TEPLARNA LIBEREC

LIBEREC COGENERATION PLANT

Joint Stock Company

ARTICLES OF ASSOCIATION

                                               Table of Contents


   1.    Name, Registered Office, Origin and Period of the Company...................................3
   2.    The object of Company's business activity...................................................3
   3.    Acting on behalf of the Company.............................................................4
   4.    Basic capital and shares....................................................................4
   5.    Company Bodies..............................................................................5
   6.    General Meeting.............................................................................5
   7.    Board of Directors.........................................................................11
   8.    Supervisory Board..........................................................................15
   9.    Economy/Management of the Company..........................................................18
   10.   Rules for increasing and reducing the registered capital of the Company....................21
   11.   Winding-up and Liquidation of Company......................................................23
   12.   Announcements by the Company...............................................................24
   13.   Final Provisions...........................................................................24
   14.   Method during Articles of Association supplementation and amending.........................25
   15.   Articles of Association Effective Date.....................................................26

1. Name, Registered Office, Origin and Period of the Company

1.1         Company name:        Teplarna Liberec, a.s.

1.2         Registered office:         tr. Dr. Milady Horakove 641/34a, 460 01 Liberec 4.

1.3 The Company was founded without the call to subscribe shares by concluding the Founder’s Agreement of November 11, 1994 in the form of a notary record, by approving the Articles of Association and by voting the Company’s bodies.

1.4 The company was established on February 13, 1995 and has been recorded in the Commercial Register held with the Regional Court in Ústí nad Labem. The Company has been established for an indefinite period of time.

2. The object of Company's business activity

The object of Company's business activity is as follows:

2.1 Generation, distribution, purchase and sale of heat and related activities.

2.2 Generation, distribution and sale of electricity and related activities.

2.3 Fuel and oil processing

2.4 Purchase, sale and storage of fuel and oil

2.5 Production, repairs and installation of indicators and gauges

2.6 Production, installation, repairs, upgrading, inspection and periodic tests of stated/specified pressure equipment.

2.7 Installation, repairs and inspection of gas equipment.

2.8 Installation, repairs and inspection of specified electrical equipment.

2.9 Purchase of goods to be sold and sale (of goods).

2.10 Administration of residential and non-residential estate.

2.11 Automatic data processing.

2.12 Accounting.

2.13 Business Activity in the field of waste management.

2.14 Economic and organizational consultancy

2.15 Rental of motor vehicles.

2.16 Lease of estate/property, residential and nonresidential space with provision of other than basic services

2.17 Gas distribution and sale

2.18 Leasing of goods and chattels

2.19 Operation of water mains and sewer systems

2.20 Performance of activities in the field of safety and health protection during work

2.21 Technical and organizational activities in the field of fire protection

3. Acting on behalf of the Company

3.1 Either all members of the Board of Directors jointly or Board Chairman, or one of the Board members who has been authorized by the Board, act on behalf of the Company. The authorization shall be in writing and signed by at least three members of the Board. Signing on behalf of the Company is carried out in such a way that they put their signatures to the name or seal of the Company.

3.2 Also the proxy or proxies sign on behalf of the Company in accordance with granted procuration. The proxy or proxies sign in such a way that they put their signature and an addition identifying the procuration to the written business name or seal of the Company.

3.3 The persons given in paragraph 1 and 2 of this Article prove their authorization to act on behalf of the Company by an extract from the Commercial Register.

3.4 Employees appointed to specific duties by the Company are authorized according to Section 15 of the Commercial Code to all transactions normally associated with this duty.

4. Basic capital and shares

4.1 Basic capital of the Company is CZK 500,000,000 (in words five hundred million Czech Crowns) and is divided into 100 equity shares of nominal value of CZK 5 million (in words: five million of Czech Crowns) per share that have been issued as certificated registered shares.

4.2 All shares are the registered shares and are not marketable in public. The shares have minimum transferability, the transfer is possible with the prior written approval of the Board of Directors only.

4.3 The company keeps a list of shareholders into which it enters the class and kind of the share, its nominal value, the business name or title and registered office of the legal entity, or name and residential address of a physical entity that is a shareholder, the numerical classification of the share and changes in the said data.

4.4 The Company may, under the conditions pursuant Section 161a(1) of the Commercial Code, acquire its own shares.

4.5 The basic capital of the company is completely paid off. At the foundation of the company the original basic capital was paid off by non-monetary contributions of the founders of the Company.

5. Company Bodies

The Company has the following bodies:

• General Meeting
• Board of Directors
• Supervisory Board.

6. General Meeting

General Meeting is the highest body of the Company. The shares ownership gives the right to the shareholders to participate and vote in the General Meeting, to require and receive explanations with regard to the Company related matters discussed at the General Meeting, and to put forward proposals and counterproposals pursuant to the Articles of Association.

6.1 Scope of General Meeting

6.1 The scope of the General Meeting includes:

a) decide on amendments to the Articles of Association, except where an amendment concerns a change resulting from an increase of registered capital decided by the board of directors under section 210, or a change resulting from other legal facts;

b) decision-making regarding increasing or reducing the registered/basic capital or authorization of the Board of Directors, pursuant to Section 210 of the Commercial Code or possibility to set off the receivables vis-à-vis the Company against the receivable for payoff (paying up) of the issue price of shares

c) decide to reduce the company's registered capital and to issue debentures under section 160 of the Commercial Code;

d) elect and recall members of the board of directors, unless the Articles of Association determine that such members are elected and recalled by the Supervisory Board (Section 194(1) of the Commercial Code)

e) elect and recall the members of the supervisory board and other bodies as stipulated by the articles of association, with the exception of members of the supervisory board elected and recalled under section 200;

f) approve the company’s annual and extraordinary financial accounts and consolidated financial accounts and, if required by the law, interim financial accounts, decide on the distribution of profit or payment for a loss and determination of director’s royalties/fee;

