Summary Pekao Prospectus

15th Oct 2007 13:33

Bank Pekao SA15 October 2007 I S S U E P R O S P E C T U S Bank Polska Kasa Opieki Spolka Akcyjna (a commercial company with its registered office in Warsaw, recorded in the Register of Entrepreneurs under No. KRS 0000014843) This Prospectus has been drawn up in relation to: • the public offering of 94,763,559 ordinary bearer series I shares (Series I Shares) of Bank Polska Kasa Opieki Spolka Akcyjna (Pekao); and • admitting and introducing the Series I Shares to trading on the primary market of the Warsaw Stock Exchange (Gielda Papierow Wartosciowych w Warszawie S.A.) (WSE). The Series I Share issue is related to the integration of Pekao with Bank BPHSpolka Akcyjna, with its registered office in Krakow (BPH), to be carried outpursuant to Art. 529 (S)1 item 4 of the Commercial Companies Code (CCC); thatis, through a de-merger of BPH by transferring a part of BPH's property, in theform of an organized part of the enterprise, to Pekao in exchange for Series IShares. The Series I Shares will be issued to BPH shareholders, in accordancewith the terms and conditions set forth in the BPH spin-off plan, agreedbetween Pekao and BPH on November 15, 2006 and published in Monitor Sadowy iGospodarczy gazette No. 239/2006 on December 8, 2006 (Spin-off Plan). Thede-merger of BPH and the issuance of Series I Shares are conducted pursuant toresolutions adopted by extraordinary general shareholders' meetings of BPH anPekao held on April 27, 2007. Details of the terms and conditions of the offering of the Series I Sharesissued pursuant to this Prospectus are provided in Chapter XVIII Information onthe Offering. Subject as provided below, for every share in BPH each BPH shareholder shallreceive 3.3 Series I Shares, while retaining its existing holding of BPH shares(Share Allocation Ratio). The number of shares held in BPH shall beestablished, for the purposes of allotting the Series I Shares to BPHshareholders, as at the end of the so-called reference date, which shall be setby the Management Board of Pekao in accordance wit the rules of the NationalDepository for Securities (Reference Date). The Share Allocation Ratio has been calculated to reflect the value of BPH'sproperty established for the purposes of the de-merger pursuant to Art. 534 (S)2 item 3 of the CCC, as at October 1, 2006. According to the agreed Share Allocation Ratio, the number of Series I Sharesthat each BPH shareholder shall receive shall be established by multiplying thenumber of BPH shares held by such shareholder in its securities account on theReference Date by 3.3, and rounding the result down to the nearest integer, ifit is not an integer. Fractional Series I Share will not be issued to any BPHshareholders, and in place of this the shareholder will receive a supplementarycash payment, on the terms set forth in the Spin-off Plan. The Lead Manager and the Offeror for this Offering is Centralny Dom Maklerski Pekao S.A., with its registered office in Warsaw This Prospectus was approved by the Financial Supervision Commission on October 10, 2007. Disclaimer THIS PUBLIC OFFERING IS BEING CONDUCTED EXCLUSIVELY IN POLAND. THIS PROSPECTUSSHALL NOT BE DEEMED TO BE A PROPOSAL OR AN OFFER TO PURCHASE SHARES OUTSIDE OFPOLAND. THE PROSPECTUS AND THE SHARES COVERED HEREBY HAVE NOT BEEN REGISTERED,APPROVED OR SUBJECT TO NOTIFICATION IN ANY JURISDICTION OTHER THAN POLAND, INPARTICULAR PURSUANT TO THE PROVISIONS OF DIRECTIVE 2003/71/WE OF THE EUROPEANPARLIAMENT AND THE COUNCIL REGARDING INFORMATION CONTAINED IN PROSPECTUSES, ASWELL AS THE FORMAT, INCORPORATION BY REFERENCE AND PUBLICATION OF SUCHPROSPECTUSES AND THE DISSEMINATION OF ADVERTISEMENTS, OR ANY STATE OR FEDERALLAWS GOVERNING THE OFFERING OF SECURITIES IN FORCE IN THE UNITED STATES OFAMERICA. THE SHARES COVERED BY THIS PROSPECTUS SHALL NOT BE OFFERED OR SOLDOUTSIDE POLAND (INCLUDING OTHER MEMBER STATES OF THE EUROPEAN UNION AND THEUNITED STATES OF AMERICA), UNLESS SUCH OFFERING OR SALE COULD BE LAWFULLY MADEWITHOUT THE NEED TO COMPLY WITH ANY ADDITIONAL LEGAL REQUIREMENTS. EACH INVESTORRESIDENT OR HAVING ITS REGISTERED OFFICE OUTSIDE POLAND SHOULD REVIEW THEPROVISIONS OF POLISH LAW AND THE LAWS OF OTHER JURISDICTIONS WHICH MAY APPLY TOTHE INVESTOR. FORWARD-LOOKING STATEMENTS INFORMATION CONTAINED HEREIN THAT DOES NOT REPRESENT HISTORICAL FACTS, REFERS TOTHE FUTURE DEVELOPMENTS. SUCH INFORMATION MAY IN PARTICULAR REFER TO STRATEGIES,BUSINESS DEVELOPMENTS, MARKET FORECASTS, PLANNED INVESTMENT EXPENDITURES AND/ORFUTURE REVENUES. SUCH INFORMATION MAY BE IDENTIFIED BY THE FACT THAT IT CONTAINSPHRASES RELATING TO THE FUTURE, SUCH AS BELIEVE, CONSIDER, EXPECT, MAY, SHALL,SHOULD, IS ANTICIPATED, ASSUMES, OR THEIR NEGATIONS, INFLECTED VERSIONS ORSIMILAR TERMS. ANY STATEMENTS CONTAINED HEREIN THAT REFER TO MATTERS WHICH ARENOT HISTORICAL FACTS SHOULD BE TREATED STRICTLY AS FORECASTS WHICH INVOLVE RISKAND UNCERTAINTY. THERE IS NO ASSURANCE THAT SUCH FORECASTS WILL BE FULFILLED, INPARTICULAR DUE TO THE OCCURRENCE OF THE RISK FACTORS DESCRIBED IN THISPROSPECTUS. DUE TO THESE RISK FACTORS, SOME OF THE FORWARD-LOOKING STATEMENTSCONTAINED IN THIS PROSPECTUS MAY NOT BE REALIZED, AND THEREFORE CANNOT ANDSHOULD NOT BE RELIED UPON AS A GUARANTEE OF FUTURE PERFORMANCE. This Prospectus shall be valid for 12 months from the date of its originalpublication. Pekao is obliged to update the text of Prospectus, in accordancewith the binding provisions of law, until the date of the first quoting ofSeries I Shares on the WSE. DEFINITIONS AND EXPLANATIONS OF CERTAIN ABBREVIATIONS Offered Shares, Spin-off 94,763,559 (ninety-four million, sevenIssue Shares, Series I hundred sixty-three thousand, five hundredShares and fifty-nine) ordinary bearer series I shares of Pekao, with a nominal value of PLN 1.00 each, issued pursuant to the Pekao Spin-off ResolutionShares, Pekao Shares