Paranapanema : Material Fact - Oferta de ações (08/30/2017)

PARANAPANEMA S.A.

Publicly-held Company with Authorized Capital ("A" Class) - CVM Code 00939-3 Via do Cobre no. 3.700, Copec

CEP 42850-000, Dias d'Ávila, BA

CNPJ/MF no. 60.398.369/0004-79 | NIRE 29.300.030.155

MATERIAL FACT

PARANAPANEMA S.A. ("Company", B3: PMAM3), pursuant to Law 6.404 of December 15, 1976, as amended ("Brazilian Corporation Law"), in the regulations of the Brazilian Securities and Exchange Commission ("CVM"), in particular CVM Instruction 476 of January 16, 2009, as amended ("CVM Instruction 476") and CVM Instruction 358, of January 3, 2002, as amended, in continuity with the proceeding of financial reorganization of the Company, in accordance with the material facts made available on July 21, 2017, August 8, 2017 and August 28, 2017 ("Reorganization"), hereby informs its shareholders and the market in general that, on August 29, 2017, at a meeting of the Company's Board of Directors, a public offering of primary distribution was approved, initially up to 333,333,334 (three hundred and thirty and three million, three hundred and thirty-three thousand, three hundred and thirty-four) common shares, issued by the Company, without considering the eventual placement of a Supplementary Lot (as defined below), all registered, book-entry, without par value, free and clear of any liens or encumbrances ("Shares"), with restricted placement efforts exclusively in Brazil, pursuant to CVM Instruction 476 ("Restricted Offer"), with the possibility of Partial Distribution (as defined below).

RESTRICTED OFFER

The Restricted Offer will be carried out in the non-organized over-the-counter market, in accordance with the procedures of CVM Instruction 476, of the "ANBIMA Code of Regulation and Best Practices for Public Offers for Distribution and Acquisition of Securities" currently in force ("ANBIMA Code") and other applicable legal provisions, including the B3's New Market Listing Rules - Brazil, Stock Exchange, Counter ("B3" and "New Market Regulation", respectively), Official Circular Letter 072/2014-DP, issued by B3, on October 30, 2014 ("Official Letter 72/2014"), and Official Circular Letter 087/2014-DP, issued by B3, on November 28, 2014 ("Official Letter 87/2014"), under the coordination of BANCO MODAL S.A. ("Leading Coordinator" or "Modal"), pursuant to the "Agreement for Coordination, Placement and Firm Guarantee of Settlement of Common Shares Issued by Paranapanema S.A.", to be entered into between the Company and the Leading Coordinator ("Placement Agreement").

Pursuant to the decision rendered on June 28, 2016, pursuant to CVM Administrative Proceeding no. RJ2014/13261 and Article 24 of CVM Instruction 400, of December 29, 2003, as amended ("CVM Instruction 400"), up to the date of completion of the Bookbuilding Procedure (as defined below), inclusive, the number

of Shares initially offered may, at the discretion of the Company in common agreement with the Leading Coordinator, be increased by up to 15% (fifteen percent) of the total number of Shares initially offered, that is, up to 50,000,001 (fifty million one) common shares issued by the Company, under the same conditions and at the same price as the Shares initially offered ("Supplementary Lot"), according to the Placement Agreement, which will be used to meet any excess demand that may be verified at the moment the Price per Share (as defined below) is established.

RESTRICTED OFFER CONDITION

Pursuant to article 22 of CVM Instruction 400, the effective implementation of the Restricted Offer is subject to the subscription of the minimum amount equivalent to R$ 360,000,000.00 (three hundred and sixty million Reais) of debentures convertible into shares of the Company by certain creditors of the Company, pursuant to the material fact disclosed by the Company on August 8, 2017, within the scope of the restricted offer of convertible debentures approved by the Company's shareholders' general meeting held on August 28, 2017 ("Debenture Offer"). If said condition is not implemented in compliance with the terms of the Debenture Offer, this Restricted Offer will be canceled.

EXCLUSION OF THE PREEMPTIVE RIGHT AND GRANT OF THE PRIORITY RIGHT

The issuance of the new Shares by the Company as a result of the Restricted Offer will be carried out excluding the preemptive right of its shareholders, pursuant to article 172, item I, of the Brazilian Corporation Law and article 5, paragraph 5, of the bylaws of the Company ("Bylaws"), and such issuance will respect the authorized capital limit set forth in the Bylaws.

In order to comply with the provisions of article 9-A of CVM Instruction 476 and to ensure the participation of the Company's shareholders in the Restricted Offer, priority will be given for the subscription of up to the total number of Shares (considering the Supplementary Lot) to be placed through the Restricted Offer ("Priority Right") to the holders of common shares issued by the Company at the end of August 30, 2017 ("First Cut-Off Date" and "Shareholders"), in proportion to their respective shareholdings in the capital stock of the Company at the end of September 6, 2017 ("Second Cut-Off Date"), based on the ownership interest verified in the custody positions: (i) in the Central Depository of B3 Assets ("Central Depository") and (ii) in Banco Bradesco S.A., institution responsible for the bookkeeping and custody of shares issued by the Company ("Bookkeeper"). Accordingly, those considered Shareholders on the First Cut-Off Date shall be entitled to the Priority Right, in the respective proportion of their shareholdings in the Company's total capital stock, calculated according to their respective share positions on the Second Cut-Off Date, subject to the provisions in the item "Priority Offer Procedures" of this Material Fact ("Priority Offer").