g) decide on the financial remuneration of members of the Board of Directors and the Supervisory Board;

h) decide on public tradability of the participants' securities of the company in accordance with a specific legislative regulation and on revoking the tradability

i) decide to wind up the company in conjunction with its going into liquidation, to appoint and recall the liquidator, including determining the amount of the liquidator’s remuneration, approve the plan for distribution of the liquidation balance;

j) decide on the company's merger, transfer of assets to a sole shareholder, or division, or, if appropriate, change of the legal form of the company;

k) decide to conclude a contract subject of which is the transfer of the undertaking or its part and its lease, or a resolution on concluding this contract with a controlled person;

l) approve negotiations made on behalf of the company before the company's establishment under Section 64 of the Commercial Code;

m) approve the controlling contract (Section 190b), contract on profit transfer (Section 190a) and contract on silent partnership, and their changes;

n) decide on other matters which this Code or the Articles of Association entrust to the competence of the General Meeting.

6.2 Convocation of the General Meeting

6.2.1 A general meeting is held at least once a calendar year no later than six months after the end of the last day of the accounting period. The general meeting is convened by the board of directors, or by one of its members if the board of directors fails to agree on its convening without undue delay and the law stipulates a duty to convene a general meeting, or if the board of directors lacks a quorum long-term, unless the law provides otherwise.

6.2.2 The shareholders who have owned the registered shares shall be notified of the General Meeting through an notification mailed to the registered address or residence stated in the list of shareholders at least 30 days prior to the stated term of the General Meeting.

6.2.3 In accordance with provision of Section 181(1) of the Commercial Code (it applies only to the letter a), the Board of Directors shall call the Extraordinary General Meeting if:

a) it is required by a shareholder or shareholders who hold shares whose total nominal value exceeds 3 per cent of the registered capital of the Company. The request must include all matters to be discussed at the General Meeting;

b) the Board of Directors ascertain, based on any financial accounts, that the company’s loss has exceeded that amount whose unpaid loss, if covered from the company’s available resources, would reach half of the registered capital of the company, or the Board of Directors ascertain that company has become bankrupt.

6.2.4 The Board of Directors shall convene the Extraordinary General Meeting, according to Article 6.2.3 a), in that manner that the General Meeting be held no later than 40 days as of the day on which the request for convening the Extraordinary General Meeting was received. The time limit stipulated in Article 6.2.2 shall be shortened to 15 days

6.2.5 The General Meeting may be also called by:

a) the Supervisory Board, if it is in the interests of the Company. In this case the Supervisory Board proposes necessary actions at the General Meeting;

b) the shareholder or shareholders who hold shares whose total nominal value exceeds 3 per cent of the registered capital of the Company, if the Board of Directors fails to meet its obligation according to Article 6.2.3 of the Articles of Association and if they are authorized by a court to call the Extraordinary General Meeting on the basis of their claim.

6.2.6 In case that the General Meeting does not constitute a quorum according to Article 6.3.5, the Board of Directors shall call a Substitute General Meeting. The Substitute General Meeting is called in the way as specified in Article 6.2.2 with relevant term shortened to 15 days. The notification of the Substitute General Meeting must be published within 15 days from the date of the original General Meeting at the latest. The Substitute General Meeting shall be held within 6 weeks from the date of the original General Meeting, shall have the unchanged agenda and a quorum irrespective of the stipulations of Article 6.3.5 of these Articles of Association.

6.2.7 The General Meeting notification shall include:

a) the company and the registered office;

b) the place where and the date and hour when the general meeting will be held;

c) the agenda of the General Meeting;

d) whether it is an Ordinary, Extraordinary or Substitute General Meeting;

e) the decisive day with regard to participation in the General Meeting;

f) other data as required by the Commercial Code.

6.2.8 On the request of a shareholder or shareholders as specified in Article 6.2.3 a), the Board of Directors shall include the requested matter to the General Meeting’s Agenda. If the request has been received after notification of the General Meeting Date, the Board of Directors shall publish the addition of the General Meeting’s agenda in the way as specified in Article 6.2.2 within 10 days prior to the General Meeting. If such notification has not been possible, the additional matters may be included into the agenda only in participation and with consent of all shareholders of the Company.

6.2.9 The General Meeting may be cancelled or its date postponed provided the change is published in the same way as valid for the General Meeting convocation according to Article 6.2.2, and that at least one week prior to the announced General Meeting date. The extraordinary General Meeting may be cancelled or its date postponed only if it is requested by the shareholder/shareholders as specified in Article 6.2.3 a).

6.3 Participation and Voting at the General Meeting and Decision-Making

6.3.1 The right to take part in and vote at the General Meeting may be exercised by a person registered in the shareholders’ list on the day of holding the General Meeting.

6.3.2 A shareholder can take part in and vote at the General Meeting personally or through a person authorized by him/her in writing. The condition of his/her registration is submission of an identity document. If the shareholder is a legal entity, its statutory body must deliver the extract from the Commercial Register or from similar register and an identity document. In addition, the proxy of the legal entity shall submit formally verified power of attorney. A member of the Board of Directors or Supervisory Board of the Liberec Cogeneration Plant cannot be the proxy of a shareholder. A shareholder, represented based on a power of attorney at the General Meeting by another person, may take part at the General Meeting as a guest, but he/she can neither take the floor nor vote. The power of attorney may be withdrawn after the roll call at the General Meeting.

6.3.3 The shareholders present at the General Meeting sign an attendance list containing the shareholder’s name or company, birth certificate number or identification number of organization, domicile (registered office), and numbers and nominal values of shares owned by the shareholder. If a shareholder exercises his/her rights through a proxy, the attendance list must include, in addition to the above specified data, also the proxy’s name and domicile. The power of attorney is added to the attendance list. If the Company denies to register a certain person in the attendance list, it shall make a record of this fact into the attendance list, including the reason for denial/refusal.

