Paranapanema : Material Fact - Oferta de debentures (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 Corporate 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 history disclosed in 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, the Board of Directors, pursuant to the authorization approved by the Extraordinary General Meeting ("EGM") held on August 28, 2017, approved on this date (i) the launch of the public offering with restricted placement efforts of debentures, mandatorily convertible into shares, in two series, unsecured, without additional guarantee for distribution in accordance with CVM Instruction 476 ("Debentures" and "Restricted Offer"); (ii) the Deed (as defined below); as well as (iii) defined the details and schedule of said Restricted Offer.

The Debentures are the 7th (seventh) issuance of the Company's debentures ("Issuance") and will be issued pursuant to the Private Instrument of Deed of the 7th (Seventh) Issuance of Debentures, Convertible into Shares, Two Series, Unsecured, Without Additional Guarantee, for Public Distribution with Restricted Placement Efforts, of Paranapanema S.A. ("Deed").

OFFER CONDITION

Pursuant to article 22 of CVM Instruction 400, the completion of the Restricted Offer is conditional on the implementation of the other conditions precedent necessary for the completion of the Reorganization, pursuant to the Private Instrument of Global Reorganizaton Agreement and Other Covenants ("Global Agreement"), entered into by the Company on August 8, 2017, pursuant to a material fact disclosed by the Company on the same date. ("Offer Condition").

VERIFICATION OF THE OFFER CONDITION

The verification of the Offering Condition shall occur within 4 (four) months from the Debenture Subscription Date (as defined below), during which, subject to the Offer Condition, investors will be required to pay the debentures they subscribed for. On the date on which the Offeri Condition is verified, the Company will disclose a material fact to the market informing its implementation and establishing the date of payment of

the Debentures, occasion in which its holders, observing the payment procedures to be provided therein, as well as the other procedures provided for in this Material Fact and in the Deed, shall pay in full the Unit Par Value of their respective Debentures.

If the Offer Condition is not verified until the aforementioned 4 (four) month period, the Company will publish a material fact informing the cancellation of the Restricted Offer, as well as that all subscribed Debentures will be canceled by the Company, regardless of any expression of the Debentures subscribers.

EXCLUSION OF THE PREEMPTIVE RIGHT AND GRANT OF PRIORITY RIGHT

The Restricted Offer will be held excluding the preemptive right of the Company's shareholders, as provided in art. 172, item I, of the Brazilian Corporate Law, however, in compliance with the provisions of art. 9-A of CVM Instruction 476/09, being the shareholders of the Company assured with the right of priority to subscribe the Debentures, under the terms, conditions and deadlines set forth below ("Priority Right" and "Priority Offer").

In order to allow the exercise of the Priority Right by its holders, all Debentures, considering the Supplementary Debentures (as defined below), to be distributed under the Restricted Offer will be allocated primarily to the Shareholders (as defined below) who made subscription requests by completing the specific form in an Escrow Agent (as defined below) ("Priority Subscription Reservation Request"), for the period from September 1, 2017, inclusive, and September 8, 2017, inclusive ("Priority Subscription Reservation Period"), subject to the limit of proportion of its shareholdings in the Company's capital stock on the Second Cut-Off Date (as defined below).

For the purpose of verifying the investors that will hold Priority Rights, the shareholders' equity of the holders of common shares issued by the Company will be taken as a basis at the end of August 30, 2017 ("First Cut-Off Date"), in proportion to their respective shareholdings in the Company's capital stock at the end of September 6, 2017 ("Second Cut-Off Date"), verified at custody positions (i) at Banco Bradesco S.A., the institution responsible for bookkeeping and custody of shares issued by the Company ("Shares Bookkeeper") and (ii) in the Central Depository of Assets of B3 ("Central Depository"). Accordingly, those who are the Company's shareholders on the First Cut-Off Date shall be entitled to the Priority Right, in the respective proportion of their shareholdings in the total capital stock of the Company, calculated according to their respective share positions on the Second Cut-Off Date ("Shareholders"), subject to the provisions of item "Priority Offer" of this Material Fact.

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

The Issuance and implementation of the Restricted Offer, excluding the preemptive rights of the Company's shareholders, pursuant to article 172, item I of the Brazilian Corporate Law, and the granting of the Priority Right (as defined below), in compliance with the provisions of art. 9-A of CVM Instruction 476, as well as with its terms and conditions, as provided for in the Deed, were approved at the Extraordinary General Meeting, in accordance with the provisions of Article 59 of the Brazilian Corporate Law, 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 Extraordinary General Meeting authorized the Board of Directors to establish the start date and the schedule of the Restricted Offer

and the Company's Executive Board to perform all acts, take all actions and adopt all necessary measures to formalize, carry out and administer the resolutions to be taken at the Extraordinary General Meeting, aiming at the Issuance and the Restricted Offer.