Pekao's existing shares, the Spin-off Issue Shares and its Series G Shares which may be issued in the future pursuant to Resolution No. 7 of the Pekao EGSM of July 25, 2003BPH, De-merged Company Bank BPH Spolka Akcyjna, with its registered office in KrakowPekao, the Issuer, the Bank Polska Kasa Opieki Spolka Akcyjna,Company, the Bidding Company with its registered office in WarsawBanks Pekao and BPHBPH285 BPH's assets and liabilities specified in detail in the Spin-off Plan, in the form of an organized part of the enterprise, including in particular: (i) 284 BPH's branches set forth in Table 2 attached to the Spin-off Plan, and any new BPH's branches established after October 1, 2006; (ii) the corporate centers set forth in Table 3 attached to the Spin-off Plan; (iii) the macro regions set forth in Table 4 attached to the Spin-off Plan; (iv) a part of BPH's head office; and (v) a part of BPH's brokerage house, which has been assigned to Pekao pursuant to the Spin-off PlanPost-Spin-off BPH BPH following the spin off the property comprising BPH285 to PekaoCDM, CDM Pekao Centralny Dom Maklerski Pekao Spolka Akcyjna, with its registered office in Warsaw, a subsidiary of PekaoManagement Board Member a Management Board Member of PekaoRisk Factors the risks described in Chapter III Risk FactorsSupplementary Cash Payments the cash payments due to BPH shareholders from Pekao in consideration for fractional Spin-off Issue Shares that cannot be issued to them as a result of the allocation terms of the Spin-off Issue Shares; the amounts and terms for allocating the Supplementary Cash Payments are set forth in Part I Section 4.3 and 4.4 of the Spin-off PlanReference Date the day at the end of which the holding of BPH shares shall be determined for the purpose of allocating the Spin-off Issue Shares to BPH shareholders, such day to be set forth by Pekao's Management Board in accordance with the NDS rulesSpin-off Day the day of registering the increase in Pekao's share capital resulting from the issuance of the Series I Shares in the Register of EntrepreneursEUR the official currency in the 13 member states of the European UnionEEA, European Economic Area the area of economic cooperation between European Union member states and the member states of the European Free Trade Association, established in 1944WSE the Warsaw Stock Exchange (Gielda Papierow Wartosciowych w Warszawie Spolka Akcyjna)Lead Manager CDM PekaoUniCredit Group UniCredito Italiano and its subsidiariesPekao Group, Pekao Capital the Issuer and its subsidiariesGroupCSO the Central Statistical Office (Glowny Urzad Statystyczny)HVB Bayerische Hypo- und Vereinsbank Aktiengeselschaft with its registered office in Munich, GermanyHVB Ukraine Joint Stock Commercial Bank HVB Bank Ukraine, with its registered office in Kiev, Ukraine, a subsidiary of PekaoNDS the National Depository of Securities (Krajowy Depozyt Papierow Wartosciowych Spolka Akcyjna)Civil Code the Civil Code of April 23, 1964 (Journal of Laws No. 16, item 93, as amended)Civil Procedure Code the Civil Procedure Code of November 17, 1964 (Journal of Laws No. 43, item 296, as amended)Commercial Companies Code, the Commercial Companies Code of SeptemberCCC 15, 2000 (Journal of Laws No. 94, item 1037, as amended)BSC the Banking Supervision Commission ( Komisja Nadzoru Bankowego)FSC the Financial Supervision Commission ( Komisja Nadzoru Finansowego)National Court Register the National Court RegisterIAS International Accounting Standards (Miedzynarodowe Standardy Rachunkowosci)IFRS International Financial Reporting Standards as adopted by European Union (Miedzynarodowe Standardy Sprawozdawczosci Finansowej, ktore zostaly zatwierdzone przez Unie Europejska)EGSM Extraordinary General Shareholders' MeetingNBP the National Bank of PolandOffering the offering of Series I Shares pursuant to this ProspectusOfferor CDM PekaoTax Code the Tax Code of August 29, 1997 (consolidated text: Journal of Laws No. 8 of 2005, item 60, as amended)Post-Spin-off Pekao Pekao after the property comprising BPH285 is spun-off to itSpin-off Plan the spin-off plan of BPH agreed by Pekao and BPH on November 15, 2006, as announced in Monitor Sadowy i Gospodarczy gazette No. 239/2006 on December 8, 2006 and published in Pekao's Current Report No. 103/2006 on November 16, 2006, incorporated into this Prospectus by referencePLN the lawful currency of Poland, introduced to cash trading on January 1, 1995, pursuant to the Act of July 7, 1994 on the Denomination of the Zloty (Journal of Laws No. 84, item 386, as amended)Spin-off the de-merger of BPH implemented pursuant to Art. 529 (S)1, item 4 of the CCC, in conjunction with Art. 124 c Section 1 of the Banking Law; that is, by transferring part of BPH's property to Pekao in consideration for Pekao shares to be issued to BPH shareholdersBanking Law the Act on the Banking Law of August 29, 1997 (consolidated text: Journal of Laws No. 72 of 2002, item 665, as amended)Prospectus this prospectusPAS Polish Accounting Standards (Polskie Standardy Rachunkowosci)Securities Account a securities account in which securities are recorded in book-entry form, as defined in Art. 4 Sections 1 and 2 of the Trading in Financial Instruments ActMonetary Policy Council the Monetary Policy Council, a body of the National Bank of PolandCurrent Report confidential information within the meaning of Art. 154 of the Trading in Financial Instruments Act and current information provided by the Issuer to the FSC, WSE and made public prepared in the form and within the scope prescribed in the Public Offerings and Public Companies Act and the Ordinance of the Minister of Finance of October 19, 2005 regarding current and periodic information to be disclosed by issuers of securities (Journal of Laws No. 209, item 1744)Rules of the Warsaw Stock the Rules of the WSE, adopted byExchange, the WSE Rules Resolution No. 