24th Mar 2006 14:57
Bank Pekao SA23 March 2006 ANNUAL REPORT OF BANK POLSKA KASA OPIEKI SPOLKA AKCYJNA 11 Agreements with a company entitled to auditing of financial reports (PLN ths.) 2005 2004------------------------- ------------- -------------Audit fees 3,582 3,292Audit related fees - 30------------------------- ------------- ------------- The amounts above do not include value added tax (VAT). Audit fees consist of amounts paid to KPMG Audyt Sp. z o.o. for professionalservices rendered for the audit of the Bank Pekao S.A annual stand-alone andconsolidated financial statements. In relation to the year 2005, KPMG Audyt Sp. z o.o. was the entity authorized toaudit the financial statements of the Bank in accordance with the contract dated16 May 2005, with appendixes, covering the years 2005 and 2006. In relation to the year 2004, Ernst & Young Sp. z o.o. was the entity authorizedto audit the financial statements of the Bank in accordance with the contractdated 28 October 2002, with appendixes, covering the years from 2002 to 2004. 12 The position of the Management Board regarding the possibility of achieving forecasts The Bank has not published the forecast of financial results for 2005. 13 Number and value of titles of execution and the value of collaterals The collateral used by the Bank within its activities includes: transfers ofownership and pledges, mortgages, transfer of rights to insurance policies,sureties under the Civil Code, transfer of debt, appropriation of assets in bankaccounts, guarantees, deposits and others. For corporate clients, the total value of the collateral for transactionsclassified into III and IV risk category as at 31 December 2005 amounted to PLN2,615.6 million. During 2005, 858 titles of execution were issued on behalf ofthe Bank in the total amount of PLN 366.2 million; 1,116 executive actions weretaken for the total amount of PLN 353.2 million; 443 civil law agreementstotalling PLN 462.4 million were signed. 14 Significant events after balance sheet date Share capital increase of the Bank On 16 January 2006 share capital of the Bank was increased by the total amountof PLN 186,755 and on 6 February 2006 by PLN 5,169 as a result of issue of total191,924 series F ordinary bearer shares. The share capital of the Bank amountscurrently to PLN 166,673,611 and is divided into:- 137,650,000 series A ordinary bearer shares with nominal value of PLN 1.00 (one) each,- 7,690,000 series B ordinary bearer shares with nominal value of PLN 1.00 (one) each,- 10,630,632 series C ordinary bearer shares with nominal value of PLN 1.00 (one) each,- 9,777,571 series D ordinary bearer shares with nominal value of PLN 1.00 (one) each,- 373,644 series E ordinary bearer shares with nominal value of PLN 1.00 (one) each,- 191,924 series F ordinary bearer shares with nominal value of PLN 1.00 (one) each,- 359,840 series H ordinary bearer shares with nominal value of PLN 1.00 (one) each. The total number of votes at the Bank's General Shareholders Meeting under allissued shares is 166,673,611. The increase was conducted as a result ofregistration on buyers accounts of 191,924 series F ordinary bearer sharesissued within the conditional share capital increase on the base of ResolutionNo. 7 of the Extraordinary General Shareholders Meeting of the Bank conducted on25 July 2003 on contingent increase of the statutory capital, exclusion of thepre-emptive rights on the series F and G shares of the Bank and amendment to theStatute of the Bank. 15 Selected financial ratios 2005 2004 pro forma------------------------------ --------- ---------Profitability ratiosReturn on average equity (ROE) 18.2% 16.3%Net interest margin includingincome on SWAP transactions 4.1% 3.6%Non-interest income / totalincome 45.8% 46.6%Operating costs (includingdepreciation) / total income 52.3% 56.6%------------------------------ --------- --------- 31 December 31 December 2005 2004 pro forma ---------Balance sheet structure ratiosNet loans / balance sheettotal 46.8% 44.1%Debt securities / balancesheet total 30.1% 32.7%Deposits / balance sheet total 76.2% 77.6%Equity / balance sheet total 13.3% 13.0%Asset quality ratios (according to the NBP methodology) Non-performing loans / grosstotal loans 15.5% 18.7%Non-performing loans / equity 61.8% 71.1%Capital adequacy ratio 18.0% 20.7%------------------------------ --------- --------- 16 Representations of the Bank's Management Board The Management Board of Bank Pekao S.A. declares to its best knowledge that:- the annual financial statements and comparative figures have been prepared in accordance with the binding accounting policies and that they reflect in a true, fair and clear manner Bank Pekao S.A. financial position and its results,- the annual Report on the activities for 2005 provides the true picture of Bank Pekao S.A. development, achievements and situation, including the main risks and threats. The Management Board of Bank Pekao S.A. declares that the registered auditcompany performing the auditing of the annual financial statements of Bank PekaoS.A. has been selected in line with the binding legal regulations. The companyand the registered auditors performing the auditing meet the requirementsindispensable for issuing an objective and independent audit opinion, in linewith the relevant provisions of the Polish law. 17 The statement on the compliance with the Good Practices in Public Companies 2005 Principle YES/NO Comment of the Bank I Objective of the Company YES This principle is being applied by the Bank. It has been reflected in the mission of the Bank, which is included in the Code of Professional Ethics in force in the Bank. The mission of the Bank is to ensure the permanent and attractive growth in Bank's value for Bank's shareholders by strengthening its position of a leader on the domestic market and systematic development on the markets of Central Europe as the universal financial institution being a solid partner for its clients and the best workplace for best persons. The basic objective of operations of a company's authorities is to further the interest of the company, i.e. to increase the value of the assets entrusted by its shareholders, with consideration to the rights and interests of entities other than shareholders, involved in the functioning of the company, including, in particular, the company's creditors and employees. II Majority Rule and Protection YES The authorities of the Bank, in the of Minority course of carrying out duties that have been assigned to them, make sure that the achievement of interests of the majority shareholder is not detrimental to the minority shareholders. This principle is being implemented by, inter alia appropriate composition of the Supervisory Board, which includes the representatives of the majority and minority shareholders, as a consequence of which the interests of all groups of shareholders are being taken into consideration in performing supervision. The principle of majority rule is reflected in (S) 10 Section 2 of the Statute of the Bank, pursuant to which the General Meeting of Shareholders shall be entitled to adopt resolutions if at least 50% of the shares plus one share are represented during such meeting. The purpose of this provision is to guarantee that, the General Meeting of Shareholders will adopt resolutions on the most important matters for the Bank and its shareholders when the shareholders representing the aggregate of the absolute majority