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Translatorʼs Explanatory Note: the following document is a free translation of the report of the above-mentioned Company. In the event of any discrepancy in interpreting the terminology in Polish version is binding.

Table of contents

Selected standalone financial data

Letter from the President of the Management Board of Arctic Paper S.A.

Description of the business of Arctic Paper

Summary of financial results

Relevant information and factors affecting the financial results and the assessment of the financial standing

Factors affecting the development of the Company

Supplementary information

Statement on the application of the Corporate Governance Rules

Information compliant with the requirements of Swedish regulations concerning corporate governance

Information by the Management Board of Arctic Paper S.A. on selection of the audit firm

Statements of the Management Board

Standalone financial statements

Accounting principles (policies) and additional explanatory notes

1.
General information

2.
Identification of the consolidated financial statements

3.
Composition of the Company’s Management Board

4.
Approval of the financial statements

5.
Investments by the Company

6.
Material values based on professional judgement and estimates

7.
Basis of preparation of the financial statements

8.
Changes to the applied accounting principles

9.
New standards and interpretations that have been published and are not yet effective

10.
Significant accounting principles (policies)

11.
Sales revenues

12.
Other revenues and expenses

13.
Income tax

14.
Earnings (loss) per share

15.
Dividend paid and proposed

16.
Other assets

17.
Trade and other receivables

18.
Cash and cash equivalents

19.
Share capital and reserve capital/other reserves

20.
Purchase of interests in subsidiary entities

21.
Interest-bearing loans and borrowings

22.
Provisions

23.
Trade payables, other liabilities and accruals and differed income and other financial liabilities

24.
Contingent liabilities

25.
Information on related entities

26.
Information on the remuneration of the statutory auditor or entity authorised to audit financial statements

27.
Financial risk management objectives and policies

28.
Financial instruments

29.
Capital management

30.
Employment structure

31.
Reasons for differences between changes resulting from the statement of financial condition and changes resulting from the cash flow statement

32.
Events after the balance sheet date

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Selected standalone financial data

* - Profit and loss and cash flow statement items have been translated at the mean arithmetic exchange rates published by the National Bank of Poland, prevailing in the period that the presented data refers to.

** - Balance sheet items have been translated at the mean arithmetic exchange rates published by the National Bank of Poland, prevailing on the balance sheet date.
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Letter from the President of the Management Board of Arctic Paper S.A.

Dear Sirs,

2020 was undoubtedly one of the most turbulent years in history and presented the Arctic Paper Group with new challenges.

After an excellent business start to the year and a record-breaking first quarter, the situation has changed radically. The COVID-19 pandemic has had a significant impact on the global economy and also on the operations of the Arctic Paper Group. The restrictions and countermeasures introduced by the governments of individual countries changed the functioning of economies, hindered the flow of goods and had a negative impact on many industries, including the demand for the Group's products. The decrease in demand for the paper we produce by about 1/3 in the second quarter (compared to the first quarter) forced significant organizational changes in the operations of our factories. The priority was to ensure safe conditions for our employees. The implemented procedures and activities, combined with the mobilization of the team, brought the intended results, thanks to which we avoided production downtime caused by high absenteeism of employees. We have also maintained the continuity of supplies of raw materials and supplies of paper and pulp to our customers. Thanks to the commitment and creativity of the sales team, we took advantage of the improvement in the market situation and gradually increased sales and production in the second half of last year.

The year 2020 – as the year of the COVID-19 pandemic – changed the functioning of many industries, including ours. However, we quickly adapted to the new situation – we organised our work differently, we communicate differently, probably all companies have redefined the way they operate. Probably all these changes will stay with us for longer, they will affect us and the economy in the coming years. You have to rethink business models, logistic chains and work organization. The conclusions we draw from this will better prepare us for the next challenges.

I would like to thank the entire team of the Arctic Paper Group for their hard work in 2020. Despite the pandemic, thanks to your commitment, enthusiasm and initiative, we have once again achieved excellent business and operational results. We are entering the next year richer with new experiences and motivated to continue.

Sincerely yours,

Michał Jarczyński

President of the Management Board of Arctic Paper S.A.

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Description of the business of Arctic Paper

General information

Arctic Paper S.A. is a holding company set up in April 2008. As a result of capital restructuring carried out in 2008, the Paper Mills Arctic Paper Kostrzyn (Poland) and Arctic Paper Munkedals (Sweden), Distribution Companies and Sales Offices have become the properties of Arctic Paper S.A. Previously they were owned by Trebruk AB (formerly Arctic Paper AB), the parent company of the Issuer. In addition, under the expansion, the Group acquired the Paper Mill Arctic Paper Mochenwangen (Germany) in December 2008 and the Paper Mill Grycksbo (Sweden) in March 2010.

In 2012 and 2013 Arctic Paper S.A. acquired shares in Rottneros AB, a company listed at NASDAQ in Stockholm, Sweden, holding 100% shares in two Pulp Companies, Procurement Office and a company manufacturing food packaging.

Since 23 October 2009, Arctic Paper S.A. has been listed on the primary market of the Warsaw Stock Exchange and since 20 December 2012 in the NASDAQ stock exchange in Stockholm.

The main statutory activity of the Company is the activity of a holding company, consisting in managing of entities belonging to the controlled Capital Group. The operations are conducted through Paper Mills and Pulp Mills as well as Sales Offices and Procurement Office. The description of the Arctic Paper Capital Group was provided in the Management Board’s Report from operations of the Arctic Paper S.A. Capital Group, published in the consolidated annual report for the year ended on 31 December 2020.

The Company is entered in the register of entrepreneurs of the National Court Register maintained by the District Court in Poznań – Nowe Miasto i Wilda, 8th Commercial Division of the National Court Register, under KRS number 0000306944. The Parent Entity holds statistical number REGON 080262255. The Company has a foreign branch in Göteborg, Sweden.

Business objects

The core business of Arctic Paper S.A. covers holding activities.

Subsidiaries

As at 31 December 2020, Arctic Paper S.A. held investments in the following subsidiary companies:

—Arctic Paper Kostrzyn S.A. – Paper Mill in Kostrzyn nad Odrą (Poland);

—Arctic Paper Munkedals AB – Paper Mill in Munkedal (Sweden);

—Arctic Paper Sverige AB – a sales office operating in Sweden;

—Arctic Paper Norge AS – a sales office operating in Norway;

—Arctic Paper Danmark A/S – a sales office operating in Denmark;

—Arctic Paper UK Limited – a sales office in the United Kingdom;

—Arctic Paper Baltic States SIA – a sales office covering the Baltic States;

—Arctic Paper Benelux S.A. – a sales office covering the Benelux countries;

—Arctic Paper Schweiz AG – a sales office in Switzerland;

—Arctic Paper Italia srl – a sales office in Italy;

—Arctic Paper France SAS – a sales office in France;

—Arctic Paper Espana SL – a sales office in Spain;

—Arctic Paper Papierhandels GmbH – a sales office in Austria;

—Arctic Paper Deutschland GmbH – a sales office in Germany;

—Arctic Paper Polska Sp. z o.o. – a sales office in Poland;

—Arctic Paper East Sp. z o.o. – a sales office in Ukraine;

—Arctic Paper Investment GmbH – a holding company established to acquire shares in the Paper Mill in Mochenwangen;

—Arctic Paper Investment AB – a holding company established for the purpose of acquisition of Grycksbo Paper Holding AB;

—Rottneros AB – a holding company with shares in the Paper Mills of Rottneros Bruk AB and Rottneros Vallvik AB, in the procurement office and in the company manufacturing food packaging;

—Arctic Paper Finance AB – a holding company involved in attracting financing.

Information on percentage holdings in each subsidiary company is provided in the Company’s financial statements (note 5).

Changes in the capital structure of the Arctic Paper Group

On 1 January 2020, the Group, through Rottneros AB, took control of Nykvist Skogs AB, which is described in detail in Note 20 to the consolidated financial statements.

In 2020, there were no changes to the capital structure of the Group.

Provided services

As a holding company, Arctic Paper S.A. receives dividend, interest on loans granted and revenues for the management services it provides for related entities operating within the Arctic Paper Capital Group.

Until 2019, the Company also provided brokerage services in the purchase of pulp for companies from the Group.

In connection with restructuring activities in the Arctic Paper Group, at the beginning of 2016 a centralised logistics department started to operate within the structures of Arctic Paper S.A. The logistics department provides services in planning and coordinating transport to the Paper Mills in Kostrzyn, Grycksbo and Munkedals.

The assortment of products manufactured at the Paper Mills of the Arctic Paper Group was described in the consolidated annual report for 2020.

Changes to the core management principles

In 2020, there were no material changes to the core management principles.

Shareholding structure

Nemus Holding AB, a company under Swedish law (a company owned indirectly by Mr Thomas Onstad), is the majority shareholder of Arctic Paper S.A., holding (as at 31 December 2020) 40,381,449 shares of our Company, which constitutes 58.28% of its share capital and corresponds to 58.28% of the total number of votes at Annual General Meetings. Thus Nemus Holding AB is the Parent Entity of the Issuer.

Additionally, Mr Thomas Onstad, an indirect shareholder of Nemus Holding AB, holds directly 6,223,658 shares representing 8.98% of the total number of shares in the Company, and via another entity – 600,000 shares accounting for 0.87% of the total number of shares of the Issuer. Mr Thomas Onstad’s total direct and indirect holding in the capital of Arctic Paper S.A. as at 31 December 2020 was 68.13% and has not changed until the date hereof.

The data in the above table is provided as of the date of approval hereof, The structure of shareholding has not changed from the balance sheet date and as of the publication date of the quarterly report for Q3 2020.

Market environment

The Company provides no services directly to external entities. The Company’s financial condition and its ability to distribute dividend is primarily affected by the market environment in which the Paper and Pulp Mills controlled by the Company operate.

Information on the core products offered by the Group with details of their value and quantities and the share of each product in total sales of the Group as well as information on markets with a split into domestic and foreign markets and information on procurement sources of materials for production and services, are all provided in the consolidated annual report.