6.3.4 The General Meeting constitutes a quorum, if the shareholders present personally or through their proxies have owned the shares whose total value represents more than 90 % of the basic capital of the company. If the General Meeting does not constitute a quorum within sixty minutes from the time stated in its invitation note as the beginning of the General Meeting, the Board of Directors shall inform the shareholders of the term of the Substitute General Meeting in the way specified in Article 6.2.6 of these Articles of Association. Attendance of the shareholders is verified prior to each voting; the preceding provisions apply mutatis mutandis.

6.3.5 On voting each share represent one vote. A shareholder cannot exercise a voting right:

a) attached to an interim certificate if he is in arrears with payments towards the issue price of not fully-paid shares or its part;

b) if the general meeting is deciding on valuation of his investment contribution other than cash;

c) if the general meeting is deciding on whether a contract is to be concluded with him or with a person with whom he acts in concert, unless the contract in question is the controlling contract or the contract on a profit transfer, or that an advantage is to be bestowed to him or to a person with whom he acts in concert or that he or a person with whom he acts in concert is to be discharged from performance of an obligation and/or that he is to be recalled from the office of a company’s body or of a member of a that body due to his breaching an obligations during his exercise of that office; decision-making concerning an appointment of a company body or of a member of that body is not considered as a decision-making on the conclusion of a contract;

d) if he breached his duty to make a offer for taking over under section 183b of the Commercial Code;

e) if he breached his duty under section 183d of the Commercial Code;

f) in other cases prescribed by the law.

6.3.6 Prior to voting on individual items of the agenda, all necessary explanations must be given and the General Meeting must be informed about all proposals and counterproposals.

6.3.7 Before the General Meeting decides about the election of the Board of Directors and Supervisory Board members, the chairman shall verify the fulfillment of conditions under articles 7.2.2 and 8.2.2 of the Articles and shall inform the General Meeting about the result. Election of members of the body is carried out as follows:

a) draft ballot of body members shall be prepared by the Board of Directors

b) a candidate proposed by the existing Board of Directors for some of company bodies shall in advance give his approval to such proposal. If the candidate is proposed during a General Meeting, the candidate concerned shall express his/her approval orally and that shall be recorded in the minutes. If the proposed candidate is not present for serious reasons, his/her opinion shall be submitted in writing and officially authorized.

c) the general meeting shall vote on each candidate for company bodies individually; General Meeting chairman shall introduce the individual candidates.

6.3.8 The shareholders vote at the General Meeting by acclamation. First it is voted on the Board of Directors proposal, and then, if it has not passed, on other proposals in the sequence they have been put forward. It the proposal submitted by the Board of Directors has passed, other proposals are not voted on. The Board of Directors chairman shall decide about order of questions. Who votes for? Who votes against? Who abstained from voting? The voting cannot be interrupted. The counting of votes shall be carried out by persons authorized for counting of votes; they convey the result to both the chairman and the minutes clerk of the General Meeting. The Chairman announces the result of voting to the attending. The Chairman, authorized in accordance with this Article, is responsible for the voting procedure, according to Article 6.4.1. of these Articles.

6.3.9 The General Meeting decides by majority of votes of the shareholders present, except the decisions when the Law requires qualified majority. A notarized record must be made of the decisions required by the Law. The General Meeting decides by two thirds of votes of the shareholders present about election and withdrawal of Board of Directors members and about conception of entrepreneurial policy of the Company and its changes.

6.3.10 Member of the Board of Directors or of the Supervisory Board has the right to alert the General Meeting of inappropriate command by the General Meeting and to request a record of the protest into the Minutes of the General Meeting.

6.4 General Meeting Procedure

6.4.1 The General Meeting elects its Chairman, Minutes Clerk, two Verifiers of the Minutes, and a person/persons charged with counting the votes (scrutineers). The proposal for these persons is put forward at the beginning of the General Meeting by the Chairman of the Board of Directors or by another authorized member of the Board of Directors and he/she conducts the proceeding until the General Meeting Chairman is elected. The functions of Chairman, Minutes Clerk and Scrutineers can be done simultaneously also just by one person. The function of Verifier of the Minutes is incompatible with the other functions.

6.4.2 The General Meeting proceeds according to the individual items of the agenda. Only the person who is called upon by the Chairman, can take the floor.

6.4.3 Each participant can ask for explanations and submit proposals to the agenda discussed at the General Meeting through an application to take the floor which he/she receives at the registration center and hands it over personally to the scrutineer before a decision to the discussed item is adopted, and/or before the Chairman of the General Meeting finishes the discussion of the relevant item.

6.4.4 If necessary, the Chairman of the General Meeting can, at his own discretion, adjourn the Meeting for up to 30 minutes.

6.4.5 The Minutes of the General Meeting are elaborated which include:

a) Company and registered office of the Company;

b) place and time of the General Meeting;

c) names of the Chairman, Minutes Clerk, verifiers and scrutineer/scrutineers;

d) description of important events during the General Meeting, as well as important declarations;

e) written presentations and declarations are enclosed to the Minutes;

f) a decision of the General Meeting stating a result of voting;

g) the protests of a shareholder, member of the Board of Directors or of the Supervisory Board against a particular decision, if the protesting party requires so.

The Minutes are signed by the Minutes Clerk and Chairman of the General Meeting. Two verifiers verify the correctness of the Minutes by appending their signatures. Proposals and statements presented for discussion at the General Meeting and the list of persons attending the General Meeting shall be attached to the Minutes of the General Meeting.

6.4.6 The Board of Directors ensures that the General Meeting Minutes are made available by thirty days from the termination of the General Meeting. The Minutes together with the invitation to the General Meeting and an Attendance record are kept in the Company’s archives for the whole period of its existence. Each shareholder has the right to inspect the Minutes and to request delivery of a copy of the Minutes.