1/1110/2006 of the WSE Board of January 4, 2006, as amendedRegulation 809 Commission Regulation (EC) No. 809/2004 of April 29, 2004, implementing Directive No. 2003/71/EC of the European Parliament and of the Council as regards information contained in prospectuses, as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements (European Union Official Journal L.04.149.1, as amended)Pekao Group Financial in respect of 2004, the consolidatedStatements financial statements of Bank Polska Kasa Opieki Spolka Akcyjna as at December 31, 2004, audited by Ernst &Young Sp. z o.o. in respect of 2005, consolidated financial statements of Bank Pekao S.A. Group for the year ended December 31, 2005, audited by KPMG Audyt Sp. z o.o. in respect of 2006, consolidated financial statements of Bank Pekao S.A. Group for the year ended December 31, 2006, audited by KPMG Audyt Sp. z o.o.Pekao Group Activities in respect of 2004, consolidated report onReport the activities of Bank Polska Kasa Opieki Spolka Akcyjna for the year 2004 in respect of 2005, report on the activities of the Bank Pekao S.A. Group for the year 2005 in respect of 2006, report on the activities of the Bank Pekao S.A. Group for the year 2006Share Allocation Ratio the ratio at which BPH shareholders shall receive Spin-off Issue Shares in respect of their shareholding in BPH. The share allocation ratio is 1 to 3.3, which means that each BPH shareholder shall receive 3.3 Spin-off Issue Shares for each BPH share it holds, while retaining its existing holding of BPH shares, subject to detailed terms of allocating the Spin-off Issue Shares set out in the Spin-off PlanDetailed Rules of Operation the Detailed Rules of Operation of theof the NDS National Depository for Securities adopted in Resolution No. 79/98 of the Management Board of the NDS of January 29, 1998, as amendedUAH Ukrainian Hrywna, the official currency of UkraineBPH Spin-off Resolution Resolution No. 20/2007 of the Extraordinary General Shareholders' Meeting of BPH of April 27, 2007 on the integration of BPH with Pekao, to be completed through BPH's de-merger by transferring a part of BPH's property in the form of an organized part of the enterprise to PekaoPekao Spin-off Resolution Resolution No. 4 of the Extraordinary General Shareholders' Meeting of Pekao of April 27, 2007 on the integration of BPH with Pekao, to be completed through BPH's de-merger by transferring a part of BPH's property in the form of an organized part of the enterprise to PekaoSpin-off Resolutions BPH Spin-off Resolution and Pekao Spin-off ResolutionUniCredit Bank (Ukraine) UniCredit Bank Ltd., with its registered office in Lutsk (formerly Bank Pekao (Ukraina) Ltd.), a subsidiary of PekaoUniCredito Italiano UniCredito Italiano S.p.A., with its registered office in Genoa, ItalyUSD US Dollar, the legal currency of the United States of AmericaTrading in Financial the Act on Trading in FinancialInstruments Act Instruments of July 29, 2005 (Journal of Laws No. 183, item 1538, as amended)Protection of Competition the Act on the Protection of Competitionand Consumers Act and Consumers of February 16, 2007 (Journal of Laws No. 50, item 331)Public Offerings and Public the Act of July 29, 2005 on PublicCompanies Act Offerings and the Terms and Conditions of Introducing Financial Instruments to an Organized Trading System and on Public Companies (Journal of Laws No. 184, item 1539, as amended)Personal Income Tax Act the Act on Personal Income Tax of July 26, 1991 (consolidated text: Journal of Laws No. 14 of 2000, item 176, as amended)Corporate Income Tax Act the Act on Corporate Income Tax of February 15, 1992 (consolidated text: Journal of Laws No. 54 of 2000, item 654, as amended)Tax on Civil Law the Act on Tax on Civil Law TransactionsTransactions Act (Transfer of September 9, 2000 (consolidated text:Tax Act) Journal of Laws No. 41 of 2005, item 399, as amended)Inheritance and Donation Tax the Act on Inheritance and Donation Tax ofAct July 28, 1983 (consolidated text: Journal of Laws No. 142 of 2004, item 1514, as amended)Accounting Act the Accounting Act of September 29, 1994 (consolidated text: Journal of Laws No. 76 of 2002, item 694, as amended)GSM General Shareholders' MeetingWSE Best Practices Code the corporate governance rules set forth in the WSE Board's Resolution No. 44/1062/ 2004 of December 15, 2004 and Resolution No. 45/1063/2004 of December 15, 2004, to adopt corporate governance rules for joint-stock companies issuing shares, convertible bonds or senior bonds admitted to trading on the official stock marketAGSM Annual General Shareholders' Meeting SUMMARY This Summary should be treated as an introduction to the Prospectus. Anydecision to invest in securities should be made only upon a full review of thecontents of the Prospectus and any documents incorporated herein by reference.Investors should pay particular attention to the Risk Factors described below inthe Summary and in Chapter III Risk Factors. If an investor brings a claimrelating to the information contained in this Prospectus before a court, theinvestor may be required to bear the costs of translating the Prospectus beforecourt proceedings are initiated. The persons who have prepared this Summary,including any translation hereof, shall bear liability for loss, but only to theextent that this Summary is misleading, inaccurate or inconsistent when readtogether with the other parts of this Prospectus. 