Development directions and strategy

In 2020, the Management Board approved its new strategy for the Group’s paper business “A Future in Paper – Strategic Agenda 2022” which aims at developing the business and improving the profitability of the segment. The new strategy consists in obtaining higher EBIT profitability in a sustainable way at 10% latest by 2022; the strategy is founded on six initiatives:

—Business development by focusing on selected profitable segments and markets, including specialist products and premium products, in Eastern Europe and in new markets.

—New innovative products and weights, developed in close cooperation with customers.

—Development of strong brands for the premium segment in order to increase revenues per one tonne of paper.

—Optimisation of all processes in order to reduce costs.

—Reinforcement of the efficiency culture among employees, based on clear and measurable objectives.

—Sustainable activities based on products that may be recycled and on renewable materials.

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Sales structure

In 2020, the sales structure by main sources of the Company’s revenues was as follows:

The Company provides management services to companies pursuant to agreements signed with those entities.

Information on the seasonal or cyclical nature of business

The demand for the Group’s products is subject to slight variations throughout the year. Reduced demand for paper occurs each year during summer holidays and around Christmas when some printing houses, in particular in Western Europe are closed. Changes in the demand for paper are not material versus the demand for paper in other periods of the year. Changes in the demand for paper affect largely changes in demand for pulp.

Research and development

The Company has no direct expenses on research and development.

The Arctic Paper Group conducts primarily development works aimed at enhancing and modernising production processes and improving the quality of products on offer and the expanding the assortment thereof. In the period covered with this report, the Paper Mills carried out development works to improve production processes, in particular to shorten the idle time of paper machines as well as works aimed at improving the paper quality and extending the assortment and to improve paper quality properties.

New product development was an important aspect of the development works in 2020.

Environment

The description of the impact of environmental regulations on the operations of the Paper and Pulp Mills controlled by the Company is provided in the consolidated annual report.

Summary of financial results

Selected items of the consolidated income statement

Revenues, costs of sales and profit on sales

The main statutory activity of the Company is the activity of a holding company, consisting in managing of entities belonging to the controlled Capital Group. The operations of the Group are conducted through Paper Mills and Pulp Mills as well as Sales Offices and Procurement Office. In 2020, the standalone sales revenues amounted to PLN 39,469 thousand and included: dividend income (PLN 15,287 thousand), services provided to Group companies (PLN 20,495 thousand) and interest income on loans (PLN 3,687 thousand). In 2019 the Company’s standalone revenues amounted to PLN 83,083 thousand and included: dividend income (PLN 49,188 thousand), services provided to Group companies (PLN 28,976 thousand) and interest income on loans (PLN 4,918 thousand).

In 2020 and in 2019, the Company did not render services to the Pulp Mills of the Rottneros Group.

Costs of sales cover internal costs of providing logistics services and interest on loans granted to the Company by its related entities (PLN 4,329 thousand). (PLN ‘000)

Administrative expenses

In 2020, the administrative expenses amounted to PLN 24,292 thousand. They cover costs of the administration of the Company operation, costs of services provided to the companies in the Group and all costs incurred by the Company for the purposes of pursuing holding company activities. The above costs include a group of costs that are related solely to statutory activities and cover, inter alia: audit costs of financial statements, functioning costs of the Supervisory Board, costs of periodic owners’ inspections in the Company, etc.

Selling and distribution costs

In 2020, the company did not recognize selling costs, which in previous years were entirely related to the costs of agency in the purchase of pulp for Arctic Paper Kostrzyn S.A.

Other operating income and expenses

Other operating income amounted to PLN 783 thousand in 2020, which means a decrease compared to the corresponding period of the previous year, which was mainly due to the reversal in 2019 of impairment allowances on non-current assets – receivables in Arctic Paper Mochenwangen GmbH in the amount of PLN 5,083 thousand.

At the same time there was a decrease of other operating expenses that reached the level of PLN 1,016 thousand (in 2019 it was PLN 4,862 thousand, The decrease of other operating expenses was due primarily to the lower value of impairment allowances to assets in 2020.

Financial income and financial expenses

In 2020, the financial income amounted to PLN 4,893 thousand and was by PLN 527 thousand lower than generated in the equivalent period last year. At the same time, there was a decrease of financial expenses from PLN 17,980 thousand in 2019 to PLN 14,120 thousand.

The changes to financial income and expenses result mainly from FX differences which are disclosed as a net amount – as the difference between FX profit and loss which is presented as financial income in case of net FX profit or as financial expenses in case of FX losses. In 2020, the company showed a surplus of positive FX differences in financial income, while in 2019 the company showed a surplus of negative FX differences in financial costs, while

Profitability analysis

EBITDA in 2020 was PLN 13.121 thousand, while in the equivalent period in 2019 it was PLN 47,430 thousand.

EBIT in 2020 amounted to PLN 12.646 thousand as compared to PLN 46.955 thousand in the previous year.

The net profit in 2020 amounted to PLN 3.387 thousand as compared to the net profit of PLN 33,035 thousand in 2019.

*EBITDA – Operating profit from continuing operations plus depreciation and amortisation and impairment allowances

* Return on equity, return on equity, ROE – net profit (loss) to equity

* Return on assets, return on assets, ROA – the ratio of net profit (loss) to total assets

In 2020, return on equity was 0.6 % while in 2019 it was 5.8 %. Return on assets dropped from 3.6 % in 2019 to 0.4 % in 2020.

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Selected items from the statement of financial position

As at 31 December 2020 total assets amounted to PLN 882.117 thousand as compared to PLN 926,486 thousand at the end of 2019.

Fixed assets

At the end of December 2020 fixed assets accounted for about 79.6% of total assets and their share in total assets increased versus December 2019 (78.2%).

Current assets

As at the end of December 2020, current assets amounted to PLN 180,319 thousand as compared to PLN 201,794 thousand at the end of 2019.

Equity

At the end of December 2020, the equity amounted to PLN 570.594 thousand as compared to PLN 568,078 thousand at the end of 2019.

The growth of equity was primarily due to the net profit generated in 2020.

Short-term liabilities

As at the end of December 2020, short-term liabilities amounted to PLN 280,472 thousand (31.9 % of balance sheet total) as compared to PLN 301,081 thousand as at the end of 2019 (32.5 % of balance sheet total).

A significant decrease in the value of short-term liabilities results from the fact that as at 31 December 2019, the company presented a significant part of liabilities as short-term due to the failure to meet the banking covenants under the loan agreement.

The significant drop of short-term liabilities is primarily due to repayment of loan instalments.

Long-term liabilities

As at the end of December 2020, long-term liabilities amounted to PLN 31,049 thousand (3.5 % of balance sheet total) as compared to PLN 57,326 thousand as at the end of 2019 (6.2 % of balance sheet total).

Debt analysis

* Equity debt ratio (%) – total liabilities to equity ratio

* Equity to fixed assets ratio – equity to non-current assets ratio

* Equity debt to interest-bearing debt – the ratio of interest-bearing debt and other financial liabilities to equity

As at the end of December 2020, the debt to equity ratio was 54.8% and was lower by 8.3 p.p.s versus the end of December 2019.

The equity to asset ratio increased from 78.4% as at the end of 2019 to 81.3% as at the end of December 2020. The equity debt ratio with interest-bearing debt at the e

nd of 2020 was 49.3 uo 4.7 p.p.

Liquidity analysis

* Current ratio – Ratio of current assets to short-term liabilities

* Quick ratio – Ratio of current assets minus inventory and short-term accruals and deferred income to short-term liabilities

* Cash solvency ratio – the ratio of the sum of cash assets and other cash assets to short-term liabilities

The current ratio and the quick ratio at the end of December 2020 amounted to 0.64x and were by 0.03x lower than at the end of December 2019. The cash ratio increased versus December 2019 and was 0.14x at the end of 2020.

 

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Selected items from the cash flow statement

Cash flows from operating activities

In 2020, net cash flow from operating activities amounted to PLN 97.949 thousand as compared to PLN 124,516 thousand in 2019. In 2020, the decrease in trade receivables and the change in cash pooling had the greatest impact on the positive cash flows from operating activities.

Cash flows from investing activities

In 2020, there were no cash flows from investing activities.

Cash flows from financing activities

In 2020 cash flows from financing activities amounted to PLN -89.741 thousand as compared to PLN -111,693 thousand in 2019. In 2020, cash flows from financing activities were related to the repayment of a group loan and a partial repayment of bank loans.

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Relevant information and factors affecting the financial results and the assessment of the financial standing

Key factors affecting the performance results

The operations of the Company are indirectly affected by factors that have direct impact on the business of the Group’s operational units – Paper Mills and the factors include:

—

macroeconomic and other economic factors;

—demand growth for products based on natural fibres,

—reduced demand for certain paper types,

—fluctuations of paper prices,

—pulp price fluctuations for Paper Mills, timber for Pulp Mills and energy prices,

—FX rates fluctuation.

The impact of the factors on the Group’s business was described in detail in the consolidated annual report for 2020.

Unusual events and factors

In the period under the report there were no unusual events and/or other factors affecting Arctic Paper S.A.

Other material information

Covid-19

In connection with the Covid-19 coronavirus epidemic, the Management Board estimated its potential impact on the Group's operations, a more detailed description is provided in note 7.2.

Extending the Revolving Loan

On 27 October 2020 and again on 12 January and 11 February 2021, the Lenders (BNP Paribas Bank Polska SA, Santander Bank Polska SA) extended the availability of the Renewable Loan to the Company. The loan availability was extended until 31 March 2021 under the conditions adopted so far.

The Revolving Loan was granted to the Company for the total amount of EUR 19,800,000 and PLN 20,000,000 and was provided primarily to refinance the Company’s intragroup liabilities or to finance intragroup loans.

The availability of the Revolving Loan has been extended as the Company is working on the possibilities of simplifying the current structure of the Group's debt and further optimizing the conditions and reducing the costs of its servicing.