However, the Board of Directors can rule that a copy of the Minutes will be delivered only after covering the expenses incurred and can assess an appropriate lump sum of these expenses.

7. Board of Directors

7.1 Status and range of powers of the Board of Directors

The Board of Directors is the statutory body of the Company, which manages its activity and acts in its name according to article 3 of the Articles of Association. If the company was wound up, or if a bankruptcy order was adjudged in respect of its assets, the statutory body shall act only within the powers which have not passed to the liquidator or the bankruptcy trustee. The Board of Directors decides on all Company affairs, unless they fall within the powers of the General Meeting or the Supervisory Board under the Commercial Code or the Articles of Association.

The Board of Directors, in particular :

a) organizes and manages the Company's activity,

b) exercises the employer's rights towards the Company's employees in accordance with labor-law regulations,

c) is responsible for the proper accounting and trade book management/keeping of the Company; it selects the Company's auditor,

d) is responsible for the elaboration of proper financial statement and of proposals for profit distribution,

e) submits financial statements, reports on the business activity of the Company and the status of its assets

f) calls the General Meeting according to the procedures established by the Articles of Association or Law and organizationally secures it;

g) keeps proper records into the List of Shareholders;

h) appoints and recalls the General Director of the Company and staff directly subordinated to him/her included into the stated range of functions, assigns their duties and supervises their activities,

i) confers a procuration

j) approves proposals for founding another trading companies with a property share of the Company; decides on the entry into the already founded trading companies, and/or on terminating the participation in them; the Board of Directors is entitled to make monetary and tangible contributions into those companies totaling up to one third of the basic/registered capital of the Company, in the period between the successive General Meetings,

k) approves the plan of the Company.

7.1.2 Pursuant to Section 18 of the Commercial Code, the Board of Directors has an exclusive right to dispose of the Company’s trade secrets, in particular the right to grant permission to someone else to use a particular trade secret and to determine the conditions of such use.

7.1.3 The Board of Directors is obliged, in the year when its or Supervisory Board’s term of office expires, to put on the nearest General Meeting agenda the election of Board of Director’s or Supervisory Board’s members.

7.2 Status and range of powers of the Board of Directors

7.2.1 The Board of Directors consisting of 6 members elected by the General Meeting consisting of shareholders and non-shareholders is a statutory body of the Company. The Board of Directors is elected for four-year period. However, its function does not expire until a new Board of Directors is elected; the term of office should not be longer than five years. The function of the Board of Directors’ member cannot be substituted.

7.2.2 A member of the Board of Directors may only be an individual (natural person) who complies with the general conditions for the conduct of a trade under a special law, and on whose part here is no impediment to the conduct of a trade under a special law, irrespective of the object of the Company’s business activity. If a member of the Board of Directors ceases to comply with the general conditions for the conduct of a trade under the Commercial Code or a specific legislative regulation, his/her function expires herewith.

7.2.3 A member of the Board of Directors can withdraw from the function by his/her written statement delivered to the Board of Directors or the General Meeting. In such a case his/her function expires on the date, when his/her withdrawal has been or should have been discussed by the Board of Directors, unless both parties agreed upon other term or his/her withdrawal is negotiated or should be negotiated by the General Meeting.

7.2.4 The Board of Directors whose number of members elected by the General Meeting has not dropped under a half has the right to appoint substitute members of the Board of Directors instead of the members whose membership ceased or who have withdrawn from their functions for the period till the next General Meeting.

7.2.5 If a new member of the Board of Directors has been elected by the General Meeting during the Board’s term of office, his/her function expires with the Board’s term of office.

7.3 Board of Directors Activities

7.3.1 The Board of Directors elects its Chairman and Deputy Chairman out of its members. The chairman organizes activities of the Board, chairs its meetings, and acts on behalf of the Board of Directors outwardly. The Board of Directors has right to withdraw its Chairman and Deputy Chairman any time.

7.3.2 The Deputy Chairman substitutes the Chairman in full extent if the latter is not present. The oldest present Board member substitutes both the Chairman and Deputy Chairman in full extent if they are not present.

7.3.3 The meetings of the Board of Directors are called by the Chairman. Unless agreed otherwise by all members of the Board of Directors, the meetings are called by a written notice that shall be delivered to all members of the Board of Directors at least eight days prior to the meeting. The notice must include the agenda of the meeting. Any changes or amendments of the agenda proposed by any Board of Directors’ member must be agreed on by the Board of Directors by voting. As a rule, the meetings are held at the place stated by the Chairman of the Board of Directors and at least quarterly. The Chairman shall call the meeting whenever it is requested by at least two members of the Board of Directors. If the Chairman has not called the meeting, though he was obliged to do it, any member of the Board of Directors has the right to call it.

7.3.4 Any member of the Board of Directors has one vote on voting. Absolute majority of votes of all Board of Directors’ members present is needed to pass a decision. In case of equality of votes, the vote of the Chairman is decisive. An approval of at least five members of the Board of Directors is required to adopt a decision according to Article 7.1.1 e), k) and i).

7.3.5 The meeting of the Board of Directors constitutes a quorum, if at least four members of the Board are present. If an absent Board member wishes to express his/her opinion to a particular item of the agenda, he/she must do it in a written form, while his/her opinion is not considered a valid vote.

7.3.6 In urgent cases which brook no delay, there is possibility of voting in writing, or by means of communication technology outside meeting room, if this is agreed upon by all members of the Board of Directors. Members voting in such a manner are then considered as having been present at the meeting.

For adoption of Board of Directors resolution, it is necessary that more than half of Board of Directors members vote for it. The decisions made in such a way must be put in the minutes of the immediately following meeting of the Board of Directors.