1 The Offering and the terms thereof 1.1 General information regarding the Spin-off and the Offering This Prospectus relates to the offering of 94,763,559 ordinary bearer series Ishares of Pekao, with a nominal value of PLN 1.00 per share (Series I Shares).The Series I Shares are to be issued to BPH shareholders in relation to theintegration of Pekao and BPH, to be implemented by de-merging BPH through aspin-off of part of its property to Pekao in exchange for Series I Sharesallocated to BPH shareholders (the Spin-off). On June 12, 2005, the Board of Directors of UniCredito Italiano and theManagement Board and Supervisory Board of HVB decided to integrate the twoorganizations. This agreement created the eighth largest banking group in Europeand an European bank, operating in 20 countries in Europe. An acquisition of93.93% of HVB's shares by UniCredito Italiano was executed on November 17, 2005and caused the integration process of Pekao and BPH, both Banks being members ofthe UniCredit Group. The key assumption underlying the UniCredit Group's strategy in Poland is tobuild on the basis of both Banks an unquestionable leader in sustainable growthin income and profitability, and creating a leading financial organization inCentral and Eastern Europe. The integration of the Banks by way of BPH's de-merger is consistent with theterms of an agreement concluded on April 19, 2006 between the State Treasury ofthe Republic of Poland and UniCredito Italiano with respect to the integrationof the Banks. This agreement set forth the details of two potential scenariosfor integrating the banking business of the UniCredit Group in Poland. Accordingto this agreement, the preferred choice for conducting this integration was tobe, in the form of a de-merger of BPH by way of the spin-off part of itsproperty to Pekao, provided that relevant laws permitting the de-mergers of thebanks had been passed by October 19, 2006. On October 19, 2006 the Banking Lawwas indeed amended in the manner permitting de-mergers of banks organized asjoint-stock companies. In consequence, the Banks' integration is beingimplemented in the form of the Spin-off. The integration of Pekao and BPH as members of the same capital group pursuingthe same business is justified by economic benefits of stakeholders, ensuingeffects of scale relating to increased revenues and the optimization of costsand the effects of synergies deriving from the consolidated business and theenhanced market position of the organization. Under the Spin-off, in consideration for issuing Series I Shares to BPHshareholders, Pekao shall acquire part of BPH's property described in detail inthe Spin-off Plan, in the form of an organized part of its enterprise,comprising in particular: (i) 284 branches of BPH listed in Table 2 to theSpin-off Plan and all new BPH branches opened after October 1, 2006; (ii) BPH'scorporate centers; (iii) BPH's macro regions; (iv) part of BPH's head office;and (v) part of BPH's brokerage house. The Spin-off Plan is based on the generalprinciple that Pekao shall obtain those elements of BPH's property which arerelated to the activity of the aforementioned business units. The same principleapplies to the rights, obligations, receivables and liabilities andadministrative decisions connected with the activities of those units. A list ofadministrative decisions assigned to Pekao as per October 1, 2006 is presentedin Table 14 to the Spin-off Plan. Table 14 consists of two parts. Part onecontains a list of six administrative decisions assigned to Pekao, includingfive decisions issued by the Patent Office of the Republic of Poland, Researchof Trademarks Department and one decision issued by Office for Harmonization inthe Internal Market (Trade Marks and Designs), with its registered office inAlicante, Spain. The object of the above-mentioned decisions was to grant aprotective right for specific verbal and graphic marks of BPH. Part two of Table14 to the Spin-off Plan contains a list of 36 administrative decisions relatedto BPH285. These decisions include, inter alia, permits for use, permits forconstruction, permits for construction works and permits for using a road lane. Furthermore, in accordance with item 3 part II of the Spin-off Plan, Pekao shallobtain new administrative decisions, permits, licenses and relieves related toBPH285 activities, issued or granted by the Spin-off Day. Among administrative decisions assigned to Pekao according to the Spin-off Plan,there are no decisions referred to in Art. 531 (S)6 of the CCC. These decisionswould be permits and licenses granted to a financial institution which would betransferable to Pekao in the Spin-off only if no objection is voiced byauthority granting such permit or a license. Information regarding the rights, obligations and administrative decisionsassigned to the Issuer under the Spin-off is presented in the Spin-off Plan andthe Pekao's Management Board Report substantiating the Spin-off preparedpursuant to Art. 536 (S)1 of the CCC specified in items (d) and (f) of ChapterXXXV Documents included by reference, enclosed herein by reference. The Spin-off Plan has been audited by an expert appointed by the registry courtat the joint request of both Banks. According to an opinion issued by JaninaNiedospial, an expert auditor and court expert, the Share Allocation Ratiospecified in the Spin-off Plan has been duly determined, the methods used todetermine the Share Allocation Ratio are justified, and the Spin-off Plan hasbeen prepared in compliance with Art. 534 (S)1 of the CCC and includes all ofthe attachments referred to in Art. 534 (S)2 of the CCC. The expert's opinionindicates the impact of market speculations on the Pekao market price inconnection with the potential consequences of the integration with BPH and thelack of market certainty with regard to Pekao's future profits as a source ofparticular difficulties relating to the share valuation. According to thisopinion, the Spin-off Plan has been prepared fairly and correctly. In connection with the Spin-off, the Management Board of Pekao prepared a reportregarding the part of BPH's property that is to be allocated to Pekao pursuantto the Spin-off Plan. The report has been audited in terms of its correctnessand fairness by a court-appointed expert auditor. On January 12, 2007 DorotaSnarska-Kuman, expert