Commencement of negotiations for the conclusion of a Financing Agreement

On 5 February 2021, the Management Board of the Company began negotiating a new loan agreement with selected banks in order to obtain funds for:

(i)refinancing the existing financial debt of the Company and its subsidiaries;

(ii)financing transaction costs (including costs, commissions and fees related to refinancing the existing financial debt);

(iii)financing the current operations of the corporate capital group of the Company.

Based on the preliminary financing offers received from banks, the Company anticipates the following main conditions for New Financing:

1. total amount of financing: the equivalent of PLN 300,000,000 (three hundred million zlotys);

2. currency: PLN and EUR;

3. loans: a term loan in the total amount of PLN 150,000,000 (one hundred and fifty million zlotys) divided into two equal tranches in PLN and EUR and a revolving loan in the total amount of the EUR equivalent of PLN 150,000,000 (one hundred and fifty million zlotys);

4.financing period: 5 years for a term loan and 3 years for a revolving loan with the possibility of extending it for an additional 2 years (provided that the agreed extension conditions are met);

5. loan repayment terms: repayment of the term loan in equal half-yearly instalments starting from November 2021 and repayment of the revolving loan on the final repayment date;

6. interest rate: variable based on the WIBOR base rate in the case of financing in PLN and the EURIBOR base rate in the case of financing in EUR and a variable margin, the level of which will depend on the level of the net debt to EBITDA ratio; and

7. collateral: the collateral package will include collaterals customarily established in this type of transactions, such as: a registered pledge and a financial pledge on shares of Arctic Paper Kostrzyn S.A., pledges on shares of Swedish companies Arctic Paper Munkedals AB and Arctic Paper Grycksbo AB, statements of submission enforcement by the Company and Arctic Paper Kostrzyn SA, registered pledges and financial pledges on the bank accounts of the Company and Arctic Paper Kostrzyn SA, pledges on bank accounts of Arctic Paper Munkedals AB and Arctic Paper Grycksbo AB, mortgages on the real estate of the Company and Arctic Paper Kostrzyn SA, mortgages on the properties of Arctic Paper Munkedals AB and Arctic Paper Grycksbo AB, a registered pledge on the assets of Arctic Paper Kostrzyn SA and an assignment agreement to secure rights under property insurance policies.

The above-mentioned parameters of New Financing are preliminary and may be changed by negotiation with banks. Additionally, New Financing negotiations with banks may or may not result in a new loan agreement. The company will provide information on the completion of negotiations and their result in a separate current report.

Complete early redemption of the Bonds issued by Arctic Paper S.A.

On 8 February 2021, the Company's Management Board adopted a resolution on the early redemption of all Series A Bonds (marked with ISIN code: PLARTPR00038), the issue of which the Company reported in current report No. 24/2016 of 30 September 2016.

The early redemption of the Bonds, was carried out on 1 March 2021. On the Early Redemption Date, the Company redeemed 100,000 (in words: one hundred thousand) Bonds with a total nominal value of PLN 58,500,000 (in words: fifty-eight million five hundred zlotys). The consideration per Bond amounted to PLN 585, plus accrued interest and a premium, calculated in accordance with the terms and conditions of the Bond issue. The redeemed Bonds were cancelled.

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Factors affecting the development of the Company

Information on market trends and in factors affecting the Company’s financial results over the next year is provided in the consolidated annual report. Below is a description of risk factors that directly affect the Company’s business, other risk factors affecting the Company via its subsidiary companies, are described in detail in the consolidated annual report.

Risk factors

Risk factors related to the environment in which the Company operates

The sequence in which the risk factors are presented below does not reflect the likelihood of occurrence, extent or materiality of the risks.

Risk of changing legal regulations

The Company operates in a legal environment characterised with a high level of uncertainty. The regulations affecting our business have been frequently amended and there are no consistent interpretations which generates a risk of violating the existing regulations and the resultant consequences even if such breach was unintentional.

Risk related to disadvantageous global economic situation

The global economic situation is affected by the effects of the recent financial crisis, in particular the continued loss of trust on the part of consumers and entrepreneurs, concerns related to the availability and increasing costs of loans, decrease in consumer and investment spending, volatility and strength of capital markets. We anticipate that the difficult global economic conditions may result in an overall decreased of demand and average prices of high quality paper which in turn may adversely affect the dividends received from subsidiary companies.

FX risk

The Company’s revenues, expenses and results are exposed to the FX risk, in particular of PLN to EUR, SEK and other currencies since the Company has been paid dividend partly in EUR and in SEK. Thus FX rate fluctuations may have an adverse effect on the results, financial conditions and prospects of the Group.

Interest rate risk

The Company is exposed to interest rate risk in view of the existing interest-bearing debt. The risk is due to fluctuations of the reference interest rates WIBOR for debt in PLN. Unfavourable changes of interest rates may adversely affect the results, financial condition and prospects of the Company.

The objectives and methods of financial risk management in the Company along with hedging methods of major transactions are detailed in note 30 to the standalone financial statements.

Risk factors relating to the business of the Company

The sequence in which the risk factors are presented below does not reflect the likelihood of occurrence, extent or materiality of the risks.

Risk related to retention and attraction of management staff and qualified personnel

The achievement of strategic objectives by the Company is subject to the know-how and experience of the professional management staff and the ability to hire and retain qualified specialists. The Company may not be able to retain its management staff and other key specialists or to attract new specialists. If the Company is not able to attract and retain management staff and personnel, this may adversely affect its business, operational results and financial condition.

Risk related to the debt of the Company

In connection with the loan agreements signed on 9 September 2016 with a consortium of banks (European Bank for Reconstruction and Development, Santander Bank S.A. and BGŻ BNP Paribas S.A.) and the bond issue agreement, the Company has interest payable under the agreements.

Failure by the Company to comply with its obligations, including the agreed levels of financial ratios (covenants) resulting from the agreements, will result in default under those agreements. Events of default may in particular result in demand for repayment of our debt, banks taking control over important assets like Paper Mills or Pulp Mills and loss of other assets which serve as collateral, deterioration of creditworthiness and lost access to external funding which will be converted into lost liquidity and which in turn may materially adversely affect our business and development prospects and our stock prices.

Risk related to the capacity of the Company to pay dividend

The Issuer is a holding company and therefore its capacity to pay dividend is subject to the level of potential disbursements from its subsidiary companies involved in operational activity, and the level of cash balances. Certain subsidiaries of the Group involved in operational activity may be subject to certain restrictions concerning disbursements to the Issuer. No certainty exists that such restrictions will have no material impact on the business, results on operations and capacity of the Company to distribute dividend.

In connection with the term and revolving loan agreements signed on 9 September 2016, the agreements related to the bond issue pursuant to which on 30 September 2016 the Company issued bonds and the intercreditor agreement (described in more detail in note 32.2 “Obtaining of new financing” in the Annual Report for 2016), the possibility of the Company to pay dividend is subject to satisfying certain financial ratios by the Group in two periods preceding such distribution (as the term is defined in the term and revolving loan agreements) and no occurrence of any events of default (as defined in the term and revolving loan agreements).

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Supplementary information

The Management Board position on the possibility to achieve the projected financial results published earlier

The Management Board of Arctic Paper S.A. did not publish projections of financial results for 2021 and has not published and does not intend to publish projections of financial results for 2021.

Dividend information

Dividend is paid based on the net profit disclosed in the standalone annual financial statements of Arctic Paper S.A. after covering losses carried forward from the previous years.

In accordance with provisions of the Code of Commercial Companies, the Parent Entity is obliged to establish reserve capital to cover potential losses. At least 8% of the profit for the financial year disclosed in the standalone financial statements of the Parent Entity should be transferred to the category of capital until the capital has reached the amount of at least one third of the share capital of the Parent Entity. The use of reserve capital and reserve funds is determined by the General Meeting; however, a part of reserve capital equal to one third of the share capital can be used solely to cover the losses disclosed in the standalone financial statements of the Parent Entity and cannot be distributed to other purposes.

As on the date hereof, the Company had no preferred shares.

The possibility of disbursement of potential dividend by the Company to its shareholders depends on the level of payments received from its subsidiaries. The risk associated with the Company’s ability to disburse dividend was described in the part “Risk factors” of the annual report for 2020.

In connection with the contracts for term and revolving loans signed on 9 September 2016, contracts related to the issue of bonds, under which the Company issued bonds on 30 September 2016, and an agreement between creditors, the Company's ability to pay dividends depends on the Group's fulfilment of specific financial ratios over a period of two preceding the payment of the relevant periods (as defined in the term and revolving loan agreement) and the absence of an event of default (as defined in the term and revolving loan agreement).

The Company’s General Meeting, held on 31 August 2020, approved a resolution to allocate the full net profit for the financial year of 2019 to the Company’s reserves.

Changes to the bodies of Arctic Paper S.A.

As at 31 December 2020, the Parent Entity’s Supervisory Board was composed of:

—Per Lundeen – Chairman of the Supervisory Board appointed on 22 September 2016 (appointed to the Supervisory Board on 14 September 2016);

—Roger Mattsson – Deputy Chairman of the Supervisory Board appointed on 22 September 2016 (appointed as a Member of the Supervisory Board on 16 September 2014);

—Thomas Onstad – Member of the Supervisory Board appointed on 22 October 2008;

—Mariusz Grendowicz – Member of the Supervisory Board appointed on 28 June 2012 (independent member);

—Dorota Raben – Member of the Supervisory Board appointed on 28 May 2019 (independent member).

Until the date hereof, there were no changes to the composition of the Supervisory Board of the Parent Entity.

As at 31 December 2020, the Parent Entity’s Management Board was composed of:

—Michał Jarczyński – President of the Management Board appointed on 10 December 2019, effective in 1 February 2019;

—Göran Eklund – Member of the Management Board appointed on 30 August 2017.

Until the date hereof, there were no other changes in the composition of the Management Board of the Parent Entity.

Changes to the share capital of Arctic Paper S.A.

In 2020, there were no changes to the Company’s share capital.

Purchase of treasury shares

In 2020 and 2019 the Company did not acquire any treasury stock.