of the statutory capital are present. If the resolution of the General Meeting is not adopted due to the lack of quorum referred to above, during the next General Meeting of Shareholders, with the same agenda as the General Meeting of Shareholders, which did not adopt a resolution for the lack of the quorum, the presence of the shareholders representing at least 20% of the shares is required for an adoption of the resolution A joint-stock company is a capital venture, and, therefore, it must respect the principle of capital majority rule and the primacy of majority over minority. A shareholder that contributed bigger capital also bears a higher economic risk. It is, therefore, justified that his interest be taken into consideration in proportion to the contributed capital. The minority must have a guarantee of proper protection of their rights, within limits set by the law and commercial integrity. While exercising its rights, the majority shareholder should take into account the interests of the minority. III Honest Intentions and YES The members of the authorities of No-Abuse of Rights the Bank perform their functions and carry out their rights and duties with the utmost due diligence and in all good faith. The members of the authorities of the Bank make every endeavour to make sure that the actions taken by the Bank comply with the ethical standards, in particular with the principles included in the Code of Professional Ethics in force in the Bank. Members of the authorities of the Bank, as the publicly listed company, are aware of the special responsibility connected with this fact. It concerns especially the issues of responsibility towards both majority and minority shareholders, who trust that the Bank will act in a professional manner in such a way, which will not only protect the invested capital but also ensure a proper revenue on the invested capital. The exercise of rights and the reliance on legal institutions should be based on honest intentions (good faith) and cannot reach beyond the purpose and economic reasons for which these institutions have been established. No activities should be taken which exceed the limits so set and, thus, constitute an abuse of the law. The minority should be protected against abuse of ownership rights by the majority and the interests of the majority should be protected against abuse by the minority of its rights, thus, ensuring the best protection of equitable interests of the shareholders and other market participants. IV Court control YES The Management Board of the Bank assures that the authorities of the Bank and the persons chairing the General Meeting of Shareholders do not decide on issues that should be resolved by the court judgements. The company's authorities and During the sitting of the General persons chairing a general Meeting of Shareholders, the meeting cannot decide on General Meeting of Shareholders issues, which should be decides only on matters, pertaining resolved by court judgements. to the order of the Meeting. The This does not apply to motions, which may affect the activities, which are within exercising of rights by the powers of the company's shareholders, are not put to the authorities and persons vote in that manner. chairing general meetings, or which they are obliged to undertake by force of law. V Independent Opinions Ordered YES While choosing the entities, which by the Company are to provide expert services for the Bank, the Bank assesses by objective criteria the quality of their services, the price, the conditions of providing such services, which constitutes one of the principles of the Code of Professional Ethics in force in the Bank. The Order of the President of the Management Board, which is in force in the Bank, sets forth a detailed procedure concerning the rules of placing orders for the services performed in favour of the Bank. The procedure contains detailed principles of choosing the entities performing all kinds of services for the Bank, as a result of which it is possible to make as assessment whether there are any circumstances which might restrict the independence of such entities in carrying out the entrusted duties. When choosing an entity, which is to provide expert, services, including, in particular, the services of an expert auditor, financial and tax advisory services, as well as legal services, the company should consider whether there exist circumstances limiting the independence of this entity when performing the entrusted tasks. Best Practices of General Meetings 1. A general meeting should take YES The General Meetings of place in a location and at a Shareholders are held at the Bank's time to allow the registered office. While participation of as many determining the date of the General shareholders as possible. Meeting of Shareholders the Management Board of the Bank bears in mind that the date of the General Meeting of Shareholders should allow as many shareholders as possible to participate in the General Meeting of Shareholders. 2. A request for convening a YES This principle is incorporated into general meeting and placing (S) 8 Section 3 sentence no.3 of certain issues on its agenda, the Statute of the Bank in the made by parties entitled to following wording: The requests for do that should be justified. convening the General Meeting of Draft resolutions proposed to Shareholders and for including be adopted by the general specific matters on the agenda of meeting and other key the General Meeting of Shareholders documents should be presented should be justified. to the shareholders along with a justification and an opinion of the supervisory board prior to the general meeting, in advance so as to allow them to review and evaluate the same. The drafts of the proposed resolutions, together with statements of justification thereof, that are presented for an adoption by the General Meeting of Shareholders are made available to shareholders 8 days before the General Meeting of Shareholders at the latest. The copies of the Management Board report on the operations of the Bank and of the financial report, together with a Supervisory Board report and the opinion of the auditor shall be provided to shareholders upon their request not later than fifteen days before the General Meeting of Shareholders. All matters to be submitted to the General Meeting of Shareholders have the recommendation of the Supervisory Board. Pursuant to (S) 9 of the Statute of the Bank all matters to be submitted to the General Meeting of Shareholders shall be first submitted by the Management Board to the Supervisory Board for consideration. 3. The general meeting convened YES The General Meeting of Shareholders at the request of has never been convened upon shareholders should be held shareholders request. The on a date given in the Management Board of the Bank request, and if this date however, assures that if such cannot be kept, on the situation occurs, the principle closest date, which will no.3 shall be followed. allow the general meeting to settle the issues, placed on its agenda. 