auditor, issued an opinion that the established value ofthe part of the BPH property to be allocated to Pekao is at least equal to thenominal value of the Pekao shares to be issued to the BPH shareholders inconsideration for that property. On April 26, 2007, the Management Board of BPH provided the Management Board ofPekao with a list of material changes in the BPH's property components assignedto Pekao as part of the Spin-off. In the information, the Management Board ofBPH indicated that the changes in BPH's property components do not lead tochanges in the balance sheet structure, the economic value and the risk profileof the portion of BPH's property allocated to Pekao, other than changesresulting from ordinary activities, and do not affect the Share AllocationRatio. The list specifies two kinds of changes related to the property components:changes in the type or value of property components assigned to Pekao in theSpin-off Plan and changes having an influence on BPH's property components'value the financial effects of which may be assigned to Pekao. In addition, BPHannounced that on December 31, 2006 BPH established a provision for futureobligations in respect of a fine of PLN 14,667,240.00 imposed by the Presidentof the Office of Competition and Consumer Protection on December 29, 2006 withreference to interchange fees (handling card transactions at points of sales).Pursuant to the announcement provided by BPH, the decision to impose a fine isnot final and BPH has appealed from the decision of President of the Office ofCompetition and Consumer Protection to the regional court in Warsaw, Consumerand Competition Protection Court. If the court determines the case unfavorablyagainst BPH, then the means from the provision will be used to pay the fine.Otherwise, the provision will be released and reflected in the revenues of BPH. The Spin-off is being effected on the basis of resolutions adopted by the EGSMsof BPH and Pekao on April 27, 2007 (the Spin-off Resolutions), pursuant to theBPH's Spin-off Plan, which was in turn adopted by the Management Boards of Pekaoand BPH on November 15, 2006 and approved by the Supervisory Boards of Pekao andBPH. Pursuant to Art. 539 of the CCC, the Management Boards of Pekao and BPHnotified the Banks' shareholders of the intended Spin-off and transfer of someBPH's property components to Pekao twice, with an interval of not less than twoweeks, in the manner prescribed for convening general shareholders' meetings andnot later than six weeks before the date planned for adoption of the Spin-offResolutions. Pekao's first announcement appeared in Monitor Sadowy i GospodarczyNo. 14/2007 (2611) of January 19, 2007 under item 814, and the secondannouncement appeared in Monitor Sadowy i Gospodarczy No. 24/2007 (2621) ofFebruary 2, 2007 under item 1451. Accordingly, announcements of BPH appeared inMonitor Sadowy i Gospodarczy No. 14/2007 (2611) of January 19, 2007 under item813 and in Monitor Sadowy i Gospodarczy No. 24/2007 (2621) of February 2, 2007under item 1450. Shareholders of the two Banks were given access to thedocuments specified in the contents of announcements (including financialstatements for the years: 2003, 2004 and 2005) starting from February 15, 2007. The Banks decided to make additional notifications to the shareholders, as partof the procedure set forth in Art. 539 of the CCC, in connection with theintended announcement by Pekao and BPH, in the form of a periodic report onMarch 21, 2007, containing the financial statements of Pekao, Management Boardreport on Pekao's activities for the financial year 2006 and accompanyingopinion and a report of a certified auditor and the financial statements of BPH,Management Board report on BPH's activities for the financial year 2006 andaccompanying opinion and report of a certified auditor. In connection with theabove, shareholders of each Bank, starting from March 22, 2007 could getacquainted with the above-mentioned financial documents for the year 2006 and,in addition, documents specified in previous announcements. Additionalannouncements appeared for Pekao in Monitor Sadowy i Gospodarczy No. 39/2007(2636) of February 23, 2007 under item 2318 and No. 49/2007 (2646) of March 9,2007 under item 2932, while additional announcements for BPH appeared in MonitorSadowy i Gospodarczy No. 39/2007 (2636) of February 23, 2007 under item 2330 andNo. 49/2007 (2646) of March 9, 2007 under item 2930. The Spin-off requires, among other things, a permit from the BSC to de-merge BPHand another BSC permit to amend Pekao's Charter pursuant to Pekao Spin-offResolution. The Banks filed an application with the BSC for a permit for theSpin-off on January 31, 2007. On the same day Pekao filed an application withthe BSC for a permit to amend its Charter pursuant to the Pekao Spin-offResolution. On April 27, 2007 in its Resolution No. 27/KNB/07 the BSC granted a permit forPekao's Charter to be amended as provided for in the Pekao Spin-off Resolution.On October 3, 2007, the BSC offered its consent to the Spin-off of BPH. The Spin-off and the issue of the Spin-off Issue Shares shall take effect on thedate on which the registry court competent for Pekao records the share capitalincrease in Pekao in the register of entrepreneurs. The share capital increasein Pekao requires the Management Board of Pekao to file an application toregister the share capital increase and the amendments to Pekao's Charter setforth in the Pekao Spin-off Resolution, with the necessary BSC permits and otherrequired documents. The Management Board of Pekao expects that the Spin-off and the issuance of theSpin-off Issue Shares will occur in the fourth quarter of 2007. Achieving thistimetable is contingent on obtaining the necessary permits and the registrycourt registering the Spin-off. Upon completion of the Spin-off and the resulting acquisition of part of the BPHproperty described above by Pekao, Pekao shall become the fourth largest bank inthe UniCredit Group in terms of the value of assets, and one of the leadinginstitutions in the Central and Eastern Europe banking sector. 