Remuneration paid to Members of the Management Board and the Supervisory Board

The table below presents information on the total amount of remuneration and other benefits paid or payable to members of the Management Board and of the Supervisory Board of the Parent Entity in the period from 1 January 2020 to 31 December 2020 (data in PLN).

Agreements with Members of the Management Board guaranteeing financial compensation

As at 31 December 2020, and as at the approval date of this annual report, Members of the Management Board are entitled to compensation in case of their resignation or dismissal from their respective positions with no valid reason or when they are dismissed or their employment is terminated as a result of a merger of the Issuer by take-over. The amount of such compensation will correspond to their remuneration for 6 to 24 months.

 

Changes in holdings of the Issuer’s shares or rights to shares by persons managing and supervising Arctic Paper S.A.

Management of financial resources

As of the date hereof, the Company held sufficient funds and creditworthiness to ensure financial liquidity of Arctic Paper S.A.

Capital investments

In 2020, the Company did not place any deposits.

Information on financial instruments

Information regarding financial instruments on:

a) risk: price changes, credit risk, significant cash flow disruptions and loss of financial liquidity to which the Group is exposed, and

b) the objectives and methods of financial risk management adopted by the entity, including methods of securing significant types of planned transactions for which hedge accounting is applied,

are presented in the consolidated financial statements in Notes 27 and 28

Information on sureties, guarantees and contingent liabilities

In connection with the term and revolving loan agreements, agreements relating to the bond issue and the intercreditor agreement (described in more detail in the note “Obtaining new financing” of the Annual Report for 2016) signed on 9 September 2016, on 3 October 2016 the Company signed agreements and statements pursuant to which collateral to the above debt and other claims would be established in favour of Bank BNP Paribas S.A., acting as the Collateral Agent, that is

1. under Polish law – Collateral Documents establishing the following Collateral:

—financial and registered pledges on all shares and interests registered in Poland, owned by the Company and the Guarantors, in companies in the Company Group (with the exception of Rottneros AB, Arctic Paper Mochenwangen GmbH and Arctic Paper Investment GmbH), except the shares in the Company;

—mortgages on all properties located in Poland and owned by the Company and the Guarantors;

—registered pledges on all material rights and movable assets owned by the Company and the Guarantors, constituting an organised part of enterprise, located in Poland (with the exception of the assets listed in the Loan Agreement);

—assignment of (existing and future) insurance policies covering the assets of the Company and the Guarantors (with the exception of insurance policies listed in the Loan Agreement);

—declaration by the Company and the Guarantors on voluntary submission to enforcement, in the form of a notary deed;

—financial pledges and registered pledges on the bank accounts of the Company and the Guarantors, registered in Poland;

—powers of attorney to Polish bank accounts of the Company and the Guarantors, registered in Poland;

—subordination of the debt held by intragroup lenders (specified in the Intercreditor Agreement).

2. under Swedish law – Collateral Documents establishing the following Collateral:

—pledges on all shares and interests registered in Poland, owned by the Company and the Guarantors, in Group companies, with the exception of the shares in the Company, as well as pledged on the shares in Rottneros (with the exception of the free package of shares in Rottneros);

—mortgages on all properties located in Sweden and owned by the Company and the Guarantors as long as such collateral covers solely the existing mortgage deeds;

—corporate mortgage loans granted by the Guarantors registered in Sweden as long as such collateral covers solely the existing mortgage deeds;

—assignment of (existing and future) insurance policies covering the assets of the Company and the Guarantors (with the exception of insurance policies listed in the Loan Agreement);

—pledges on Swedish bank accounts of the Company and the Guarantors as long as such collateral is without prejudice to free management of funds deposited on bank accounts until an event of default specified in the Loan Agreement.

In the period covered with this report, Arctic Paper S.A. and its subsidiary companies did not grant or receive any guarantee to loans or borrowings, and did not grant – totally to one entity or a subsidiary of such entity – guarantees with the total value exceeding equivalent of 10% of the Company’s equity.

Material off-balance sheet items

Information on off-balance sheet items is provided in the Company’s standalone financial statements for 2020 in note 24.

Assessment of the feasibility of investment plans

Arctic Paper S.A. plans no material investments to be made in 2020. Material investments are carried out by the Issuer’s subsidiary entities, in particular the Paper Mills as described in the Consolidated Annual Report.

Information on court and arbitration proceedings and proceedings pending before public administrative authorities

During the period under report, Arctic Paper S.A. and its subsidiaries were not a party to any proceedings pending before a court, arbitration or public administrative authority, the individual or joint value of which would equal or exceed 10% of the Company’s equity.

Information on transactions with related parties executed on non-market terms and conditions

During the period under report, Arctic Paper S.A. and its subsidiaries did not execute any material transactions with related entities on non-market terms and conditions.

Information on agreements resulting in changes to the proportions of share holdings

The Issuer is not aware of any agreements that may in the future generate changes to the proportions of shareholdings by the existing shareholders and bond holders.

Information on remuneration of the entity authorised to audit the financial statements

On 20 January 2021, the Company entered into a contract with KPMG Audyt Spółka z ograniczoną odpowiedzialnością sp.k. for audit of the Company’s financial statements and consolidated financial statements of the Group for the year ended on 31 December 2020 and ending on 31 December 2021. The contract was concluded for the time required to perform the above services.

Other information on the entity authorised to audit the financial statements is provided in note 29 to the standalone financial statements for 2020.

Headcount

Information on the headcount is provided in note 30 to the standalone financial statements for 2020.

Report on non-financial information

Apart from this report the Company publishes a separate report on non-financial information for the Arctic Paper Capital Group.

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Statement on the application of the Corporate Governance Rules

Corporate Governance Rules

On 1 January 2016, the new set of corporate governance rules became effective under the name of “Best Practice of GPW Listed Companies 2016”, attached to Resolution No. 26/1413/2015 of the Supervisory Board of the Warsaw Stock Exchange of 13 October 2015.

The text of the “Best Practice of GPW Listed Companies 2016” is available at:

https://www.gpw.pl/pub/GPW/files/PDF/GPW_1015_17_DOBRE_PRAKTYKI_v2.pdf

Pursuant to Article 29.3 of the Warsaw Stock Exchange Rules, the Management Board of ARCTIC PAPER S.A. on 19 January 2021 published an EBI report concerning the exclusion of certain rules of the Best Practice.

Information on the extent the Issuer waived the provisions of the Corporate Governance Rules

Arctic Paper S.A. was striving at applying corporate governance rules as set forth in the document “Best Practice of GPW Listed Companies”. In 2020, Arctic Paper S.A. did not apply the following rules:

Best practice – Information Policy, Communication with Investors

Recommendation I.R.2

“Where a company pursues sponsorship, charity or other similar activities, it should publish information about the relevant policy in its annual report from operations.”

Explanation: The Company is not involved in any sponsorship, charity or similar activities.

Principle No. 1.Z.1.10

“A company operates a corporate website and publishes on it, in a legible form and in a separate section, in addition to information required under the legislation: financial projections, if the Company has decided to publish them – published at least in the last 5 years, including information about the degree of their implementation”

Explanation: According to a decision by the Management Board, the Company does not publish projections.

Principle No. I.Z.1.15:

“A company operates a corporate website and publishes on it, in a legible form and in a separate section, in addition to information required under the legislation: information about the Company’s diversity policy applicable to the company’s governing bodies and key managers; the description should cover the following elements of the diversity policy as: gender, education, age, professional experience, and specify the goals of the diversity policy and its implementation in the reporting period; where the Company has not drafted and implemented a diversity policy, it should publish the explanation of its decision on its website”

Explanation:

The Company has not drafted a diversity policy; however, the Issuer’s Management Board has been striving to employ competent, creative people, holding appropriate qualifications, professional experience and education, compliant with the Company’s needs.

Principle No. 1.Z.1.16

“A company operates a corporate website and publishes on it, in a legible form and in a separate section, in addition to information required under the legislation: information about the planned transmission of a general meeting, not later than 7 days before the date of the general meeting”.

Explanation:

The Company does not plan to broadcast its General Meetings.

Principle I.Z.1.20
‎ “A company should operate a corporate website and publish on it, in a legible form and in a separate section, in addition to information required under the applicable laws: a recorded transmission of a general meeting, in audio or video form”.

Explanation:

Publication of the entire recording from a general meeting, in audio or video form, might infringe interests of shareholders. Information on the approved resolutions is published by the Company in the form of current reports. When this solution becomes more popular in the market, the Company will consider implementing it.

Best practice – Systems and internal functions

Recommendation III.R.1

“The company’s structure includes separate units responsible for the performance of tasks in individual systems or functions, unless the separation of such units is not justified by the size or type of the Company’s activity”.

Explanation:

The recommendation is not followed due to the size of the Company. The Management Board is responsible for controlling the Company’s operations, including controlling its internal operational processes along with risk management processes.

Principle No. III.Z.2

“Subject to Principle No. III.Z.3, persons responsible for risk management, internal audit and compliance

report directly to the president or other member of the management board and are allowed to report directly to the supervisory board or the audit committee”.

Explanation:

The Company has not established dedicated units to be involved in risk management, internal audit and compliance. However, the Company states that managers of each division of the Company report directly to the relevant members of the Management Board. The external entities that provide consultancy services, including legal consulting and performing audits, have regular and direct contact with the Company’s Management Board.

Principle No. III.Z.3.

“The independence rules defined in generally accepted international standards of the professional internal audit practice apply to the person heading the internal audit function and other persons responsible for such tasks”.

Explanation:

The Company has no dedicated internal audit unit and there is no identified position of a person heading the function. An audit committee operates within the Supervisory Board. Minimum two members of the Supervisory Board meet the independence criteria as specified in the Company’s Articles of Association and in the Regulations of the Supervisory Board. Additionally, persons performing audits and statutory auditors are independent of the Company.

Principle No. III.Z.4.

“The person responsible for internal audit (if the function is separated

in the Company) and the management board report to the supervisory board at least once per year with their assessment of the efficiency of the systems and functions referred to in Principle No. III.Z.1 and submit a relevant report”.