4. A general meeting whose YES It had never happened that the agenda includes certain General Meeting of Shareholders issues at the request of that has been convened was not authorised entities or which held. The Management Board of the has been convened at such Bank however, assures that in the request may be cancelled only case of the necessity to call off upon consent of the the General Meeting of requesting parties. In all Shareholders, the principle no.4 other instances, a general shall be followed. meeting may be cancelled if its holding is hindered (force majeure) or is obviously groundless. The meeting is called off in the same manner as it has been convened, ensuring as little negative consequences for the company and its shareholders as possible, and in any case no later than three weeks prior to the original dates of the meeting. A change in the date of the general meeting is made in the same manner as the cancellation, even if the proposed agenda does not change. 5. In order for a representative YES The principle is incorporated into of a shareholder to (S) 3 Section 9 of the Regulation participate in a general of Shareholders' Meetings of Bank meeting, his right to act on Polska Kasa Opieki S.A. behalf of the shareholder (hereinafter referred to as the should be duly documented. It "Regulation") in the following should be presumed that a wording: written document confirming the right to represent a shareholder at a general meeting is in conformity with the law and does not require any additional confirmations and acknowledgement unless its authenticity or validity prima facie raises doubts of the company's management board (upon drawing-up the attendance list) or the chairman of the general meeting. 9. The representatives of legal persons are required to deposit the current excerpts from the relevant registers indicating the persons authorised to represent these entities. Persons do not indicated in the excerpts should present a written power of attorney. In its announcements on convening the General Meeting of Shareholders, which are being published in the Court and Business Monitor, the Bank informs of the formal requirements that the power of attorney, which allows for a participation in the General Meeting of Shareholders, must satisfy. 6. The general meeting should YES The General Meeting of have regular by-laws setting Shareholders possesses the forth the detailed principles Regulation, which lays down of conducting the meetings detailed principles of conducting and adopting resolutions. The the meetings and adopting by-laws should contain, in resolutions. The Regulation particular, provisions contains the provisions ((S)13 concerning elections, Sections 10 - 17) regarding the including elections to the elections to the Supervisory Board supervisory board by voting by voting in separate groups in the in separate groups. The following wording: by-laws should not be subject to frequent changes; it is advisable that the changes enter into force as of the subsequent general meeting. 10. Upon the motion of the shareholders representing at least one fifth of the share capital, the election of the Board should be made by the vote in separate groups. Such motion should be submitted to the Management Board of the Bank in writing in a time, which will render it possible to place it on the agenda. 11. The persons representing at the Shareholders' Meeting the portion of shares which represents the division of the total number of shares by the number of members of the Board may create a separate group for the purpose of electing one member of the Board and shall not participate in the election of the remaining members. 12. Before the election of the members of the Board by the Shareholders' Meeting by vote in separate groups, the Chairman of Shareholders' Meeting the informs Shareholders' Meeting of the number of persons present, number of shares represented by the shareholders and the number of shares necessary for the creation of the group capable of choosing a member of the Board. 13. The Chairman of the Shareholders' Meeting shall conduct the procedure of choosing the members of the Board by voting in separate groups. 14. The authority convening the General Meeting of Shareholders shall provide the created group with the separate place for the gathering and carrying out the elections. 15. The mandates in the Board not filled by the appropriate group of shareholders created in accordance with Section 11 shall be filled by the vote held with the participation of all shareholders whose votes were not cast in the election of members of the Board by a vote in a separate groups. 16. If during the Shareholders 'Meeting referred to in Section 11 not even a single group capable of electing a member of the Board is created, the elections shall not be held. 17. Upon election of at least one member of the Board in accordance with Sections 10 -16 the mandates of all existing members of the Board shall expire prematurely. The principle pursuant to which the amendments to the Regulation should enter into force beginning from the next General Meeting of Shareholders is incorporated in (S)19 Section 2 of the Regulation in the following wording: 2. An amendment of this Regulation shall enter into force beginning from the next Shareholders' Meeting. 7. A person opening the general YES The Bank complies with this meeting should procure an principle. immediate election of the chairman of the meeting, and should refrain from any substantial or formal decisions. It has been reflected in (S) 5 Section 2 of the Regulation in the following wording: 2. The person opening the Shareholders' Meeting should take steps leading to an election of the Chairman of Shareholders' Meeting while refraining from making decisions regarding essential or formal matters. 8. The chairman of the general YES The Bank complies with this meeting ensures an efficient principle. conduct of the meeting and observance of the rights and interests of all shareholders. The chairman should counteract, in particular, the abuse of rights by the participants of the meeting and should guarantee that the rights of minority shareholders are respected. The chairman should not, without sound reason, resign from his function, or put off the signing of the minutes of the meeting. Pursuant to (S)6 Section 2 of the Regulation, the duties and rights of the Chairman of the Shareholders' Meeting shall include inter alia: 1) making sure that the Shareholders' Meeting is held in an efficient manner and in accordance with its agenda and that the rights and interests of the shareholders are respected and especially counteracting against abuse of rights by the majority shareholders and making sure that rights of minority shareholders are respected; the Chairman of the Shareholders' Meeting may not without the Shareholders' Meeting's consent withdraw or change the order of the matters placed on the agenda, 2) efficient management of the discussion, especially; allowing the Participants of the Shareholders' Meeting to speak, preparation, if necessary, of the list of the persons that have registered for discussion and determining the maximum amount of time per speech, revoking of the participant's right to speak, especially when his statement concerns matters outside the registration for the discussion or is outside the scope of the agenda of the Shareholders' Meeting, violates the law or good customs or renders the correct conduct of the Shareholders' Meeting impossible; deciding that voting should take place and supervising its process, announcing the results of voting, declaring whether the resolution has been adopted or not and announcing resolutions, deciding on making short pauses of the regulatory nature in the sitting of Shareholders' Meeting making decisions regarding the doubts as to the application of this regulation, co-operating with the notary preparing the minutes, making other decisions of the regulatory nature. Pursuant to (S)6 Section 4 of the Regulation the Chairman of the Shareholders' Meeting may make use of the assistance of lawyers and other experts present during the Shareholders' Meeting. 