7.3.7 A person charged by the Board of Directors elaborates the minutes of the meeting and decisions that are signed by the Chairman of the Board of Directors or chairing person and by the person. The minutes must include the names of the members of the Board of Directors who voted against individual decisions of the Board of Directors or abstained.

7.4 Duties of the Members of the Board of Directors

7.4.1 The members of the Board of Directors shall act with due diligence on performing their functions and to keep the confidential information and facts whose disclosure to the third persons would cause damage to the Company.

7.4.2 The members of the Board of Directors have to respect the limitations relating the prohibition of competitive conduct as follows from Section 196 of the Commercial Code.

7.4.3 Consequences of breach of duties as stated in paragraphs 7.4.1 and 7.4.2 hereunder follow from general mandatory legal regulations.

7.4.4 The members of the Board of Directors shall be liable to the Company for the damage caused by breach of his/her duties on performing his/her function under conditions and to the extent as stated by general legal regulations. If the damage is caused by more members of the Board of Directors, they shall be liable for it jointly and severally.

7.4.5 The prohibition of internal trading determined by the Commercial Code in Section 196a applies to conclusion of agreements/contracts between Board of Directors members and the Company. Any compensation, the right to which does not follow from a legislative regulation, made by the company on behalf of the Board of Directors (Supervisory Board) member may be provided exclusively with consent of the general meeting or on condition that the right to the compensation is included in the agreement on the tenure.

8. Supervisory Board

8.1 Status and range of powers of the Supervisory Board

8.1.1 The Supervisory Board is an inspection body of the Company. It supervises performance of the Board of Directors and implementation/realization of the Company's business activity. Particularly, the Supervisory Board:

a) verifies the procedures relating to the Company's matters whenever it examines accounting documents and files of the Company;

b) puts forward proposals for discussing matters by the Board of Directors and at the next General Meeting;

c) reviews yearly financial statements and proposals for distribution of profit, and submits a report on the review results to the General Meeting every year;

d) represents the Company in a possible dispute against a member of the Board of Directors, if any;

e) calls the General Meeting, if it is in the interests of the Company;

f) performs other tasks designated by the Law (e.g. by Section 182(1)(b) and (c) of the Commercial Code).

8.1.2 The Supervisory Board members take part in the General Meeting of the Company and are obliged to inform the General Meeting about the results of their supervisory activity.

8.2 Structure, Establishment and Term of Office of the Supervisory Board

8.2.1 The Supervisory Board has three members. Two of the members are elected by the General Meeting, and the third one is elected and withdrawn by the Company’s employees. The Board of Directors specifies organization and method of election of this member. The function of the Supervisory Board’s member cannot be substituted.

8.2.2 A member of the Supervisory Board may only be an individual (natural person) who complies with the general conditions for the conduct of a trade under a special law, and on whose part there is no impediment to the conduct of a trade under a special law, irrespective of the object of the Company’s business activity. Supervisory Board member shall not be simultaneously a member of the Board of Directors, proxy or another person authorized to act in the name of the company.

8.2.3 A member of the Supervisory Board may withdraw from his/her function by written notice delivered to the Supervisory Board or the body that elected it. In this case the performance of his/her function expires on the date, when his/her withdrawal was discussed or should have been discussed by the Supervisory Board or the body that elected it, if both parties have not agreed upon other term.

8.2.4 The Supervisory Board which has one more member elected by the General Meeting, may appoint a substitute member till the next General Meeting, however not as a substitute for the member elected by the employees of the Company.

8.2.5 A member of the Board of Directors, Proxy or Company’s Auditor may not become a member of the Supervisory Board.

8.2.6 The Supervisory Board’s member is elected for four years. However, his/her function does not expire until a new Supervisory Board’s member is elected; his/her term of office should not be longer than five years.

8.2.7 The term of office commences from the day of electing both Supervisory Board’s members by the General Meeting according to Article 8.2.1, the time of the third member election by employees is organized by the Board of Directors in accordance with the above term.

8.2.8 If a new Supervisory Board member has been elected by the General Meeting or by employees during the term of office according to Article 8.2.7, his/her function expires with the term of office of other Supervisory Board members.

8.3 Organization of activity of the Supervisory Board

8.3.1 The Supervisory Board elects its Chairman out of its members, who organizes the Supervisory Board activities, chairs its meetings, and acts on its behalf (outwardly). The Supervisory Board has the right to withdraw its Chairman any time.

8.3.2 The Supervisory Board shall always decide on the meeting called and held in compliance with the regulations of Articles 8.3.4 through 8.3.8 hereunder, with the exception of the case as presupposed in the provision of Article 8.3.3.

8.3.3 In urgent cases, which brook no delay, there is possibility of voting in writing, or by means of communication technology outside meeting room, if this is agreed upon by all members of the Supervisory Board. Members voting in such a manner are then considered as having been present at the meeting. For adoption of Supervisory Board resolution, it is necessary that more than half of Supervisory Board members present vote for it. The decisions made in such a way must be put in the minutes of the immediately following meeting of the Supervisory Board.

8.3.4 The Supervisory Board’s meeting is called by its Chairman at least twice a year. However, the meeting shall be called whenever it is requested by two of the Supervisory Board’s members in writing and with specification of the reason.

If the Chairman has not called the meeting, though he was obliged to do it, any member of the Supervisory Board has the right to call it. During absence of the Supervisory Board Chairman the meetings are called and chaired by an authorized member of the Supervisory Board.

8.3.5 The members of the Supervisory Board must be informed of the meeting and its agenda at least 8 days beforehand. If they are not informed in this way, the meeting may be held only if those members who have not received any of the above information are present and agree with the holding of the meeting.

8.3.6 The Supervisory Board’s meeting constitutes a quorum, if all members of the Supervisory Board are present.

8.3.7 Minutes of the Supervisory Board’s meeting are elaborated and signed by the Chairman of the Supervisory Board. The invitations to the meeting shall be attached to the minutes that include brief description of the meeting’s content.