Explanation:

An Audit Committee operates within the Supervisory Board. Members of the Supervisory Board are elected by the General Meeting.

Best practice – General Meeting and Relations with Shareholders

Recommendation IV.R.2

“If justified by the structure of shareholders or expectations of shareholders notified to the Company, and if the Company is in a position to provide the technical infrastructure necessary for a general meeting to proceed efficiently using electronic communication means, the Company should enable its shareholders to participate in a general meeting using such means, in particular through:

1) real-life broadcast of the general meeting,

2) two-way communication in real time, under which the shareholders may speak at the General Meeting of Shareholders, while not present at the place where the General Meeting of Shareholders is held,

3) exercise, either in person or through a proxy, the right to vote at the General Shareholders Meeting”.

Explanation:

Considering the need of multiple technical and organisational operations and the related

costs and risks, the Company has not decided for the time being to hold electronic general meetings. With a gradual popularisation of the technical solution and ensuring appropriate security, the Company will re-consider implementing the recommendation.

Principle No. IV.Z.2.

“If there is justification due to the shareholding structure, the company ensures the public broadcast of the General Shareholders Meeting in real time”.

Explanation:

Considering the need to carry out a number of technical and organisational activities, and the related costs and risks, the Company has decided not to organise electronic general meetings. With a gradual popularisation of the technical solution and ensuring appropriate security, the Company will re-consider implementing the recommendation.

Best practice – Remuneration

Principle No. VI.Z.2

To tie the remuneration of members of the management board and key managers to the Company’s long-term business and financial goals, the period between the allocation of options or other instruments linked to the Company’s shares under the incentive scheme and their exercisability should be no less than two years.

Explanation:

Variable Remuneration for the Members of the Management Board may be determined under the Annual Incentive Programme.

. A decision on inclusion of a Member of the Management Board in the Annual Incentive Programme shall be taken by the Supervisory Board by way of resolution.

Principle No. VI.Z.4.

In this report from operations, the Company should report on the remuneration policy including at least the following:

—general information on remuneration system adopted by the Company,

—information on conditions and amount of remuneration granted to each member of the Management Board, split into fixed and variable components, specifying key parameters used to determine variable components of remuneration and rules for the payment of retirement allowance and other payments related to termination of the employment contract, commission or other legal relationship of similar nature – separately for the Company and each entity belonging to the Capital Group,

—information about non-financial remuneration components due to each management board member and key manager,

—significant amendments of the remuneration policy in the last financial year or information about their absence,

—assessment of the functioning of the remuneration policy from the viewpoint of implementation of its objectives, in particular long-term growth of value for shareholders and sustainability of the Company.

Explanation:

The Supervisory Board prepares an annual remuneration report presenting a comprehensive

review of remuneration, including all benefits, regardless of their form, received by individual Members of the Management Board and Supervisory Board or due to individual members of the Management Board and Supervisory Board in the last financial year, in accordance with the Remuneration Policy.

Internal control and risk management systems with reference to the development processes of financial statements

The Management Board of Arctic Paper S.A. is responsible for the internal control system in the Company and in the Group and for its efficiency in the development process of consolidated financial statements and interim reports, prepared and published in compliance with the rules of the Regulation of the Minister of Finance on current and periodical disclosure by issuers of securities and conditions to recognise as equivalent the information that is required by the law in Non-Member States of 29 March 2018. The Company’s financial division headed by the Chief Financial Officer is responsible for the preparation of the Group’s consolidated financial statements and interim reports. The Company prepares its financial statements and periodic reports on the basis of the procedures of making and publishing periodic reports and consolidated reports, in force at Arctic Paper S.A. The financial data underlying the Group’s consolidated financial statements comes from monthly reporting packages and extended quarterly packages sent to the Issuer by Group member companies. After closing of the books for each calendar month, top management of the Group member companies analyse the financial results of the companies versus their budgets and the results generated in the previous reporting period.

The Group performs an annual review of its strategy and development prospects. The budgeting process is supported by medium- and top-level management of the Group member companies. The budget drafted for the next year is accepted by the Company’s Management Board and approved by the Supervisory Board. During the year, the Company’s Management Board compares the generated financial results to the adopted budget.

The Company’s Management Board systematically assesses the quality of internal control and risk management systems with reference to the preparation process of consolidated financial statements. On the basis of such review, the Company’s Management Board found that as at 31 December 2020 there were no weaknesses that could materially affect the effectiveness of internal control with respect to financial reporting.

Shareholders that directly or indirectly hold significant packages of shares

Information on the shareholders that directly or indirectly hold large packages of shares is presented in the table below – the table presents the situation as of the publication date of the annual report.

Securities with special control rights

There are no securities in the Company with special control rights – in particular, no shares in the Company are privileged.

Information on major restrictions on transfer of title to the Issuer’s securities and all restrictions concerning the exercising of voting rights

The Company’s Articles of Association do not provide for any restrictions concerning transfer of title to the Issuer’s securities. Such restrictions are specified in law, including in Chapter 4 of the Act on Public Offering and on Conditions Governing the Introduction of Financial Instruments to Organised Trading and on Public Companies of 29 July 2005, Article 11 and Article 19 and Section VI of the Act on Trading in Financial Instruments of 29 July 2005, the Act on Competition and Consumer Protection of 16 February 2007 and the Council Regulation (EC) No. 139/2004 on the control of concentrations between undertakings of 20 January 2004.

Additional restrictions related to purchases and sales of the Issuer’s securities by persons in managerial functions and their closely related persons are set forth in Regulation (EU) No. 596/2014 of the European Parliament and of the Council on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (“MAR”).

Each share in Arctic Paper S.A. authorises to one vote at General Meetings. The Company’s Articles of Association provide for no restrictions as to the exercising of voting rights of shares in Arctic Paper S.A., such as any restrictions on voting rights, such as limitations of the voting rights of holders of a given percentage or number of votes, deadlines for exercising voting rights, or systems whereby, with the Company’s cooperation, the financial rights attaching to securities are separated from the holding of securities.

A ban on voting rights by shareholders may result from Article 89 of the Act of on Offering and Marketing of Financial Instruments to Organised Trading Systems and on Public Companies of 29 July 2005 if such shareholder breaches the regulations provided in Chapter 4 of the Act on Offering. According to Article 6 § 1 of the Code of Commercial Companies, if the Parent Entity fails to notify its capital subsidiary company of the occurrence of a domination relationship within two weeks of the occurrence thereof, the voting rights will be suspended with respect to the shares held by the Parent Entity representing more than 33% of the subsidiary’s share capital.
‎

‎

Description of the principles of amending the Issuer’s Articles of Association

Amendments to the Company’s Articles of Association fall within the sole competences of the General Meeting.

Unless the Code of Commercial Companies or the Articles of Association of the Company provide otherwise, resolutions of the General Meeting require an absolute majority of votes;

Description of the functioning of the General Meeting

The rules of procedure of the General Meeting and its core competences result straight from applicable laws and are partly incorporated in the Company’s Articles of Association.

The Company’s Articles of Association are available at:

https://www.arcticpaper.com/Global/IR%20Documents/Cororate%20Documents/Arctic_Paper_Statut_tekst_jednolity_aktualny_2019_PL.pdf

General Meetings are held in accordance with the following basic rules:

—General Meetings are held in the Company’s offices or in Warsaw;

—General Meetings may be ordinary or extraordinary;

—Ordinary General Meetings shall be held within six months after the end of the financial year;

—General Meetings are opened by the Chairperson of the Supervisory Board or a person designated by him/her which is followed by election of the Chairperson of the General Meeting;

—Voting shall be open unless a Shareholder demands a secret ballot or a secret ballot is required by the provisions of the Code of Commercial Companies;

—Unless the Code of Commercial Companies or the Articles of Association of the Company provide otherwise, resolutions of the General Meeting require an absolute majority of votes;

—In compliance with the Company’s Articles of Association, the following matters fall within the exclusive competences of the General Meeting:

›review and approval of the Management Board’s report from operations of the Company and financial statements of the Company for the previous financial year;

›granting a vote of approval to members of the Management Board and members of the Supervisory Board for the performance of their duties;

›decisions concerning distribution of profit or coverage of losses;

›changes to the business objects of the Company;

›changes to the Articles of Association of the Company;

›increase or decrease in the Company’s share capital;

›merger of the Company with another company or other companies, split of the Company or transformation of the Company;

›dissolution and liquidation of the Company;

›issues of convertible bonds or pre-emption bonds and issues of subscription warrants;

›purchase and sale of properties;

›sale and lease of the entire enterprise or an organised part thereof or establishment of limited rights in rem thereon;

›all other issues for which these Articles of Association or the Code of Commercial Companies require a resolution of the General Meeting.

General Meetings may approve resolutions in the attendance of minimum one half of the Company’s share capital.

General Meetings approve resolutions with an absolute majority of votes unless the Articles of Association or applicable regulations require a qualified majority.

The shareholders’ rights and the way to enforce them result explicitly from law that has been partly incorporated in the Company’s Articles of Association.

Operation of the Issuer’s managing and supervising bodies and its committees as well as information on the composition of those bodies

Management Board

Composition of the Management Board

—The Management Board is composed of one to five members, including President of the Management Board;

—The Management Board is appointed and dismissed by the Supervisory Board for a joint term of office;

—The term of office of members of the Management Board is 3 (three) years;

—When the Management Board is composed of more than one person, the Supervisory Board – upon a proposal by the President – may appoint up to three Deputy Presidents from among members of the Management Board. Deputy Presidents may be dismissed subject to a resolution of the Supervisory Board;

—A member of the Management Board may be dismissed by the Supervisory Board at any time;

—A member of the Management Board may be dismissed or suspended in their duties at any time by the General Meeting.

