unipetrol Agreement”). PKN ORLEN has also reached agreements with Ceska Konsolidacni Agentura (“CKA”) to acquire (i) 745,000 bearer shares of Spolana a.s., each having a nominal value of CZK 655 (“Spolana Shares”), which represent 9.76% of the share capital of Spolana a.s., a Unipetrol’s producing subsidiary, (the “Spolana Agreement”), and (ii) receivables towards some of the companies of the Unipetrol Group (the “Framework Agreement”). Pursuant to the resolution of the Government of the Czech Republic No. 415, dated April 28, 2004, the Czech Government authorized the sale of the Unipertol Shares, Spolana Shares and the above mentioned receivables.

In 2003, Unipetrol posted audited consolidated profit of CZK 87.7 million, consolidated revenues reached CZK 67.9 billion.

PKN ORLEN has agreed to pay approximately CZK 11.3 bn for the 62.99% stake in Unipetrol, CZK 1.0 million for the 9.76% stake in Spolana and approx. CZK 1.7 billion for receivables towards companies of the Unipetrol group with a nominal value of approx. CZK 3.1 billion, EUR 9.5 million and USD 4.9 million as of April 1, 2004.

The Unipetrol Agreement is a material agreement as the value of the agreement amounts to at least 10% of PKN ORLEN’s equity. The agreement foresees a price adjustment mechanism for the shares in Unipetrol to address any unexpected change of value in Unipetrol until closing of this transaction. Price adjustment formula is based on difference in adjusted net book value of Unipetrol as of the end of 2003 and at the end of the month in which PKN ORLEN acquires 62.99% stake in Unipetrol. The price adjustment for Unipetrol shares is limited to 5% and 15% upward adjustment and 5% and 25% downward adjustment. The purchase price will be settled through the Escrow Account. 10% of the purchase price will be deposited on the Escrow Account after execution of the Unipetrol Agreement and remaining 90% of the purchase price shall be deposited on the Escrow Account after all conditions precedent provided in all three Unipetrol, Spolana and Framework Agreements are fulfilled.

Pursuant to the Unipetrol Agreement, PKN ORLEN may be obliged to contractual penalties amounting to CZK 5 million or to 10% of the purchase price for a breach of its certain obligations as provided in the agreement. The obligation of PKN ORLEN to pay the contractual penalties does not exclude the right of NPF for damages.

The agreement was executed under several conditions precedent, among which the substantial conditions are:
- the antimonopoly consent shall have been obtained
- the Czech Securities Commission shall have been informed by PKN ORLEN about the execution of the agreement,
- the preemptive rights relating to the change of control of Unipetrol, by any and all of the IOC members (Eni International B.V., ConocoPhillips Central and Eastern Europe Holdings B.V. and Shell Overseas Investments B.V., as shareholders in Ceska rafinerska, a.s.) shall have been exercised or the time limit for the exercise of the preemptive rights shall have lapsed,
- any and all conditions precedent set out in the Spolana Agreement and/or in the Framework Agreement shall have been satisfied or waived, and
- the decision of the European Commission that the transaction does not constitute any public aid or that it is compatible with the common market have been obtained.

A large portion of the funds for the financing of this transaction is already provided in the form of the currently available credit limits. The reminder will be arranged for within the time periods indicated in the payment schedules relating to the transaction. The completion of the transaction will not result in any violation of any covenants under the syndicated credit facility agreement. The banks have already offered PKN ORLEN their assistance in financing the transaction in question.

PKN ORLEN’s discussions with Unipetrol’s current lenders to gather their support with regard to this transaction have been carried through favorably.

PKN ORLEN is confident that the financing needs of Unipetrol can and will be sustained by the Czech banking market. PKN ORLEN wants to maintain and improve its existing investment grade credit rating and will carefully monitor its capital structure as appropriate to comply with this goal.

The transaction is expected to close by the end of the third quarter of 2004, once necessary regulatory approvals have been granted.

This transaction strengthens PKN ORLEN’s position as the leading Central and East European downstream oil and petrochemicals player, and further demonstrates that PKN ORLEN is spearheading consolidation in the region.

Following the acquisition of the NPF’s stake in Unipetrol and in accordance with Czech law, PKN ORLEN will launch a mandatory tender offer to acquire the interests of minority shareholders in Unipetrol a.s. and its listed subsidiaries (Spolana a.s and Paramo a.s.).

PKN ORLEN entering into the Unipetrol, Spolana and Framework Agreements, already had a general concept for Unipetrol Group restructuring. PKN ORLEN has agreed on the basis of the agreements with ConocoPhillips Central and Eastern Europe Holdings B.V. (“ConocoPhillips”), one of the major oil and gas worldwide companies and Agrofert Holding, a.s., the second largest chemical group in the Czech Republic (“Agrofert”), following the successful acquistion of 62.99% stake in Unipetrol from NPF, to procure as a majority shareholder in Unipetrol the sale by Unipetrol, some of Unipetrol’s assets to ConocoPhillips and to Agrofert. The agreements with Agrofert contemplate divestiture of the Unipetrol assets that are not viewed as being core to PKN ORLEN’s business, and related to agricultural commodities, pesticides and chemicals. Pursuant to the agreements Agrofert will acquire the shares in, and the receivables towards, some of the Unipetrol subsidiaries. This should further reduce the indebtedness of the combined PKN ORLEN-Unipetrol group. Cooperation with Agrofert enables PKN ORLEN to keep only the assets of Unipetrol it deems to be core. Following completion of these transactions, PKN ORLEN and Agrofert have agreed to discuss how to best split the assets of the companies in which they will end up being joint shareholders. Pursuant to an agreement with ConocoPhillips, PKN ORLEN has agreed to sell to ConocoPhillips one third of petrol stations, belonging to some of Unipetrol’s subsidiaries. In exchange for that, ConocoPhillips has agreed to provide operational advice and operational assistance to PKN ORLEN in stabilizing and continuing the operations of this Unipetrol subsidiary in the immediate period following the privatization of Unipetrol. The disposal of certain assets to ConocoPhillips and Agrofert will reduce the amount of funding required for this transaction. The transactions contemplated with ConocoPhillips and Agrofert are expected to close by the end of 2005.