The minutes must include the opinions of the members of the minority of members of the Supervisory Board who voted against individual decisions of the Supervisory Board or abstained, if they request it, and always there shall be recorded a different opinion of the Supervisory Board member elected by the employees.

8.3.8 Each member of the Supervisory Board has one vote on voting in the Supervisory Board. Majority of votes of the Supervisory Board’s members is needed to pass a decision.

8.3.9 Limitations and duties as stated in Article 7.4 hereunder apply also to the members of the Supervisory Board.

9. Economy/Management of the Company

Accounting period of the Company is a calendar year.

9.1 Reserve Fund

9.1.1 The Company creates the Reserve Fund, in compliance with Section 217(2) of the Commercial Code, from a net profit shown in the annual financial accounts for the year in which it first makes a net profit; the amount to be allocated into the fund being at least 20 per cent of the net profit. This fund shall be augmented on an annual basis by an amount of 5 per cent of the net profit, until the amount of the reserve fund reaches 20 per cent of the registered capital. The reserved fund created in the aforesaid manner may only be used to settle the loss, about which the General Meeting decides.

9.1.2 The General Meeting decides about creating the possible Reserve Fund above the level of 20 % of the basic capital.

9.1.3 If the Company shows in its accounting own shares or interim certificates, it has to create a Reserve Fund according to Section 161d(2) of the Commercial Code.

9.1.4 The sum from the basic capital decrease approved by the General Meeting, designated to cover future losses up, is transferred into the Reserve Fund according to Section 216a(1)(b) of the Commercial Code. This sum must not exceed 10 per cent of the registered capital.

9.1.5 The Board of Directors decides about the use of the Reserve Fund according to articles 9.1.1 and 9.1.2 hereunder above the level of 20 % of the registered capital, or about that part of the Reserve Fund which was formed according to articles 9.1.3 and 9.1.4 hereunder, unless stipulated by the Law or the Articles of Association that the appropriate decision falls into the jurisdiction of the General Meeting.

9.2 Social Fund

9.2.1 The Company establishes a Social Fund.

9.2.2 Amount of contribution into the Social Fund is approved by the General Meeting at the proposal of the Board of Directors.

9.2.3 The rules for use of the Social Fund are set by the Board of Directors.

9.3 Other Funds

According to need, the General Meeting may decide about establishment of other funds of the Company.

9.4 Financial Statements

9.4.1 The Board of Directors ensures elaboration of the financial statements and proposal of profit distribution. The financial statements verified by the auditor and reviewed by the Supervisory Board are submitted to the General Meeting. At the same time the Supervisory Board shall submit to the General Meeting a report on results of the review.

9.4.2 The financial statements must be elaborated in the way conforming to the general mandatory legal regulations and principles of proper accounting in such a way that they give full information of property and financial situation of the Company and of the level of profit or loss achieved in the last commercial year.

9.5 Method of the Company's profit distribution

9.5.1 The General Meeting decides on the profit distribution at the Board of Directors proposal, following reassessment by the Supervisory Board.

9.5.2 The Company profit attained in the accounting period is split into dividends and royalties, after subtracting amounts for taxes, subsidy to the reserve fund and other purposes approved by the General Meeting. The Company is not authorized to divide the profit between shareholders (dividends), determine profit share for the Board and the Supervisory Board members, (remuneration) or the profit share for employees, in the event that the net trade capital of the Company to the last day of the accounting period, ascertained from the ordinary accounting closing is, or would be in consequence of the profit division lower that the registered capital of the Company, increased by:

- subscribed nominal share value, if the Company shares were subscribed to increase the registered capital and the new registered capital was not recorded in the Commercial Register to the day of annual financial statement elaboration

- reserve fund created from the profit in segment, which can be used only to cover Company losses

- reserve fund being created pursuant to Section 161D and 216a of the Commercial Code.

9.5.3 By this is not excluded that the General Meeting can decide that the undivided part of the profit will be used to increase the Company’s registered capital.

9.6 Dividends

9.6.1 The rights of shareholder to dividends arise by the General Meeting's decision.

9.6.2 Claim on dividends has the shareholder, which is an owner of the Company shares to the day determined by the General Meeting, which decided on the dividend payment and is to this day presented in the shareholder summary as an owner.

9.6.3 The General Meeting, which decided on reimbursement of dividends will designate the day of it’s payment, otherwise it is payable within 3 months from the day, when the resolution on it’s division was adopted.

9.6.4 The right to dividends is forfeited in a four-year forfeit period, which runs as of the maturity day of the dividends. Dividends deposited with the Company do not bear interest. The General Meeting can designate detailed conditions on manner of the dividend payment execution.

9.7 Remuneration and royalties of the members of the Company's bodies

The members of the Company’s bodies are entitled to remuneration and profit share (royalties) for performing their functions. Furthermore, the members of the Company’s bodies have the right to compensation for all expenses incurred in connection with the performance of their functions. The Board of Directors can establish the height of the costs bulk consideration. The General Meeting decides about the total amount of bonuses, manners of payment and due date of royalties. The rules for remuneration (royalties) distribution among the Board of Directors and Supervisory Board members are designated by the Board of Directors, based on the decision of the General Meeting.

9.8 Method of loss settlement

9.8.1 The General Meeting at the Board of Directors proposal, rules on the manner of loss settlement, incurred in the past trade year.

9.8.2 In case of need the losses from the Company´s trade shall be covered from the Reserve Fund primarily. The Reserve fund utilization and approval are depicted in Article 9.1 of these Articles. If the Reserve Fund is not sufficient, the remaining loss can be left uncovered, eventually for the purposes of its reimbursement decrease the Company´s registered capital.