Core competences of the Management Board

—

The Management Board directs the affairs of the Company and represents the Company;

—If the Management Board is composed of more than one person, declarations of intent on the Company’s behalf shall be made by the President of the Management Board individually or two Members of the Management Board acting jointly or a Member of the Management Board acting jointly with a Proxy;

—The Management Board is obliged to exercise their duties with due diligence and comply with law, the Company’s Articles of Association, approved regulations and resolutions of the Company’s bodies; decisions shall be taken in line with reasonable economic risk with a view to the interests of the Company and its shareholders;

—The Management Board is obliged to manage the assets and business of the Company and perform its duties subject to due diligence required in business operations and subject to strict compliance with applicable laws, provisions of the Articles of Association and internal regulations as well as resolutions approved by the General Meeting and the Supervisory Board;

—The Company’s Management Board shall not be entitled to take decisions on share issues and redemption.

—Each member of the Management Board shall be liable for any damage inflicted upon the Company as a result of their actions or omissions breaching the provisions of law or the Company’s Articles of Association;

—The responsibilities of the Management Board include – in compliance with the Code of Commercial Companies – all affairs of the Company not reserved to the General Meeting of the Supervisory Board;

—Guided with the interests of the Company, the Management Board defines the strategy and core objectives of the Company’s business;

—The Management Board shall comply with the regulations relating to confidential information within the meaning of the Act on Trading and to comply with all the duties resulting therefrom.

Otherwise, the individual members of the Management Board shall be responsible for their running of the affairs of the Company as resulting from the internal delegation of duties and functions approved by a decision of the Management Board.

The Management Board may approve resolutions at meetings or outside meetings in writing or with the use of direct means of remote telecommunications. The Management Board approves resolutions with a majority of votes cast. Resolutions shall be valid if minimum one half of members of the Management Board are present at the meeting. In case of equal number of votes, the President of the Management Board shall have the casting vote.

The detailed mode of operation of the Management Board is set forth in the Regulations of the Management Board with its updated version available at:

http://www.arcticpaper.com/Global/IR%20Documents/Cororate%20Documents/Regulamin%20Zarzadu%20AP%20SA.pdf

The Management Board of the Company as at the publication hereof was composed as follows:

—Michał Jarczyński – President of the Management Board appointed on 1 February 2019;

—Göran Eklund – Member of the Management Board appointed on 30 August 2017.

Supervisory Board

Composition and organisation of the Supervisory Board

—The Supervisory Board is composed of 5 (five) to 7 (seven) members elected by the General Meeting for a joint three-year term of office. A member of the Supervisory Board may be dismissed at any time;

—The Supervisory Board is composed of the Chairperson, Deputy Chairpersons and other members. The Chairperson of the Supervisory Board and Deputy Chairperson are elected by the Supervisory Board from among its members at the first meeting and – if so required – during the term of office in by-elections;

—Since the General Meeting approved resolutions on the first public issue of shares and having them listed, two members of the Supervisory Board have to be independent;

—When an independent member of the Supervisory Board is nominated, resolutions on the following matters require consent of minimum one independent member of the Supervisory Board:

›any benefits to be provided by the Company and any entity related to the Company for members of the Management Board;

›consent to the Company or its subsidiary entity to enter into a material agreement with a member of the Supervisory Board or the Management Board and with their related entities, other than agreements concluded in the normal course of the Company’s business subject to normal terms and conditions applied by the Company;

›election of auditor to perform audits of the Company’s financial statements;

—For the avoidance of doubt, it is assumed that loss of the independent status by a member of the Supervisory Board and failure to appoint an independent member of the Supervisory Board shall not invalidate the decisions approved by the Supervisory Board. Loss by an Independent Member of their independent status during the performance of their function of a member of the Supervisory Board shall not affect the validity or expiry of their mandate;

—In case of expiry of the mandate of a Member of the Supervisory Board before the term of office, the other Members of the Supervisory Board shall be entitled to co-opt a new Member of the Supervisory Board is such vacated position by way of a resolution approved with an absolute majority of the other Members of the Supervisory Board. The mandate of such co-opted Member of the Supervisory Board shall expire if the first Ordinary General Meeting to be held after such Member has been co-opted, fails to approve such Member. At any time, only two persons elected as Members of the Supervisory Board in the co-option procedure and who were not approved as candidates by the Ordinary General Meeting, may act as Members of the Supervisory Board. Expiry of the mandate of a co-opted Member of the Supervisory Board as a result of failure to approve such candidate by the Ordinary General Meeting may not be treated as finding any resolution approved with the participation of such Member as invalid or ineffective.

—Chairperson and Deputy Chairperson of the Supervisory Board:

›maintain contact with the Company’s Management Board;

›manage the operations of the Supervisory Board;

›represent the Supervisory Board in external contacts and in contacts with the other bodies of the Company, including in contacts with members of the Company’s Management Board;

›approve the presentation of initiatives and proposals submitted for meetings of the Supervisory Board;

›take other actions as specified in the Company’s Regulations and Articles of Association;

›Members of the Supervisory Board should not resign from their function during the term of office if that could prevent the operation of the Supervisory Board, in particular prevent timely approval of major resolutions;

›Members of the Supervisory Board shall be loyal to the Company. Should a conflict of interests arise, members of the Supervisory Board shall report it to other members of the Supervisory Board and refrain from participating in discussions and from voting on the issue to which the conflict of interests is related;

›Members of the Supervisory Board shall comply with law, the Company’s Articles of Association and Regulations of the Supervisory Board.

Competences of the Supervisory Board

—

The Supervisory Board performs overall supervision over the business of the Company in all areas of its operation;

—The Supervisory Board approves resolutions, issues recommendations and opinions and submits proposals to the General Meeting;

—The Supervisory Board may not issue binding instructions to the Management Board concerning the management of the Company’s affairs;

—Disputes between the Supervisory Board and the Management Board shall be resolved by the General Meeting;

—In order to exercise their rights, the Supervisory Board may review the business of the Company in any respect, request the presentation of any documents, reports and clarification from the Management Board and issue opinions on issues related to the Company and submit proposals and initiatives to the Management Board;

—Apart from other issues specified in law or in the Company’s Articles of Association, the competences of the Supervisory Board include, inter alia:

›review of the financial statements of the Company;

›review of the Management Board’s report from operations of the Company and proposals of the Management Board concerning profit distribution and coverage of losses;

›submission to the General Meeting of an annual report from results of the above reviews;

›appointment and dismissal of members of the Management Board, including the President and Deputy Presidents, and setting the remuneration of members of the Management Board;

›appointment of the auditor of the Company;

›suspension of Members of the Management Board in their functions for valid reasons;

›approval of annual financial plans for the capital group of which the Company and its subsidiary companies are members;

›approving terms and conditions of bond issues by the Company (other than convertible bonds or bonds with priority rights, referred to in Article 393.5 of the Code of Commercial Companies) and issues of other debt securities, provision of consent to contract financial liabilities or taking actions resulting in contracting any financial liabilities, such as borrowings, loans, overdraft facilities, conclusion of factoring, forfaiting, lease contracts and other generating liabilities in excess of PLN 10,000,000;

›approving the principles and amounts of remuneration of members of the Management Board and other persons in key management functions in the Company as well as approval of any incentive programme, including incentive programmes for members of the Management Board, persons in key management functions in the Company or any persons cooperating with or related to the Company, including incentive programmes for employees of the Company;

—Annually the Supervisory Board submits to the General Meeting a brief assessment of the Company’s condition ensuring that it is made available to all shareholders at a time that they are able to review it before the Ordinary General Meeting;

—The Supervisory Board concludes contracts with members of the Management Board on behalf of the Company and represents the Company in disputes with members of the Management Board. The Supervisory Board may authorise by way of a resolution one or more of its members to perform such legal actions.

The Supervisory Board may approve resolutions in writing or with the use of direct means of remote telecommunications. Resolutions approved as specified above shall be valid if all members of the Supervisory Board were notified of the content of the draft resolution. The approval date of the resolution approved as above shall be equivalent to the date of signing by the last member of the Supervisory Board;

Resolutions of the Supervisory Board may be approved when all members have been notified by registered letter, fax or e-mail message, sent minimum 15 days in advance and the meeting is attended by a majority of members of the Supervisory Board. Resolutions may be approved without formal convening a meeting when all members of the Supervisory Board agreed to vote on the specific issue or to the content of the resolution to be approved;

Resolutions of the Supervisory Board require a simple majority of votes; in case of equal votes, the Chairperson of the Supervisory Board shall have the casting vote.

The detailed mode of operation of the Supervisory Board is set forth in the Regulations of the Supervisory Board with its updated version available at:

http://www.arcticpaper.com/Global/IR%20Documents/Dokumenty%20korporacyjne/1_11_2016_appendix%20PL_AP%20SA%20-%20Regulamin%20Rady%20Nadzorczej_fin.pdf

The Supervisory Board of the Company as at the publication hereof was composed as follows:

—Per Lundeen – Chairman of the Supervisory Board appointed on 14 September 2016;

—Roger Mattsson – Deputy Chairman of the Supervisory Board appointed on 16 September 2014;

—Thomas Onstad – Member of the Supervisory Board appointed on 22 October 2008;

—Mariusz Grendowicz – Member of the Supervisory Board appointed on 28 June 2012 (independent member);

—Dorota Raben – Member of the Supervisory Board appointed on 28 May 2019 (independent member).

In 2020, the Supervisory Board held meetings on: 20 February, 2 April, 16 April, 30 April, 14 May, 28 May, 17 June, 18 August, 10 November, 17 December 2020.