9. A general meeting should be YES This principle is incorporated into attended by the members of (S) 3 Section 2 and 3 of the both the supervisory board Regulation in the following and the management board. The wording: auditor should also be present at an annual general meeting and an extraordinary general meeting if the company's financial matters are to be discussed. The absence of a supervisory or management board member from the general meeting requires an explanation, which should be given at the meeting. 2. The members of the Management Board of the Bank and Supervisory Board should also participate in the Shareholders' Meeting. 3. The auditor should be present during the Shareholders' Meeting, which shall discuss financial matters, and especially during the ordinary Shareholders' Meeting. If due to important reasons a participation of the member of the Management Board or the Supervisory Board in the Shareholders' Meeting is not possible, the reasons for absence will be presented to the Shareholders' Meeting. 10. Members of the supervisory YES Pursuant to (S) 3 Section 2 and 3 board and the management of the Regulation, members of the board and the expert auditor Management Board of the Bank and of the company should, within the Supervisory Board of the Bank their powers and to the and, in case that the financial extent necessary for the matters are to be discussed - the settlement of issues expert auditor should also discussed by the general participate in the General Meeting meeting, provide the of Shareholders. This principle is participants of the meeting aimed at, inter alia, enabling the with explanations and participants of the General Meeting information concerning the of Shareholders, to ask questions company. in order to obtain explanations and information concerning the Bank. 11. All answers provided by the YES This principle is incorporated into management board to the (S) 10 Section 2 of the Regulation questions posed by the in the following wording: general meeting should take into account the fact that the reporting obligations are performed by a public company in a manner which follows from the Law on Public Trading in Securities, and certain information cannot be provided otherwise. Art.428 of the Commercial Companies Code applies to the information presented by the member of the Management Board of the Bank upon the request of the participant of Shareholders' Meeting, which is entitled to vote. While answering the questions of the Shareholders' Meeting the member of the Management Board of the Bank should take into account the fact that the company carries out informational duties in a manner prescribed by the Act on public trading of securities as well as the fact that providing certain kinds of information may not be done in a manner different than the one set forth in these rules. 12. Short breaks in the session YES This principle is incorporated into which do not defer the (S) 10 Section 6 and 7 of the session, ordered by the Regulation in the following chairman in justified cases, wording: cannot be aimed at hindering the exercise of the rights by the shareholders. The Shareholders' Meeting may, by a majority of two thirds decide to make a pause during the sitting. The pauses may not exceed 30 days in a total. 7. The rule referred to in Section 6 does not apply to short pauses pertaining to the order during the sitting of the Shareholders' Meeting introduced by the Chairman of the Shareholders' Meeting e.g. an hourly pause for rest. Such pauses may not be aimed at impeding the exercise of shareholders' rights. 13. Voting on issues placed on YES The principle is incorporated into the agenda may be carried out (S) 10 Section 5 of the Regulation only on issues related to the in the following wording: conduct of the meeting. This voting procedure cannot apply to resolutions, which may have impact on the exercise by the shareholders of their rights. 5. The voting on matters pertaining to the order during the sitting of the Shareholders' Meeting may only concern issues connected with conducting the sitting of the Shareholders' Meeting. The motions, which may affect the exercising of rights by shareholders, may not be put to the vote in that manner. 14. A resolution not to consider YES In execution of the statement which an issue on the agenda may be was submitted by the Management adopted only if it is Board of the Bank on June 30, 2005, supported by sound reasons. on March 10, 2006 the Extraordinary Any motion in this respect General Meeting of Shareholders, should be accompanied by a adopted the amendment to the detailed justification. A Statute of the Bank incorporating decision to remove an item rule no 14. In (S) 10 of the from the agenda or not to Statute of the Bank Section 6 was consider an issue put on the added in the following wording: agenda at a shareholder's request requires a general meeting resolution, once all the shareholders present who put the issue on the agenda have given their consent, supported by 75% of the votes present at the meeting. 6. The removal from the agenda or abandoning the reconsideration of an issue placed in the Agenda upon a motion from shareholders requires the General Meeting to adopt a resolution by 3/4 majority of votes, upon prior consent of all shareholders who submitted such motion. 15. A party objecting to a YES 5. The principle is resolution must have an incorporated into 11 Section 5 of opportunity to concisely the Regulation in the following present the reasons for its wording: objection. 6. A person raising an objection shall have the right to justify it. 16. Due to the fact that the Code YES The Management Board of the Bank, of Commercial Companies does which is the authority responsible not provide for court control for providing legal assistance to in the event where a the General Meeting of resolution is not adopted by Shareholders, shall make every the general meeting, the endeavour to make sure that management board or the resolutions are being formulated in chairman of the meeting a clear and transparent manner. should form the resolutions in such a way that each person who does not agree with a decision being the subject of the resolution, have the possibility of challenging the same; provided that he is entitled to do so. 17. At the request of a YES The principle is incorporated into participant in the general (S) 16 Section 3 of the Regulation meeting, his written in the following wording: statement is recorded in the minutes. 3. Upon the request of the participant of the Shareholders' Meeting, his/her written statement shall be recorded in the minutes. Best Practices of Supervisory Boards 18. The supervisory board submits YES The evaluation of the standing of a concise evaluation of the the Bank by the Supervisory Board company's standing to the is being made available to general meeting every year. shareholders before the General The evaluation should be made Meeting of Shareholders. available to all shareholders early enough to allow them to become acquainted with the contents before the annual general meeting. 