The negotiation or assignment, in whole or in part, of the Priority Rights of the Shareholders to any third parties, including among the Shareholders themselves, is prohibited. CORPORATE APPROVALS

The implementation of the Restricted Offer, excluding the shareholders' preemptive rights, pursuant to article 172, item I of the Brazilian Corporation Law and article 5, paragraph 5, of the Company's Bylaws, and the granting of Priority Right to the Shareholders and their terms and conditions were approved at a meeting of the Company's Board of Directors held on August 29, 2017, whose minutes shall be duly registered with the Board of Trade of the State of Bahia ("JUCEB") and published in the newspaper "Folha de São Paulo" and in the Official Gazette of the State of Bahia ("DOEBA").

The Price per Share (as defined below) and the actual capital increase of the Company, within the limit of the authorized capital provided for in article 13, item (j) of the Company's Bylaws, as well as the validation of the capital increase will be approved by the Board of Directors of the Company after the fulfilment of the Bookbuilding Procedure, whose minutes shall be duly registered with JUCEB and published in the newspaper "Folha de São Paulo" and in DOEBA.

PRICE PER SHARE

The price per Share will be set by the Company's Board of Directors after the fulfillment of the procedure for collection of investment intentions from professional investors, as defined in article 9-A of CVM Instruction 539, dated November 13, 2013, as amended ("Professional Investors"), to be held exclusively in Brazil, by the Leading Coordinator, pursuant to the Placement Agreement ("Bookbuilding Procedure" and "Price per Share", respectively). The Price per Share will be calculated based on the indications of interest as per the quality and quantity of the demand (by volume and price) for Shares collected with Professional Investors through the Bookbuilding Procedure, considering the quotation of shares issued by the Company in B3. The Price per Share will not be indicative of prices that will prevail in the market after the Restricted Offer.

The selection of the criterion for determining the Price per Share is justified insofar as the price of the Shares to be subscribed will be measured according to the performance of the Bookbuilding Procedure, which reflects the value by which the Professional Investors will present their intentions of investment within the scope of the Restricted Offer. Therefore, the issuance of the Shares based on this pricing criterion will not promote unjustified dilution of the Shareholders, pursuant to article 170, paragraph 1, item III, of the Brazilian Corporate Law.

Indications of interest based on the quality and quantity of the demand (by volume and price) for Shares collected with Professional Investors that, in the best judgment of the Company and the Leading Coordinator, are in accordance with the strategic objectives of the Company in the realization of the Restricted Offer will be considered in the Bookbuilding Procedure, including those related to the implementation of the Reorganization, under the terms previously agreed in the Placement Agreement and supported by the applicable legislation ("Effective Demand").

If, for any reason, effective demand in the Bookbuilding Procedure is not verified, the Price per Share will be set by the Company's Board of Directors, without unjustified dilution of the Company's shareholders and in the best interest of the Company and its shareholders, aiming, mainly, at the implementation of the Reorganization, pursuant to article 170, paragraph 1, item III and paragraph 7, of the Brazilian Corporate

Law. In its resolution, the Company's Board of Directors will base its assessment on, not excluding other criterion deemed to be most appropriate in view of the market conditions at the time: (a) the volume- weighted average of the closing price of the Company's shares verified in B3 in the 60 (sixty) trading sessions immediately prior to the disclosure of this Material Fact; or (b) the closing price of the Company's shares ascertained at B3 on the date of determination of the Price per Share. In both cases (a) and (b) above, to establish the Price per Share, the Board of Directors shall apply a 10% (ten percent) discount on the corresponding price, in accordance with the market conditions, in line with the discounts recorded in subsequent recent public offers of shares and private capital increases, as well as better meeting the purpose of promoting the exercise of priority by the Company's shareholders, and at the same time, ensuring the subscription of the Restricted Offer Minimum Volume (as defined below), according to the investment intentions and/or commitments assumed by investors, according to the item "Investment Intentions and/or Commitments" of this Material Fact, even in a context of greater volatility in the capital markets, as currently observed. In this case, the issuance of the Shares based on this alternative pricing criterion will not promote unjustified dilution of the Shareholders, pursuant to article 170, paragraph 1, item III, of the Brazilian Corporate Law.

Only orders submitted by investors (shareholders or not) that participate in the Institutional Offer (as defined below) will be considered in the Bookbuilding Procedure and therefore will participate in the process of determining the Price per Share.

The participation of Professional Investors may be accepted, pursuant to article 1, item VI, of CVM Instruction 505, of September 27, 2011, as amended, which are: (i) Company's controlling shareholders or managers or other related parties to the Restricted Offer, as well as their spouses or companions, their ascendants, descendants and collateral until the second degree; (ii) controllers or administrators of the Leading Coordinator; (iii) employees, operators and other representatives of the Leading Coordinator directly involved in structuring the Restricted Offer; (iv) autonomous agents who provide services to the Leading Coordinator, provided that they are directly involved in the Restricted Offer; (v) other professionals who maintain, with the Leading Coordinator, a service agreement directly related to the activity of brokerage or operational support under the Restricted Offer; (vi) companies directly or indirectly controlled by the Leading Coordinator, provided that they are directly involved in the Restricted Offer; (vii) companies directly or indirectly controlled by persons related to the Leading Coordinator, as long as they are directly involved in the Restricted Offer; (viii) spouse or companion and minor children of the persons mentioned in items (i) to

(v) above; and (ix) investment clubs and funds whose majority of shares belong to persons related to the Restricted Offer, unless managed on a discretionary basis by third parties ("Related Persons") in the Bookbuilding Procedure, and no maximum limit has been established for the participation of Related Persons in the Bookbuilding Procedure, including in case of any excess demand as per the number of Shares offered.

The participation of Professional Investors who are Related Persons in the Bookbuilding Procedure may adversely impact the formation of the Price per Share. Investing in the Shares by Professional Investors that are Related Persons may reduce the liquidity of the shares issued by the Company in the secondary market, particularly if the priority placement of the Shares to the Shareholders is considered.