Audit Committee

Composition and organisation of the Audit Committee

—The Audit Committee is composed of minimum three members of the Supervisory Board, including the Chairperson of the Committee, elected by the Supervisory Board from among its members in compliance with the Articles of Association and Regulations of the Supervisory Board. Minimum one member of the Audit Committee shall hold qualifications and experience in the sphere of accounting and finances;

—Members of the Audit Committee shall be appointed for three-year terms of office, however no longer than the term of office of the Supervisory Board;

—The Chairperson of the Audit Committee, elected with a majority of votes from among its members, shall be an independent member;

—The Audit Committee operates on the basis of the Act on Statutory Auditors, Best Practice of GPW Listed Companies, Regulations of the Supervisory Board and the Regulations of the Audit Committee;

—The Audit Committee performs advisory and consulting functions, operates as a collective body within the Company’s Supervisory Board;

—The Audit Committee carries out its tasks by providing the Supervisory Board with its proposals, opinions and reports on its scope in the form of resolutions;

—At least one member of the audit committee shall have knowledge and skills in terms of accounting or auditing financial statements. The Supervisory Board is of the opinion that the requirement of competences in the sphere accounting and financial audit is recognised as satisfied if a member of the Audit Committee has a significant experience in financial management in commercial partnerships, internal audit or audit of financial statements, and additionally:

›has the title of a certified auditor or equivalent international certificate, or

›has an academic degree in the field of accounting or financial audit, or

›has long-term experience as a financial director in public companies or in working in an audit committee of such companies;

—Members of the Audit Committee shall have knowledge and skills relating to the industry in which the Issuer operates. This condition is recognised as satisfied if at least one member of the Audit Committee has knowledge and skills relating to that industry or individual members within specific scopes have knowledge and skills relating to the scope of that industry. The Supervisory Board is of the opinion that the requirement of competences relating to the industry is recognised as satisfied if a member of the Audit Committee has information on the characteristics of the sector, that allows him to obtain a complete picture of the sector’s complexity or has knowledge on part of the chain of activities carried out by the Company.

Competences of the audit committee

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The basic task of the Audit Committee is advisory to the Supervisory Board on issues of proper implementation and control of the financial reporting processes in the Company, effectiveness of the internal control and risk management systems and cooperation with statutory auditors;

—The tasks of the Audit Committee resulting from supervising the Company’s financial reporting process, ensuring the effectiveness of the Company’s internal control systems and monitoring of internal audit operations, include in particular:

›control if the financial information provided by the Company is correct, including the accuracy and consistency of the accounting principles applied in the Company and its Capital Group as well as the consolidation principles of financial statements;

›assessment minimum once a year of the internal control and management systems in the Company and its Capital Group in order to ensure adequate recognition and management of the Company;

›ensuring the effective functioning of internal control, in particular by providing recommendations to the Supervisory Board with respect to:

›strategic and operational internal audit plans and material changes to such plans;

›internal audit policies, strategy and procedures, developed in compliance with the approved internal audit standards;

›audits of specific areas of the Company’s operations;

—The tasks of the Audit Committee resulting from monitoring the independence of the statutory auditor and the entity authorised to audit financial statements, include in particular:

›issue of recommendations to the Supervisory Board relating to the election, appointment and re-appointment and dismissal of the entity acting as the statutory auditor;

›control of independence and impartiality of the statutory auditor, in particular with a view to replacing the statutory auditor, the level of its remuneration and other relationships with the Company;

›verification of the effectiveness of the works performed by the statutory auditor;

›review of reasons of resignation by the statutory auditor;

—The Audit Committee may resort to advisory services and assistance by external legal, accounting or other advisers if it finds it necessary to perform its duties;

—The Audit Committee is obliged to file annual reports from its operations to the Supervisory Board by 30 September in each calendar year.

Meetings of the Audit Committee shall be held minimum twice a year.

In 2020, the Audit Committee held 2 meetings on: 19 March and 22 October.

As at 19 July 2019, the Audit Committee was composed of:

—Mariusz Grendowicz – a member meeting the independence criteria. Mr Mariusz Grendowicz being a member of the Supervisory Board for over five years, including being a member of the Audit Committee, has experience and qualifications relating to the scope of the industry in which the Company operates.

—Roger Mattsson – due to his long-term experience as the financial controller at the Arctic Paper Group and over three years in the Audit Committee, Mr Roger Mattsson meets the requirement of knowledge and know-how of the Company’s business as required of members of the Audit Committee. Additionally, he has knowledge and skills in the sphere of accounting or auditing financial statements;

—Dorota Raben – a member meeting the independence criteria.

The detailed mode of operation of the Audit Committee is set forth in the Regulations of the Audit Committee.

Core assumptions underlying the policy of selecting an audit firm to conduct audits

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According to the regulations applicable to the Company, the Company’s Supervisory Board shall select – by way of a resolution and acting under a recommendation of the Audit Committee – the auditor authorised to carry out the audit;

—The selection is made taking into account the principles of impartiality and independence of the audit firm and the analysis of the audit firm’s work carried out in the Company which falls beyond the scope of the audit of financial statements, in order to avoid any conflict of interest (observance of impartiality and independence).

—A request for proposals concerning the selection of an audit firm for statutory audit of the Company’s financial statements is developed by the Audit Committee in cooperation with the Company’s Chief Financial Officer;

—After analysing the submitted offers, the Audit Committee shall develop a recommendation with conclusions from the selection procedure to be approved by the Audit Committee and shall submit a recommendation on the selection of the audit firm to the Supervisory Board within such time that will support a resolution on audit firm selection;

—The Supervisory Board shall select the audit firm on the basis of the submitted offers and after becoming acquainted with the Audit Committee’s opinion and recommendation;

—If the Supervisory Board’s decision differs from the recommendation of the Audit Committee, the Supervisory Board shall justify the reasons for its failure to comply with the Audit Committee’s recommendation and shall submit such justification to the body approving the financial statements.

—The Company’s Management Board shall enter into a contract with the selected audit firm for the audit of financial statements of the Company.

—The first contract is concluded for minimum 2 years and it may be extended for another two or three years. The duration of the cooperation shall be counted from the first financial year covered by the audit contract, in which the authorised auditor was appointed for the first time to carry out the consecutive statutory audits of the Company.

—After expiry of the maximum period of the cooperation, the authorised auditor or, where applicable, any member of its network, may not undertake a statutory audit of the Company’s financial statements for further 4 years.

—The key statutory auditor may not perform a statutory audit in the Company for a period longer than 5 years. The key statutory auditor may conduct a statutory audit again after the expiry of 3 years.

—The maximum period of uninterrupted performance of statutory audits by the same audit firm or an audit firm related to that audit firm or any member of the network operating in the European Union of which the audit firms are members, may not exceed 5 years.

Core assumptions underlying the policy of the provision of permitted services other than audit services by the audit firm performing the audit, by entities related to the audit firm and by a member of the audit firm’s network;

—The Audit Committee of Arctic Paper S.A. shall be responsible for the policy covering the provision of permitted services other than audit services by the audit firm performing the audit, by entities related to the audit firm and by a member of the audit firm’s network;

—The Audit Committee of Arctic Paper S.A. controls and monitors the independence of the auditor and the audit firm, in particular if the audit firm provides other services than audit of statutory financial statements to Arctic Paper S.A.

—The Audit Committee of Arctic Paper S.A., when so requested by a competent body or person, approves the provision of permitted services by the auditor that are not an audit of Arctic Paper S.A.

—The prohibited services do not include:

›carrying out due diligence procedures for economic and financial condition,

›issue of letters of support,

›attestation services related to pro forma financial information, forecast of results, or estimation of results, contained in the issue prospectus of the audited entity;

›review of historic financial information for projects referred to in the Commission Regulation (EC) No 809/2004 of 29 April 2004 implementing Directive 2003/71/EC of the European Parliament and of the Council as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisement;

›verifying consolidation packages;

›confirming the fulfilment of terms and conditions of concluded loan agreements on the basis of the analysis of financial information from the financial statements audited by the audit firm;

›attestation services related to reporting on corporate governance, risk management, and corporate social responsibility;

›services consisting in assessing the conformity of information disclosed by financial institutions and investment firms with requirements for disclosure of information on capital adequacy and variable remuneration components;

›certifying financial statements or other financial information intended for supervisory authorities, supervisory board or other supervisory body of the Company or owners, which falls beyond the scope of statutory audit and helps these bodies to fulfil their statutory obligations.

—Provision of the above services is possible solely to the extent not related to the entity’s tax policies after a review by the Audit Committee of hazards and mitigants of the audit firm’s independence as referred to in Article 69-73 of the Act on Certified Auditors, Audit Firms and Public Supervision.

On 23 October 2019, the Supervisory Board of Arctic Paper S.A., by way of resolution, selected audit firm KPMG Audyt Spółka z ograniczoną odpowiedzialnością sp.k. to audit the Company's financial statements for the financial years 2020-2022.

The Supervisory Board selected the audit firm on the basis of a recommendation by the Audit Committee. The recommendation of the Audit Committee was issued as a result of the selection procedure in compliance with the “Policy and selection procedure of the audit firm to perform statutory and voluntary audit of consolidated and stand-alone financial statements of Arctic Paper S.A. with its registered office in Poznań”.

KPMG Audyt Spółka z ograniczoną odpowiedzialnością sp.k., entities related to the audit firm and members of its audit firm network, in the period covered by the audit did not provide any permitted services to the issuer that are not a statutory audit. The audit firm and members of its team performing the audit comply with the requirements to make an impartial and independent report from the audit of the annual consolidated and standalone financial statements of the Arctic Paper Group and of the Company in compliance with the applicable regulations, professional standards and the rules of professional ethics. The recommendation of the Audit Committee was free of third party impact and was developed on the basis of the “Policy and selection procedure of the audit firm to perform statutory and voluntary audit of consolidated and stand-alone financial statements of Arctic Paper S.A.”

Remuneration Committee

Composition and organisation of the Remuneration Committee

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The Remuneration Committee is composed of minimum two members of the Supervisory Board, including the Chairperson of the Committee, elected by the Supervisory Board from among its members in compliance with the Articles of Association and Regulations of the Supervisory Board.

—Members of the Remuneration Committee shall be appointed for three-year terms of office, however no longer than the term of office of the Supervisory Board;

—The Chairperson of the Remuneration Committee shall be elected with a majority of votes of its members;

—The Remuneration Committee operates pursuant to the Regulations of the Supervisory Board and the Regulations of the Remuneration Committee;

—The Remuneration Committee performs advisory and consulting functions, operates as a collective body within the Company’s Supervisory Board;

—The Remuneration Committee carries out its tasks by providing the Supervisory Board with its proposals, opinions and reports in the form of resolutions.