10. Rules for increasing and reducing the registered capital of the Company

10.1 Any increase or reduction in the registered capital of the Company is decided by the General Meeting under conditions designated by these Articles, generally binding legal precepts and in a manner from them ensuing. Invitation to the General Meeting shall entail all the essentials determined by the Commercial Code. The General Meeting can authorize the Board of Directors, to decide under conditions assigned by the Commercial Code and these Articles, to increase the registered capital by a new share subscription, or from own Company resources, with the exception of undistributed profit, up to 1/3 of the present registered capital amount at the most, and for a period not longer than until the next regular General Meeting.

10.2 During the registered capital increase all forms listed in the Commercial Code are applicable, i.e. a new share subscription by monetary or non-monetary deposits, by conditional increase in the registered capital, by registered capital increase from the Company’s own resources, by issuing new shares or by increasing the nominal value of current shares or by combined increase in the registered capital.

10.3 The registered capital may be increased by subscription for new shares only if the shareholders have paid in full the issue rate of all previously subscribed shares. This restriction does not apply if the registered capital is to be increased by subscription for shares and their issue rate is only payable by non-monetary contributions. To increase the registered capital by share subscription, the provisions listed in these Articles apply.

10.4 Each shareholder has a priority right to subscribe a part of the new Company shares in the range of his/her Company’s registered capital share, providing the shares are subscribed by monetary deposits. In the General Meeting resolution on an increase of the registered capital the priority right can be deleted or limited. This resolution requires approval of at least three quarter majority of votes of the shareholders present. The priority right connected with the shares is independently transferable from the day, when the resolution by the General Meeting was recorded into the Commercial Register on registered capital increase. During the priority right transfer the incumbency to offer the right to other shareholders applies.

10.5 The share subscription runs in two rounds as a rule. In the first round the existing shareholders may exercise their pre-emptive right, and according to the General Meeting resolution, also other physical and legal entities. In the second round, non-subscribed shares are offered to the existing shareholders according to how they exercised their pre-emptive rights in the first round. The Board of Directors decides about the appropriate way of offering the shares not subscribed by pre-emptive right.

10.6 The impacts of an increase in the registered capital occur from the day of its record in the Commercial Register. The Board of Directors is duty bound to file a proposal on the registered capital amount record, following a stock subscription corresponding with the extent of the increase, and after remittance of at least 30 % of their nominal value, including eventual share premium, if monetary deposits are concerned, and following the payment of all non-monetary deposits.

10.7 If the subscriber breaches his obligation to remit the issue rate of the subscribed shares, or a due portion thereof, he shall pay interest on the amount in default at 20 % per annum.

10.8 Provided that the subscriber failed to reimburse the subscribed shares issue rate, or the amount due, the Board of Directors shall appeal to him to pay the amount within 60 days of the appeal’s delivery. After idle elapse of this term the Board of Directors shall expel the subscriber from the Company and shall requests from him to return his interim certificate within appropriate time limit, as assigned by the Board. Should the expelled subscriber not return his interim certificate within time limit assigned, the Board of Directors shall declare it void. The Board of Directors shall issue either a new interim certificate or shares instead to a person approved by the General Meeting and this person shall pay the issue rate of these shares.

10.9 Registered capital increase is carried out according to the following rules:

a) the General Meeting rules on the registered capital increase, to which agenda and item on the increase was added

b) within 30 days of adoption of the resolution, the Board of Directors files for it's record into Commercial Register

c) resolution of the record will be published by the Board of Directors in the Commercial Bulletin without delay, after it's record into the Commercial Register

d) the resolution by the General Meeting on increase in the registered capital performs the Board of Directors solely, or contractually through another person

e) in case of incumbency failure to pay issued share rate in term determined by the General Meeting, the subscriber reimburses interest according to paragraph 9

f) the Board of Directors will propose a new registered capital amount into the Commercial Register, effects of this increase commence from the recording day

10.10 A reduction in the registered capital is carried out either by reducing the nominal share value, by removing the shares from circulation based on balloting or on a proposal basis, and eventually waiver the share issue. The General Meeting in accordance with the Commercial Code decides specific conditions of the registered capital decrease method and extent. In case of reducing the registered capital by removing the shares from circulation based on balloting, this must be performed within 10 days at the latest, from the day an order was filed by the Company to number the shares. The course and the balloting results must be certified by notary record, and after the Board of Directors will announce the balloting results in a way stipulated by the Articles of Association for the General Meeting convening, and in extent required by the Commercial Code.

10.10 The Board of Directors is incumbent to announce the extent of the registered capital reduction within 30 days of the day, when the resolution on its reduction was entered into the Commercial Register, to all known creditors whose claims against the Company arose prior to entry of the General Meeting’s resolution into the Commercial Register. The General Meeting’s resolution on the registered capital decrease must also be publicized in Obchodní vestník (Business Journal) twice consecutively, with 30 days apart at least. The Board of Directors files a proposal on the record of the decrease into the Commercial Register, after 90-day elapse from the second announcement of the General Meeting’s decision. The decrease in the registered capital occurs as of its record day in the Commercial Register.

11. Winding-up and Liquidation of Company

11.1 The company’s cession is preceded by its dissolution with or without liquidation, if its registered capital lapses onto a legal successor. Liquidation is also not required if the bankruptcy declaration proposal is rejected due to asset insufficiency, or if no assets remain following the Company’s bankruptcy proceedings.

11.2 The Company is dissolved:

a) on the day of the General Meeting decision,

b) on the day of court ruling on the Company’s dissolution, issued on the bases of persons proposal, and due to reasons presented in Section 68(6) of the Commercial Code, otherwise on the day when this ruling enters legal force,

c) by the day listed in the General Meeting’s resolution, if the Company’s cessation is brought on as a consequence of a merger, registered capital transfer to shareholders, or as consequence of separation, eventually by the day that this resolution was adopted,

d) by abolition of bankruptcy proceedings, after the schedule resolution is met or by bankruptcy proceeding voidance, due to insufficient Company funds to defray bankruptcy costs, or by rejecting bankruptcy proceedings proposal for insufficiency of assets.