19. A member of the supervisory YES In the course of its actions, which board should have relevant are aimed at creation of a strong education, professional and and modern business entity, the practical experience, be of Bank appreciates the importance of high morale and be able to skills for achievement of business devote all time required to results. For these reasons, the properly perform the function Bank makes every endeavour to make on the supervisory board. sure that the members of the Candidates for members of the authorities of the Bank posses the supervisory board should be required knowledge and professional presented and supported by experience. During the elections of reasons in sufficient detail the members of the Supervisory to allow an educated Board the Bank puts impact on the choice. moral qualities of the candidates, which is in line with the general principle of conducting the activity by the Bank, pursuant to which high ethical standards are to be taken into consideration in the course of the activity of the Bank. The procedure for the elections of the members of the Supervisory Board, provided for in (S) 13 of the Regulation imposes a duty on a person which puts forward a candidate to the Supervisory Board, to attach a curriculum vitae of the candidate, which renders the participants of the General Meeting of Shareholders capable of choosing the best candidate 20. a) At least half the members YES A dominant shareholder of the Bank of the supervisory board holding a block of shares carrying should be independent over 52% of the voting rights at the Shareholders' Meeting is UniCredito Italiano S.p.A. The principle of participation in the Supervisory Board of at least 2 independent members is applied by the Bank. members, subject to point (d) The Bank applies the following below. Independent members of independence criteria, pursuant to the supervisory board should which an independent member of not have relations with the Supervisory Board is considered to company and its shareholders be a person, who on the day of or employees which could election to the Supervisory Board significantly affect the met jointly the following independent member's ability conditions: to make impartial decisions. b) Detailed independence is not and has not been in the criteria should be laid down period of the last 3 years employed in the company's statute. at the Bank, its subsidiaries or parent company as a Board member or on any other managerial position, c) Without the consent of the is not and has not been in the majority of independent period of the last 3 years a supervisory board members, no chartered public accountant or an resolutions should be adopted employee of an entity providing on the following issues: auditing services who examined the financial reports of the Bank, its subsidiaries or parent company, - performances of any kind by is not a shareholder holding the company and any entities indirectly or directly 5 % or more associated with the company shares of the Bank and is not a in favour of management board member of the Management Board, members; Supervisory Board or an employee holding a managerial position with any such shareholder, - consent to the execution by is not receiving any additional the company or a subsidiary remuneration, apart from the of a key agreement with an remuneration for membership in the entity associated with the Supervisory Board or any company, a member of the proprietary benefits from the Bank, supervisory board or its subsidiaries or parent management board, or with company, their associated entities; and - appointment of an auditor 5) is not a person close to any to audit the company's member of the Bank's bodies or to financial statements. any of the Bank's employees holding a managerial position nor a person close to a shareholder, being a natural person an holding directly or indirectly 5 % or more shares of the Bank, d) In companies where one 6) does not have significant shareholder holds a block of business relationships with the shares carrying over 50% of Bank, its subsidiaries or the all voting rights, the parent company which could affect supervisory board should his/her independence consist of at least two independent members, including an independent chairman of the audit committee, should such a committee be set up. Independent member of the Supervisory Board discharges the function of the Chairman of the Audit Committee. In accordance with the statement submitted on June 30, 2005 the Extraordinary General Meeting of Shareholders has adopted the amendment to the Statute of the Bank incorporating the above independence criteria of the Supervisory Board members. Without the consent of the majority of independent supervisory board members, no resolutions are adopted on the issues specified in rule no 20. 21. A supervisory board member YES In their activity the members of should, most of all, bear in the Supervisory Board follow the mind the interests of the Bank's interests. company. 22. Members of the supervisory YES The role of the Supervisory Board board should take relevant is to perform supervision, in such actions in order to receive way that will enable the Bank to from the management board achieve its projected financial regular and complete results. The Management Board of information on any and all the Bank co-operates with the significant issues concerning Supervisory Board, which also the company's operations and includes providing the Supervisory on the risk related to the Board with the detailed information carried out business and ways on all essential matters connected of managing such risk. with the activity of the Bank. The Supervisory Board has appointed teams, which deal with the specific areas of the activity of the Bank and include: the audit team, remuneration team and financial team. 23. A supervisory board member YES 2. The principle is should inform the remaining incorporated into (S)11 Section 2 members of the board of any of the Rules of Procedure of the conflict of interest that Supervisory Board in the following arises, and should refrain wording: from participating in discussions and from voting on passing a resolution on the issue in which the conflict of interest has arisen. 3. If conflict of interest has occurred, the member of the Board should inform the remaining members of the Board of the same and refrain from taking part in the discussion and voting on the adoption of the resolution regarding a matter in which the conflict of interest arose. 24. Information on personal, YES The principle is incorporated into actual, and organisational (S)18 point 2 of the Rules of connections of a supervisory Procedure of the Supervisory Board board member with a given in the following wording: shareholder, and, in particular, with the majority shareholder, should be available to public. The company should have a procedure in place for obtaining information from members of the supervisory board and for making it available to the public. The member of the Board should immediately provide the Management Board of the Bank with the information (for the purpose of submitting such information to the public in an appropriate manner) regarding: 2) its personal, factual and organisational connections with the particular shareholder and especially with the majority shareholder. The Bank has a procedure of obtaining information on personal, actual, and organisational connections of the member of the Supervisory Board. The information on such connections of the member of the Supervisory is published in the current an periodic reports inn accordance with the binding provisions of law. 25. Supervisory board meetings, YES The principle is incorporated into save for issues which (S)14 Section 1 of the Rules of directly concern the Procedure of the Supervisory Board management board or its in the following wording: members, and, in particular, removal, liability, and setting remuneration, should be accessible and open to members of the management board. 