1.2 Expected schedule of the Offering The Series I Shares are to be allocated to persons holding BPH shares on theReference Date, which will be determined by the Management Board of Pekao, inaccordance with the NDS rules (see the table and Section 1.3.3 below). Suchpersons do not have to take any action and , in particular do not have to filesubscriptions for Series I Shares in order to subscribe for the Shares. Due to the specific nature of this Offering, it does not feature certainelements typical of normal share offerings, such as subscription dates forshares, the filing of subscriptions for shares, the making of payment for theshares, an issue price, the division of the offering into tranches, subscriptionwithdrawals, the allotment of shares by the issuer and the possibility ofabandonment or suspension of the offering. Additionally, there is no risk thatthe issue of Series I Shares will not take place due to insufficientsubscriptions. The Series I Shares will not be issued if the Spin-off does notoccur. The risks related to conducting of the Offering are described in Section2 of Chapter III Risk Factors. The following table sets forth the anticipated time table of the Offering. The anticipated dates of Action completing actionsDay D* Pekao submits to the NDS documents confirming the registration of the increase in Pekao's share capital by issuing the Spin-off Issue Shares, together with a request to indicate the Reference Date within D+5 ("R")*.Day D+2* The last day on which BPH shares marked as entitling to the Spin-off Issue Shares are listed on the WSE.Day D+3* The reference price for the BPH shares is set. The reference price is set as the closing price of BPH shares on D+2*, decreased by the value of 3.3 shares in Pekao, calculated at the closing price of Pekao shares on D+2*.Day D+5 ("R")* Reference Date.Day R+6* Spin-off Issue Shares are allocated through the NDS. Spin-off Issue Shares are recorded in the NDS' participants' accounts.Day R+7* Spin-off Issue Shares are listed for the first time.Day R+10* Supplementary Cash Payments are transferred to NDS's participants through the NDS. * Business days Pekao shall give notice of the registration of its share capital increase andindication of the Reference Date in a Current Report, which shall also containthe final timetable of the Offering. 1.3 Principles of distribution and allotment 1.3.1 The persons qualifying for the Spin-off Issue Shares The persons qualifying for the Spin-off Issue Shares will be persons who haveBPH shares registered in their Securities Accounts on the date determined as theReference Date in accordance with the NDS rules. Pekao's Management Board has been authorized in the Spin-off Resolutions toindicate the NDS the Reference Date. Pekao will give notice on indicating theReference Date in the form of a Current Report. The Management Board of Pekao expects that the Reference Date shall bedetermined to be the fifth business day after the filing with the NDS of thedocuments evidencing the registration of the share capital increase in Pekaoresulting from the Spin-off Issue Share. 1.3.2 Share Allocation Ratio and the amount of Supplementary Cash Paymentsto BPH shareholders The Share Allocation Ratio reflecting the number of Pekao shares to be allottedto BPH shareholders in relation to the BPH shares they hold is 1 : 3.3. Thismeans that every BPH shareholder will receive 3.3 Spin-off Issue Shares for eachone share in BPH they hold, while retaining their existing holding of BPHshares. The Share Allocation Ratio has been calculated to reflect the value ofthe BPH property established for the purposes of the Spin-off pursuant to Art.534 (S)2 item 3 of the CCC, as at October 1, 2006. The number of the Spin-off Issue Shares to be allotted to each BPH shareholderwill be established by multiplying the number of BPH shares held by thatshareholder in their Securities Account on the Reference Date by "3.3",representing the Share Allocation Ratio, and rounding the product down to thenearest integer, if it is not an integer. Each BPH shareholder that on the Reference Date holds such number of BPH sharesthat, when multiplied by "3.3", results in a fractional number which is to berounded down to the nearest integer, shall receive a Supplementary Cash Paymentfrom Pekao calculated according to the following formula: D = ( A x 3.3 - B) x c, where: D means the Supplementary Cash Payment amount; A means the number of BPH shares held by a BPH shareholder in its SecuritiesAccount on the Reference Date; B means the number of the Spin-off Issue Shares to be issued to a BPHshareholder after rounding down the product of the number of BPH shares held bythat shareholder and the Share Allocation Ratio to the nearest integer; c means the value of one Spin-off Issue Share established for the purposes ofthe Supplementary Cash Payments, equal to the average market price of the Pekaoshares from 30 quotation days preceding the Reference Date; the average marketprice shall mean the arithmetical mean of the average daily quotation weightedwith trading volume. BPH shareholders holding BPH shares recorded in more than one Securities Accountshould note that the allotment principles of the Spin-off Issue Shares describedabove shall be applied individually to the shares recorded in each of theirSecurities Accounts. The Supplementary Cash Payments will be funded from Pekao's supplementarycapital. Where income tax is due on these Supplementary Cash Payments accordingto relevant regulations, the Payments, calculated according to the formula setout above, shall be reduced by the amount of flat rate income tax. TheSupplementary Cash Payments will be disbursed to the qualifying persons throughthe NDS. The Supplementary Cash Payment amounts will be rounded down to onegrosz after tax. Neither BPH shareholders nor any other persons will be granted any specialrights by Pekao in relation to the Spin-off. In a Current Report, Pekao shall give notice of the value of one Spin-off IssueShare, set for the purpose of defining the Supplementary Cash Payments. 