11.3 If the proposal to declare bankruptcy proceedings from other reasons than for asset insufficiency of the Company is rejected, the Company is not considered dissolved. If some assets remain following the Company bankruptcy proceeding finalization, dissolution of the Company will be performed.

11.4 During the Company dissolution:

- with a legal successor, the shareholder rights are governed by Section 220a) of the Commercial Code,

- with liquidation, the liquidation remnant will be distributed between the shareholder pursuant to Section 220 of the Commercial Code.

11.5 During the Company’s abolition with liquidation, the liquidator is incumbent to request consent by the General Meeting to asset alienation any other way than by public auction.

11.6 The Company ceases to exist on the day of its deletion from the Commercial Register.

12. Announcements by the Company

12.1 The Company's Board of Directors forwards announcements to the shareholder at their addresses listed in the Summary of shareholders.

12.2 The Board of Directors can decide also that the Company’s notices will be published in Obchodní vestník (Commercial Journal), or in the daily press or posted in a place accessible to shareholders at the Company’s headquarters, provided such incumbency does not stem from the law.

12.3 Company bodies resolutions, where the addressee is a shareholder of the Company are forwarded to him by a registered mail to an address listed in the Summary of shareholders.

13. Final Provisions

13.1 Incorporation, legal status and dissolution of the Company, as well as all legal relations deriving from the Company’s Articles of Association, and internal Company labor – legal, and also other relations are governed by generally binding legal precepts of the Czech Republic.

13.2 Eventual dissentions between the Company and shareholders, disputes between the Company and members of its bodies, as well as mutual ones among shareholders, connected with their participation in the Company will be resolved in conciliatory manner. If such dissention cannot be so resolved, a pertinent Czech court will resolve its discussion and decision.

13.3 In the event that certain provisions of the Articles of Association are either due to valid legal order, or due to its changes rendered invalid, ineffective or litigant, or in case some provisions are missing, others remain unaltered. The pertinent provision is succeeded by a relevant legal rule of law, which is by its character and purpose nearest to the intended purpose of the Articles of Association. Provided such a provision of the rule of law does not exist, a solution will be sought, which is customary in trade contact.

13.4 Duration period and manner of Company's document storing

13.4.1 Minutes from General Meetings, along with the General Meetings invitations and lists of attendees, Board of Directors and Supervisory Board minutes, as well as invitations to these meetings along with the lists of attendees are stored at the file room for the duration of the Company existence.

13.4.2 All Company agreements must be stored in the file room for at least 10-year duration, after cessation of the contracting relation, provided a longer term is not designated by generally binding legal precepts. In the event that the above listed period expires at time the company does not exist the incumbency of document storing passes onto the legal successor of the Company. In the case that legal successor does not exist, the liquidator shall ensure document storage in compliance with valid regulations on filing.

14. Method during Articles of Association supplementation and amending

14.1 The General Meeting decides on supplementation and changes in the Articles of Association, if not pertaining to changes in consequence of registered capital increase by the Board of Directors pursuant to Section 210 of the Commercial Code, or about a change which occurred based on other legal actualities.

14.2 Proposal to supplementation or another change in the Articles of Association can submit shareholder, the Board of Directors, or the Supervisory Board.

14.3 Qualified majority can adopt the resolution on changes according to these Articles, i.e., two third votes of the attending shareholders. Notary record must be drawn up about the Articles of Association changes.

14.4 The proposal on Articles of Association changes is compiled by the Board of Directors with regards to cogent provision of the Commercial Code and other generally binding legal precepts. After approval by the General Meeting the Board of Directors secures compilation of the complete wording of the Articles of Association and submits them to pertinent excerpt court.

14.5 If the company contemplates registered capital increase or decrease, stock splitting or integrating more shares into one, altering the form or kind of shares, transcribed share transferability limitations, or its change, the Articles of Association changes enter force to the record day of these actualities into the Commercial Excerpt. Other Articles of Association changes, about which decides the General Meeting, enter force when the General Meeting decided on them, if it does not ensue that they enter force later from the General Meeting’s decision on the Articles of Association changes or from the law.

14.6 If the General Meeting adopts a decision, of which consequence is a change in the Articles of Association wording, this decision compensates the one on the Articles of association change. If from the General Meeting’s decision does not ensue if, eventually in what manner the Articles of Association alter, the Board of Directors will decide on the changes in accordance with the General Meeting’s decision.

14.7 Provided changes in the content of the Articles of Association occur on the bases of whichever legal actuality, the Board of Directors is duty bound to prepare without delay after, when whatever member ascertains such a change complete wording of the Articles of Association.

15. Articles of Association Effective Date

These Articles of Association become valid and come into force at the moment of their approval by the General Meeting on June 21, 2001.

The Articles of Association of Teplárna Liberec, residing tr. Milady Horákové 641/34a, Liberec 4, dated November 11, 1994, were by the decision of the General Meeting altered and supplemented as follows:

1. An ordinary General Meeting held April 25, 1996 decided on the Article of Association changes of the joint stock Company. (Notary record NZ 92/96, N 103/96, dated April 25, 1996 on attestation of the General Meeting’s pursuance.)

2. An ordinary General Meeting held June 12, 1999 decided on the Articles of Association changes of the joint stock Company. (Notary record NZ 176/97, N 103/96, dated June 12, 1997 on attestation of the General Meeting’s pursuance.)

3. An ordinary General Meeting held June 22, 1999 decided on the Articles of Association changes of the joint stock Company. (Notary record NZ 205/2000, N 225/2000, dated June 22, 1999 on attestation of the General Meeting’s pursuance.)