1. The meetings of the Board, with exception of the meetings regarding matters relating directly to the Management Board of the Bank or one its members, concerning in particular the recalling, the liability and the determination of the remuneration, should be open and accessible to the members of the Management Board of the Bank. 26. A supervisory board member YES 1) Principle incorporated into should enable the management (S) 18 point 1 of the Rules of board to present publicly and Procedure of the Supervisory Board in an appropriate manner in the following wording: information on the transfer or acquisition of the shares of the company or of its dominant company or a subsidiary, and of transactions with such companies, provided that such information is relevant for his financial standing. 2) The member of the Board should immediately provide the Management Board of the Bank with the information (for the purpose of submitting such information to the public in an appropriate manner) regarding: 3) the purchase or sale of the shares of the Bank or its dominant entity or subsidiaries as well as the information regarding the transactions with such entities if such transactions are important for the financial situation of such member. 27. Supervisory board members' YES This principle is applied by the remuneration should be set on Bank. The required pieces of the basis of a set of information are published in the transparent procedures and annual reports. rules. The remuneration should be fair but should not constitute a significant cost item in the company's business or have a material impact on its financial results. It should also be in reasonable relation to the remuneration of members of the management board. The total amount of all supervisory board members' remuneration, as well as the remuneration of individual members, with a breakdown of its various elements should be disclosed in the annual report together with information on the procedures and rules applied to determine it. 28. The supervisory board should YES This principle is incorporated in operate in accordance with (S) 6 Sections 5-8 of the Rules of its by-laws, which should be Procedure of the Supervisory Board publicly available. The in the following wording: by-laws should stipulate that at least two committees should be set up: - audit, and Within the framework of the teams referred to in Section 1 the Supervisory Board shall appoint the Audit Team and the Remuneration Team. The Supervisory Board may also appoint other teams. - remuneration. 6. The tasks of the Audit Team shall include in particular: The audit committee should 1) overseeing the activity of the consist of at least two internal audit function of the independent members and at Bank, least one person possessing the relevant qualifications and experience in accounting and finance. The committee's tasks should be specified in the board by-laws. The committees should present reports on their activities to the supervisory board every year. The company should then make these reports available to its shareholders. 2) ordering inspections and detailed audits at the cells of the Head Office and the organisational units of the Bank within the framework specified in point 1 and an assessment of the results of these inspections and audits, 3) direct supervision over the operational activity of the Management Board, 4) providing recommendation concerning the choice of an auditing entity. 7. The tasks of the Remuneration Team shall include submitting to the Supervisory Board the proposals in particular on: 1) an establishment of the remuneration for the Management Board members, 2) the remuneration policy of the managerial staff of the Bank, 3) submitting proposals on the remuneration of the Supervisory Board to the General Meeting of Shareholders. 8. The teams appointed by the Supervisory Board shall submit to the Supervisory Board annual reports on their activity. The Audit team is composed of two independent members including one person possessing the relevant qualifications and experience in accounting and finance. The reports of the teams appointed by the Supervisory Board are kept at the Bank's Head Office and are made available to the shareholders by the President's Office upon their request. 29. The agenda of a supervisory YES 5. The Principle is board meeting should not be incorporated into (S) 10 Section 4 amended or supplemented and 5 of the Rules of Procedure of during the meeting, which it the Supervisory Board in the concerns. This requirement following wording: does not apply if all members of the supervisory board are present and agree to the amendment or supplementation of the agenda, and in instances where the adoption of certain activities by the supervisory board is necessary in order to protect the company against damage and in the case of a resolution which concerns the determination whether there exists a conflict of interest between a supervisory board member and the company. 6. 4. The agenda of the Board may not be changed or completed during the meeting, which it concerns, unless at the meeting all members of the Board are present and shall give their consent to change or complete the agenda. 7. The agenda may also be changed in a case when it is necessary that the Board undertakes certain activities in order to secure the Bank from a damage, as well as in the event of a resolution, the subject of which is an appraisal of an existence of a conflict of interests between Board members and the Bank. 30. A supervisory board member YES Principle incorporated into (S) 6 delegated by a group of Section 2 and 3 of the Rules of shareholders to permanently Procedure of the Supervisory Board exercise supervision should in the following wording: submit to the supervisory board detailed reports on the performance of his task. 2. In the event that the Board is elected by way of a vote in separate groups, each group has the right to delegate from among the members elected by it, one member of the Board, to perform permanent, individual acts of supervision 3. A member of the Board delegated to perform permanent supervision should submit to the Board detailed reports on a performed function. 