1.3.3 Allotment of the Spin-off Issue Shares The Spin-off Issue Shares shall be allotted to BPH shareholders through the NDS,in compliance with the Detailed Rules of Operation of the NDS, on the basis ofthe number of shares held in BPH on the Reference Date. Promptly upon registration of the Pekao share capital increase resulting fromthe issuance of the Spin-off Issue Shares, Pekao's Management Board shall applyto the NDS to appoint the Reference Date on the fifth business day following thefiling of the documents evidencing the registration of Pekao's share capitalincrease with the NDS, with the accounting letter for the Spin-off Issue Shares. Following the Reference Date, the NDS participants shall provide the NDS withinformation regarding the number of the Spin-off Issue Shares for which the BPHshareholders are eligible according to the Share Allocation Ratio. Based on the arrangements with the NDS, Pekao anticipates that the NDS willallot the Spin-off Issue Shares to BPH shareholders about the sixth business dayafter the Reference Date. 1.3.4 Spin-off Issue Shares not allotted to BPH shareholders as a resultof applying the principles of allotting the Spin-off Issue Shares Pursuant to the Spin-off Resolutions and the Spin-off Plan, as a result ofapplying the principles of allotting the Spin-off Issue Shares, in particularthe principle that only full shares may be allotted to BPH shareholders, inreturn for any fractional Spin-off Issue Shares which are not allocated to them,BPH shareholders shall receive Supplementary Cash Payments from Pekao. ThesePayments shall be calculated and paid on the terms set forth in Sections 3.2 and3.5 of Chapter XVIII Information on the Offering. Accordingly, a certain part ofthe Spin-off Issue Shares will not be allotted to BPH shareholders. These shareswill be recorded in Pekao's Securities Account. Pursuant to Section 4.5 of PartI of the Spin-off Plan, the Management Board of Pekao was authorized under thePekao Spin-off Resolution to dispose of such Spin-off Issue Shares to theentities chosen by them. 1.3.5 Transfer of Supplementary Cash Payments The NDS shall inform Pekao of the amount of funds that Pekao should transfer tomake the Supplementary Cash Payments. Upon receipt of the funds by the NDS, theyshall be transferred to the accounts of the BPH shareholders through NDSparticipants. Disbursement of the Supplementary Cash Payments will commence oncethe NDS participants have received the funds, no earlier than three businessdays following the allotment of the Spin-off Issue Shares. The funds shall betransferred to cash accounts of the individuals eligible to receive theSupplementary Cash Payments, which support the relevant Securities Accounts. 1.4 Rights attached to the Spin-off Issue Shares The rights attached to the Shares, including the Spin-off Issue Shares, aredefined in Pekao's Charter, the CCC and other regulations of laws. Spin-offIssue Shares shall carry the right to participate in Pekao's profits disbursedon or after January 1, 2008. Pursuant to Resolution No. 8 of the Pekao's AGSM ofApril 26, 2007 on the distribution of Pekao's 2006 net profit, the dividend daywas set on May 16, 2007 and the dividend payment date on June 1, 2007. As theSpin-off Issue Shares will be issued after the 2006 dividend has been paid, theSpin-off Issue Shares, when issued, will rank pari passu with Pekao's otherShares. The Management Board of Pekao intends to apply to the NDS to assimilatethe Spin-off Issue Shares with Pekao's other Shares, so that the Spin-off IssueShares can be listed together with the other Shares. 2 The Offeror Centralny Dom Maklerski Pekao Spolka Akcyjna, with its registered office inWarsaw, at ul. Woloska 18, 02-675 Warsaw, acts as the Offeror and the LeadManager under this Offering. 3 Admission and introduction of the Spin-off Issue Shares totrading on the WSE The Spin-off Issue Shares will be covered by an application for introduction totrading on a regulated market, namely the WSE's main market. Pekao's shareslisted on the WSE have been given the ISIN code PLPEKAO00016. Pekao intends toapply for the same code to be assigned to the Spin-off Issue Shares. As at July 31, 2007, 167,103,098 Pekao shares were traded on the WSE. Additionally, since 2000, Pekao's global depository receipts, issued pursuant toRegulation S, under the US Securities Act, have been traded on the London StockExchange (Stock Exchange Automated Quotation System International) anddepository receipts issued pursuant to Rule 144A, under the US Securities Act,have been traded on NASDAQ Stock Market Inc (PORTALSM) in the US. Pekao has notcommissioned any entity to act as an intermediary in trading on the secondarymarket, to ensure the liquidity of Pekao's shares by quoting sell and buyoffers. 