The minutes of the Board of Directors' Meeting, pursuant to the Extraordinary General Meeting, approving the launch of the Restricted Offer, as well as its respective terms and conditions, shall be duly registered with JUCEB and published in "Folha de São Paulo" newspaper and DOEBA.

CHARACTERISTICS OF THE ISSUANCE AND THE DEBENTURES

ISSUANCE, NUMBER AND SERIES

This is the 7th Issuance of Debentures of the Company, being held in 02 (two) distinct series, namely, the first series ("First Series") and the second series ("Second Series"). Up to 375,000,000 Debentures will be issued, without considering the Supplementary Debentures and observing the possibility of Partial Distribution (as defined below), which will be allocated, in a system of communicating vessels, between the First Series and the Second Series (the "First Series Debentures" and the "Second Series Debentures", respectively), provided that the sum of the First Series Debentures and the Second Series Debentures shall not exceed the total number of Debentures.

The Issuance may be increased, pursuant to article 24 of CVM Instruction 400, of December 29, 2003, as amended ("CVM Instruction 400"), up to 15% (fifteen percent), that is, 56,250,000 supplementary debentures ("Supplementary Debentures"), under the same conditions as the Debentures initially offered, in order to meet an excess of demand that may be verified on the basis of a procedure for collecting investment intentions, according to the option to be granted by the Company to the Leading Coordinator, and the Supplementary Debentures may be allocated in any of the series, in a system of communicating vessels.

For all legal purposes, the issuance date of the Debentures is September 1, 2017 ('Issuance Date").

Nominal Unit Value, Total Amount and Minimum Issuance Amount

The unit par value of the Debentures will be R$ 1.00 on the issuance date ("Unit Par Value"). The Unit Par Value of the Debentures will not be restated or corrected by any index.

The total value of the Issuance considering the volume of the First Series and the Second Series is up to R$ 375,000,000.00 (three hundred seventy five million Reais), without considering the Supplementary Debentures ("Total Issuance Amount").

The minimum amount of the Issuance, to be mandatorily subscribed and paid in, shall be R$ 360,000,000.00 (three hundred and sixty million Reais) ("Minimum Issuance Amount"), therefore, there can be no placement of the Debentures in a lower amount that the referred to herein.

FORM AND ISSUANCE OF CERTIFICATES

The Debentures shall be registered, book-entry, without issuance of precautionary clauses or certificates. For all legal purposes, the ownership of the Debentures will be evidenced by the statement of the Debentures deposit account issued by the Bookkeeping Agent (as defined below). In addition, the statement on behalf of the debenture holders issued by B3 will be recognized as proof of ownership of the Debentures

electronically held in custody in a centralized custodian system operated by B3

PAYMENT OF THE UNIT PAR VALUE

The Unit Par Value of the Debentures will be paid exclusively upon the delivery of common shares issued by the Company at the end of the Maturity of the First Series Debentures (as defined below) or Maturity of the Second Series Debentures (as defined below), as the case may be, without any payment in cash, except in the case of fractions of Shares resulting from the conversion, which shall be paid in national currency, subject to the provisions of this Material Fact and the Deed.

TERM, MATURITY DATE AND EARLY MATURITY

The First Series Debentures will have a maturity of 2 (two) years, ending on September 1, 2019 ("Maturity of the First Series Debentures"), and the Second Series Debentures will have a maturity date of 4 (four) years, ending on September 1, 2021 ("Maturity of Second Series Debentures"), in both cases as of the Issuance Date, provided that: (i) the First Series Debentures are not subject to any early maturity event; and (ii) the Second Series Debentures are subject to the Events of Resolution of the Second Series Debentures Conversion (as defined below).

CONVERSION

The Debentures shall be convertible into common, registered, book-entry shares with no par value of the Company and shall have the same characteristics and conditions and shall enjoy the same rights and advantages of the other common shares issued by the Company, pursuant to the Brazilian Corporate Law, the B3's New Market Listing Rules and the Company's Bylaws ("Shares"). For further information on the rights, advantages and restrictions of the shares issued by the Company, see item "18.1 - Rights of each type and class of the share issued" of the Company's Reference Form.

The Debentures may be converted at any time, at the sole discretion of their respective holders, subject to the Minimum Conversion Amount (as defined below), at the end of the Maturity of the First Series Debentures and at the end of the Maturity of the Second Series Debentures, as the case may be, the conversion will occur automatically and compulsory with respect to all the Debentures of the respective outstanding Series ("Conversion Period"). It is hereby agreed that the Second Series Debentures will no longer be convertible into shares of the Company in the event of the occurrence of an Event of Resolution of the Second Series Debentures Conversion.

REASON FOR CONVERSION

The amount of Shares to be delivered against each converted Debenture shall be calculated on the basis of the following conversion ratio ("Conversion Ratio"):

Conversion Ratio = N x VNU/PC

Where:

N = Number of Debentures to be converted VNU = R$ 1,00

PC = Conversion Price (as defined below)