31. A supervisory board member YES In their actions the members of the should not resign from his Supervisory Board follow the function during a term of interests of the Bank and take all office if this could render actions aimed at ensuring the the functioning of the board efficient functioning of the impossible, and, in Bank. particular, if it could hinder the timely adoption of an important resolution. Best Practices of Management Boards 32. Bearing in mind the interest YES In accordance with the Rules of of the company, the Procedure of the Management Board, management board sets forth the Management Board of the Bank the strategy and the main prepares strategy of development of objects of the company's the Bank and is responsible for the operations, and submits them implementation of this strategy. to the supervisory board. The The Supervisory Board issues management board is liable opinions on the Bank's long-term for the implementation and development plans and annual performance of the same. The financial plans of the Bank. management board cares for Moreover, the Supervisory Board transparency and performs, within the appointed effectiveness of the company teams, a monitoring of the degree management system and the of implementation of the strategy conduct of its business in of development of the Bank. accordance with the legal regulations and best practice. The Management Board of the Bank, takes care of the transparency and efficiency of the management system of the Bank and conducts the Bank's affairs in accordance with the legal regulations and Good Practices. Professionalism, reliability and confidentiality constitute the basis of the management of the Bank. The relationships with the customers are characterised by integrity and honesty and they are conducted in conformity with the binding law, including but not limited to, the provisions on counteracting the money laundering. These values constitute one of the principles of the Code of Professional Ethics in force in the Bank. 33. While making decisions on YES The mission of the Bank is to corporate issues, members of ensure the constant and attractive the management board should growth of Bank's value for its act within the limits of shareholders. While implementing justified economic risk, i.e. the principle of efficient and after consideration of all careful management of the Bank, the information, analyses and Management Board of the Bank is opinions, which, in the responsible for preparation and reasonable opinion of the implementation of the programs, management board, should be which are aimed at increasing the taken into account in a given value of the Bank and increasing case in view of the company's investment revenue for its interest. While determining shareholders as well as the the interest of the company, protection of the long-term one should keep in mind the interests of its employees. In the justified in long-term course of the decision making perspective interests of the process, the Management Board makes shareholders, creditors, every endeavour to ensure that employees of the company and interests of shareholders, other entities and persons creditors, employees of the company co-operating with the and other entities and persons company, as well as the co-operating with the Bank in the interests of local course of its activity are taken community. care of to the fullest extent. 34. In transactions with YES In the course of transactions with shareholders and other shareholders and with persons whose persons whose interests have interests have impact on the impact on the interest of the interests of the Bank, the market company, the management board value constitutes a basis for should act with utmost care determining the price. to ensure that the transactions are at arms' length. 35. A management board member YES Each member of the Management Board should display full loyalty of the Bank is under a duty to take towards the company and avoid actions, which are in the Bank's actions, which could lead to best interest. Pursuant to the Code implementing exclusively own of Professional Ethics in force in material interest. If a the Bank it is expected that in the management board member course of implementation of the receives information on the common purposes each member of the possibility of making an Management Board of the Bank will investment or another be loyal and honest and will use advantageous transaction the property and resources of the concerning the objects of the Bank in the reasonable manner. company, he should present such information immediately to the management board for the purpose of considering the possibility of the company taking advantage of it. Such information may be used by a management board member or be passed over to a third party only upon consent of the management board and only when this does not infringe the company's interest. 36. A management board member YES The Bank has a procedure regarding should treat his shares in trading of securities issued by the the company and in its Bank by the Members of the Bank's dominant companies and Management. This procedure lays subsidiaries as a long-term down certain requirements that must investment. be met by a member of the Management Board of the Bank that conducts such transaction e.g., notifying the President of the Management Board of the Bank of the intention to begin long-term purchase or sale of Bank's shares during one or a series of transactions. 37. Management board members YES In accordance with the Code of should inform the supervisory Professional Ethics, which is a board of each conflict of binding law in the Bank, the interest in connection with members of the Management Board of the performed function or of the Bank are prohibited from taking the risk of such conflict. such actions or decisions which might cause a conflict of interests or which would be contradictory to the Bank's interests or which could not comply with professional duties. The member of the Management Board of the Bank is obliged to inform the Supervisory Board of the occurrence of the situation in which such conflict of interest arose or might have arisen. Pursuant to the Code of Professional Ethics in force in the Bank each member of the Management Board of the Bank which came across a demand of a favour in any form or character made by any of the Bank's employees or the representatives of the counter-party, should promptly inform the Supervisory Board of the same. 38. The remuneration of YES While determining the remuneration management board members of the members of the Management should be set based on Board the Bank makes every transparent procedures and endeavour to ensure its incentive principles, taking into nature corresponding with the account its incentive nature financial results of the Bank and and ensuring effective and the level of responsibility smooth management of the connected with the performed company. The remuneration function. should correspond to the size of the company's business enterprise, should be in reasonable relation to the economic results, and be related to the scope of liability resulting from a given function, taking into account the level of remuneration of members of management boards in similar companies in a similar market. 