Competences of the Remuneration Committee

—The basic task of the Remuneration Committee is advisory support to the Supervisory Board on issues related to remuneration policy, bonus policy and other issues related to the remuneration of the employees, members of the Company’s authorities and the authorities of Capital Group companies;

—The tasks of the Remuneration Committee resulting from supervision over the Company’s remuneration policy and ensuring the effective functioning of the Company’s remuneration policy, is to provide recommendations to the Supervisory Board in particular with respect to:

—approval and changes to the remuneration principles of members of the Company’s bodies;

—the amount of total remuneration to members of the Company’s Management Board;

—legal disputes between the Company and Members of the Management Board with respect to the tasks of the Committee;

—proposing remuneration and approving additional benefits to individual members of the Company’s bodies, in particular under management option plans (convertible into shares of the Company);

—strategy of the Company’s remuneration and bonus policies and HR policies;

—The Remuneration Committee may resort to advisory services and assistance by external legal or other advisers if it finds it necessary to perform its duties;

—The Remuneration Committee is obliged to file annual reports from its operations to the Supervisory Board by 30 September in each calendar year.

—On 31 August 2020, the General Meeting of the Company, bearing in mind Art. 90d.1 in connection with Art. 90c.2.1 of the Act of 29 July 2005 on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organised Trading, and Public Companies (i.e. Journal of Laws of 2019, item 623 as amended amended) adopted the "Remuneration Policy for Members of the Management Board and Members of the Supervisory Board of Arctic Paper SA". Under the above-mentioned Acts of public companies, including the Company, were obliged to adopt, by resolution, the Remuneration Policy of Management Board and Supervisory Board Members, which is the rules for determining the remuneration of Members of the Management Board and Supervisory Board, by the General Meeting of Shareholders, and to publish a remuneration report. The Company shall pay remuneration to the Members of the Management Board and the Supervisory Board solely in compliance with the adopted Policy. The policy prepared by the Company was drawn up in accordance with the principles set out in the above-mentioned Act and refers to the required elements related to remuneration and other terms of employment for Members of the Management Board and Members of the Supervisory Board. The policy received an opinion from the Remuneration Committee operating at the Supervisory Board, as well as by the Supervisory Board.

—The Remuneration Committee held meetings on 15 January, 23 January, 19 February and 13 March 2020.

—Since 9 February 2017 the Remuneration Committee has been operating in the following composition:

—Per Lundeen

—Thomas Onstad

—Roger Mattsson

—The detailed mode of operation of the Remuneration Committee is set forth in the Regulations of the Remuneration Committee.

Risk Committee

Composition and organisation of the Risk Committee

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The Risk Committee is composed of minimum three members of the Supervisory Board, including the Chairperson of the Committee, elected by the Supervisory Board from among its members. Minimum one member of the Risk Committee shall be independent and hold qualifications and experience in the sphere of finances;

—Members of the Risk Committee shall be appointed for three-year terms of office, however no longer than the term of office of the Supervisory Board;

—The Chairperson of the Risk Committee shall be elected with a majority of votes of its members;

—The Risk Committee operates on the basis of commonly accepted corporate risk management models (e.g. COSO-ERM);

—The Risk Committee performs advisory and consulting functions, operates as a collective body within the Company’s Supervisory Board;

—The Risk Committee carries out its tasks by providing the Supervisory Board with its proposals, opinions and reports in the form of resolutions;

Competences of the Risk Committee

—The basic task of the Risk Committee is advisory support to the Supervisory Board on issues related to the proper identification, assessment and control of potential risks, i.e. opportunities and threats to realization of the Company’s strategic goals, with particular consideration for financial risk, related to both external factors (such as volatility of exchange rates, interest rates, general international economic condition) and internal factors (such as cash flows, liquidity management, variation of budget and financial forecasts);

—The tasks of the Risk Committee resulting from the supervision over the risk management process, include in particular:

›Supervision over correct identification, analysis and assigning priority to types of risk inherent in the operational strategy and business pursued;

›Confirmation to the identified risk appetite of the Company;

›Verification if actions used to mitigate risk are planned and implemented so that the risk is mitigated to a level acceptable by the Company;

›Monitoring verifying correct risk assessment by the Management Board and the effectiveness of control tools;

›Supervision over correct notification of stakeholders on the risks, risk strategies and control tools.

—The Risk Committee may resort to advisory services and assistance by external advisers if it finds it necessary to perform its duties;

Since 22 September 2016 the Risk Committee has been operating in the following composition:

—Per Lundeen

—Mariusz Grendowicz

—Roger Mattsson

 

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Information compliant with the requirements of Swedish regulations concerning corporate governance

Arctic Paper S.A. is a company registered in Poland which stock has been admitted to trading at the Warsaw Stock Exchange and at NASDAQ in Stockholm. The Company’s primary market is in Warsaw with a parallel market in Stockholm. Companies not registered in Sweden which shares have been admitted to trading at NASDAQ in Stockholm are obliged to comply with:

—the corporate governance rules in force in the country of their registration or

—the corporate governance rules in force in the country where they have their primary trading market, or

—the Swedish corporate governance code (hereinafter the “Swedish Code”).

Arctic Paper S.A. follows the principles set forth in the “Best Practice of GPW Listed Companies 2016” (hereinafter the “Best Practice”) that may be applied by companies listed at the Warsaw Stock Exchange and not the Swedish Code. As a result, the conduct of Arctic Paper S.A. is different from the one set forth in the Swedish Code in the following material aspects.

General Meeting of Shareholders

The core documents related to General Meetings of Shareholders, such as notices, reports and approved resolutions, are made in Polish and in English instead of Swedish.

Appointment of governing bodies of the Company

The Polish corporate governance model provides for a two-tier system of the Company’s bodies which is composed of the Management Board being the executive body appointed by the Management Board which in turns supervises the Company’s operations and is appointed by the General Meeting of Shareholders. Auditors are selected by the Supervisory Board.

Neither the Best practice, nor any other Polish regulations require the establishment of a commission in the Company to elect candidates and therefore such commission does not exist among the bodies of the Company. Each shareholder may propose candidates to the Supervisory Board. Appropriate information on candidates proposed to the Supervisory Board is published on the Company’s website with appropriate advance so that all shareholders could take an informed decision when voting on the resolution appointing a new member of the Supervisory Board.

Tasks of the bodies of the Company

In compliance with the two-tier system of the Company’s bodies, the tasks usually performed by the management of Swedish-registered companies are performed by the Management Board or the Supervisory Board of companies subject to Polish law.

In accordance with the Polish applicable regulations, members of the Management Board, including its General Director who is the President of the Management Board, may not get involved in competitive activities outside the Company. Pursuing of other business outside the Company is not regulated either in the Best Practice or other Polish regulations; however, certain restrictions are usually incorporated in individual employment contracts.

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Size and composition of the Company’s bodies

The composition of the Supervisory Board should reflect the independence criteria, just like those specified in the Swedish Code. However, the Management Board being the executive body is composed of persons in executive positions at Arctic Paper S.A., and these members may not be treated as independent of the Company. The terms of office of members of the Management Board – just like the members of the Supervisory Board – lasts three years.

Chairpersons of the bodies of the Company

It is the Supervisory Board and not the General Meeting that elects the chairperson and the deputy chairperson from its members.

Procedures of the bodies of the Company

The Regulations of the Management Board are approved by the Supervisory Board, and the Regulations of the Supervisory Board are approved by the Supervisory Board. The Regulations are not reviewed each year – they are reviewed and modified as need arises. The same principles apply to regulations of committees operating within the Supervisory Board that are approved by the Supervisory Board. The operation of the General Director is not regulated separately since he/she also acts as the president of the Management Board.

Remuneration of members of the bodies of the Company and management staff

The Company shall pay remuneration to the Members of the Management Board and the Supervisory Board solely in compliance with the Remuneration Policy adopted by the General Meeting.

 

Information on corporate governance

The Polish Corporate Governance Rules do not require the same detail as to the disclosed information as required by the Swedish Code. However, information on members of the Company’s bodies, company’s Articles of Association, internal regulations and a summary of material differences between the Swedish and Polish approach to corporate governance and shareholders’ rights is published on the Company’s website.

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Information by the Management Board of Arctic Paper S.A. on selection of the audit firm

On the basis of a statement made by the Supervisory Board of Arctic Paper S.A. on the selection of the audit firm to audit the annual consolidated financial statements of the Arctic Paper Group and standalone financial statements of the Company for the financial year ended on 31 December 2020 in compliance with applicable laws and on the basis of a statement received from KPMG Audyt spółka z ograniczoną odpowiedzialnością spółka komandytowa, the Company’s Management Board informs that the audit firm and members of its team performing the audit have complied with the requirements to make an impartial and independent report from the audit of the annual consolidated financial statements of the Arctic Paper Group and standalone financial statements of the Company for the financial year ended on 31 December 2020 in compliance with the applicable laws, professional standards and the rules of professional ethics.

The Management Board of the Company also informs that the applicable laws with regard to a change of the audit firm and the key statutory auditor, as well as mandatory periods of grace have been complied with. The Arctic Paper Group has a policy relating to the selection of the auditing company and a policy of the provision of services that are not an audit by the audit firm, entities related to the audit firm or a member of its group, including services that are not covered with the ban on being provided by audit firms.

Signatures of the Members of the Management Board

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Statements of the Management Board

Accuracy and reliability of the presented reports

Members of the Management Board of Arctic Paper S.A. represent that to the best of their knowledge:

—The financial statements of Arctic Paper S.A. for the year ended on 31 December 2020 and the comparable data were prepared in compliance with the applicable accounting principles and they reflect Company’s economic and financial condition and its financial result for 2020 in a true, reliable and clear manner.

—The Management Board’s Report from operations of Arctic Paper S.A. in 2020 contains a true image of the development, achievements and condition of Arctic Paper S.A., including a description of core hazards and risks.

Signatures of the Members of the Management Board

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Standalone financial statements

Standalone income statement

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Standalone statement of total comprehensive income

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Standalone statement of financial position

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Standalone cash flow statement