39. The total amount of all YES The Bank applies the rule. management board members' Information on the amount and the remuneration, as well as the components of the remuneration of remuneration of individual the Management Board of the Bank is members, with a breakdown of specified in the annual report. The its various elements should amount of the remuneration of the be disclosed in the annual members of the Management Board of report together with the Bank set after obtaining the information on the procedures opinion of the Remuneration Team of and rules applied to the Supervisory Board. Granting and determine it. If the amount the amount of bonus depend on the of the remuneration of achieved individual results within individual members of the the framework of the MBO system and management board the net profit of the capital group significantly differs, it is of the Bank. In the Bank there is a recommended that a relevant detailed procedure that provides explanation be published. for granting bonuses in proportion with the achieved business results. In such way the Bank ensures that the remuneration of the members of the Management Board of the Bank has incentive nature and is based on transparent procedures and rules. In addition to this, the members of the Management Board participate in the Incentive Scheme implemented at the Bank and, after the conditions specified in this Scheme have been met, they may take up the shares issued within the framework of the contingent increase of the share capital of the Bank. The differences in the amount of the remuneration of the members of the Management Board of the Bank result exclusively from the discharged function and the scope of responsibility connected therewith and the achieved individual results. 40. The management board should YES The principles and procedure of lay down the principles and operations of the Management Board procedure of operations and of the Bank have been laid down in allocation of powers in the the Rules of Procedure of the by-laws, which should be open Management Board. The allocation of and generally available. powers between the members of the Management Board of the Bank is governed by the Order of the President of the Management Board of the Bank, which constitutes the Enclosure to these Rules. The Rules of Procedure of the Management Board of the Bank are available at the website of the Bank. Best Practices in Relations with Third Parties and Third Party Institutions 41. The selection of an expert YES The entity, which is to serve as an auditor for a company should auditor, is being chosen in the guarantee impartiality of course of the procedure in a manner performance of the entrusted that ensures independence in the tasks. carrying out of the tasks entrusted to an expert auditor.. 42. In order to ensure an YES Pursuant to the current everyday impartial opinion, the practice the agreements with company should change its auditors are usually entered into auditor once every five years for the period of 2-3 years. The at the least. The change of current agreement for audit and auditor should also be review of the financial reports as understood as a change in the well as review of the reporting individual carrying out the packages concluded with KPMG Audyt audit. Additionally, over a Sp. z o.o. concerns the audit of long period of time financial reports for financial years 2005 and 2006. the company should not use the services of the same auditing entity. 43. The auditor should be YES Pursuant to (S) 13 point 17of the selected by the supervisory Statute of the Bank the expert board on the recommendation auditor is being chosen by the of the audit committee, or by Shareholders' Meeting. In its the general meeting on the choice the Shareholders' Meeting recommendation of the follows the recommendation of the supervisory board containing Supervisory Board prepared by the the audit committee Supervisory Board's Audit Team. recommendation. If an auditor other than the one recommended by the audit committee is chosen by either the board or the general meeting, detailed reasons should be given. Information on the selection of an auditing entity together with the relevant justification should be disclosed in the annual report. 44. The current auditor or the YES Until now no special purpose auditor auditing the annual auditor has been appointed in the accounts of the company or Bank. However, if such auditor is its subsidiaries in the appointed, the Bank assures that period under examination this principle will be followed. cannot act as a special purpose auditor for the same company. 45. A company should acquire its YES The Bank has never acquired its own shares in such a way that owns shares. If however, such no group of shareholders be transaction takes place, the privileged. Management Board of Bank assures that this principle shall be followed. 46. The statutes of the company, YES The Statute of the Bank, the its basic internal Regulation, the Rules of Procedure regulations, information and of the Management Board Supervisory documents related to general Board and financial statements are meetings, and the financial available at the Bank's website. statements should be made available in the registered office of the company and on its website. 47. The Company should have YES The Corporate Communication proper media relations Department and Investors' Relations procedures and regulations Office are responsible for conduct and an information policy, of the information policy. The ensuring coherent and Corporate Communication Department reliable information about co-ordinates the information the company. The company activity, and in particular, shapes should, in compliance with a general information policy of the the legal regulations and Bank, its image and relations with taking into account its the media and professional interests, make available to organisations. The Investors' mass media representatives Relations Office is responsible for information on its current fulfilment of the information operation and business, duties of the Bank resulting from standing, and enable their the agreements concluded by the presence at general Bank as well as from the relevant meetings. provisions of law, which apply to public companies in particular: drawing up and publishing current and periodic information, shaping the relations with the shareholders and professional environment of investors and stock exchange analysts in the country and abroad. Upon the consent of the Chairman of the Shareholders' Meeting the journalists may be present during the Shareholders' Meeting. 48. In its annual report, a YES The Bank applies this rule. company should make public its statement on the application of corporate governance standards. If the standards are not applied to any extent, the company should also publicly explain this fact. Signatures of all Members of the Bank's Management Board 21.03.2006 Jan Krzysztof Bielecki President, CEO -------- ------------- ----------------- Date First Name / Family Name Position / Function 21.03.2006 Luigi Lovaglio Deputy President, COO -------- ------------- ----------------- Date First Name / Family Name Position / Function Deputy President21.03.2006 Sabina Olton Chief Accountant -------- ------------- ----------------- Date First Name / Family Name Position / Function 21.03.2006 Przemyslaw Figarski Member of Management Board -------- ------------- ----------------- Date First Name / Family Name Position / Function 21.03.2006 Irene Grzybowski Member of Management Board -------- ------------- ----------------- Date First Name / Family Name Position / Function 21.03.2006 Paolo Iannone Member of Management Board -------- ------------- ----------------- Date First Name / Family Name Position / Function 21.03.2006 Christopher Kosmider Member of Management Board -------- ------------- ----------------- Date First Name / Family Name Position / Function 21.03.2006 Marian Wazynski Member of Management Board -------- ------------- ----------------- Date First Name / Family Name Position / Function This information is provided by RNS The company news service from the London Stock Exchange ENDRelated Shares:
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