4 Activities of Pekao Pekao is a universal, commercial bank, offering a full range of banking servicesto both individual and corporate clients, operating in Poland and abroad. Pekao is the central institution for a number of financing institutionsoperating in the asset management, pension funds, brokerage, leasing andfactoring markets. The key products include consumer loans, mortgage loans,payment cards and investment funds. Pekao's organization is tailored to itsadopted customer service model, based on the following separate businessdivisions: Retail Banking, Individual Banking, Corporate and InternationalBanking, the Private Banking and the Treasury. In order to tailor its offer to various customer groups, Pekao divided customersinto four basic segments: (i) retail, (ii) private banking, (iii) VIP/SME and(iv) corporate. As at December 31, 2006, Pekao operated in Poland through 782 outlets. Pekao'sclients used, free of charge, 1,262 Pekao, 802 BPH and 854 Euronet automatedteller machines across the country, as well as internet banking and a callcenter. As at December 31, 2006, Pekao was the second largest bank listed on the WSE interms of capitalization, (approximately PLN 38 billion). As at December 31,2006, it was the second largest bank in terms of asset value, holding a 10.5%share in the loan market and a 11.1% share in the deposit market (source for themarket: NBP data) and a 25.9% share in the mutual funds market (source for themarket: data from the Chamber of Fund and Asset Managers). As at June 30, 2007 the Pekao Group employed 15,942 persons, of which Pekaoemployed 14,329 persons. As a result of the integration, approximately 6,800staff members with employment contracts (pracownicy etatowi) will move from theBPH capital group to the Pekao Group, 6,500 of them moving from BPH to Pekao. 5 Financial results 5.1 Consolidated financial information of the Pekao Group +------------------------+----------------------+-----------------------------+| |Six months ended June |Financial year ended December|| |30 |31 |+------------------------+----------+-----------+---------+---------+---------+| |2007 |2006 |2006 |2005 |2004 |+------------------------+----------+-----------+---------+---------+---------+| |unaudited |unaudited | | |unaudited|+------------------------+----------+-----------+---------+---------+---------+| |in PLN million |+------------------------+------------+---------+---------+---------+---------+|Net interest income | 1,213.8| 1,143.9| 2,377.0| 2,350.4| 2,170.1|+------------------------+------------+---------+---------+---------+---------+|Net fee and commission | 1,108.5| 928.9| 1,899.2| 1,587.0| 1,481.4||income | | | | | |+------------------------+------------+---------+---------+---------+---------+|Operating profit (loss) | 1,215.9| 1,037.0| 2,113.0| 1,829.4| 1,409.9|+------------------------+------------+---------+---------+---------+---------+|Profit (loss) before | 1,294.2| 1,073.0| 2,203.8| 1,873.6| 1,446.0||income tax | | | | | |+------------------------+------------+---------+---------+---------+---------+|Net profit (loss) | 1,043.2| 865.2| 1,789.7| 1,534.9| 1,248.9|+------------------------+------------+---------+---------+---------+---------+|Net profit (loss) | 1,041.2| 865.0| 1,787.5| 1,537.7| 1,252.5||attributable to the | | | | | ||Bank's equity holders | | | | | |+------------------------+------------+---------+---------+---------+---------+|Net profit (loss) | 2.0| 0.2| 2.2| (2.9)| (3.5)||attributable to minority| | | | | ||interest | | | | | |+------------------------+------------+---------+---------+---------+---------+|Net cash flow from | 2,765.1| 2,780.2| 2,323.7| (15.3)|(2,895.9)||operating activities | | | | | |+------------------------+------------+---------+---------+---------+---------+|Net cash flow from | (731.6)|(1,208.4)| 1,844.2| 1,494.8| 3,338.8||investing activities | | | | | |+------------------------+------------+---------+---------+---------+---------+|Net cash flow from | (1,472.0)|(1,199.2)|(1,201.8)|(1,088.7)|(1,214.4)||financing activities | | | | | |+------------------------+------------+---------+---------+---------+---------+|Net cash flow, total | 561.5| 372.6| 2,966.1| 390.8| (771.5)|+------------------------+------------+---------+---------+---------+---------+|Total assets | 71,191.1| 66,793.0| 67,703.7| 61,972.0| 59,536.4|+------------------------+------------+---------+---------+---------+---------+|Amounts due to the | 1,606.9| 1,839.0| 2,045.3| 1,950.7| 2,151.7||Central Bank | | | | | |+------------------------+------------+---------+---------+---------+---------+|Amounts due to other | 6,486.2| 4,484.4| 2,010.0| 1,997.0| 1,332.6||banks | | | | | |+------------------------+------------+---------+---------+---------+---------+|Amounts due to customers| 52,139.6| 49,866.0| 51,793.6| 46,847.9| 45,821.6|+------------------------+------------+---------+---------+---------+---------+|Equity attributable to | 8,144.3| 7,806.8| 8,875.9| 8,407.3| 7,812.2||the Bank's equity | | | | | ||holders | | | | | |+------------------------+------------+---------+---------+---------+---------+|Minority interest | 15.4| 15.2| 16.7| 15.4| 18.8|+------------------------+------------+---------+---------+---------+---------+|Share capital | 167.1| 166.8| 166.8| 166.5| 166.5|+------------------------+----------+-+---------+---------+---------+---------++------------------------+----------+-+---------+---------+---------+---------+ Source: For 2005 and 2006: Consolidated Bank Pekao S.A. Capital Group FinancialStatements for the year ended December 31, 2005 and 2006. For 2004: Datarestated in accordance with IFRS presented in the Interim Financial Statementsof the Bank Pekao S.A. Capital Group, prepared for 4Q 2005 in accordance withIFRS (unaudited). For first six months of 2007 and first six months of 2006:Interim Consolidated Financial Statements of Bank Pekao S.A. Capital Group forthe period from January 1, 2007 to June 30, 2007 and the Interim ConsolidatedFinancial Statements of Bank Pekao S.A. Capital Group for the period fromJanuary 1, 2006 to June 30, 2006 (unaudited). Table: Capital ratios for the Pekao Group+--------------------+-----------------------+-----------------------------------+| |Six months ended June |Financial year ended December 31 || |30 | |+--------------------+-----------+-----------+-----------+-----------+-----------+| |2007 |2006 |2006 |2005 |2004 |+--------------------+-----------+-----------+-----------+-----------+-----------+|Number of shares (in|167,103,098|166,808,257|166,808,257|166,481,687|166,481,687||pieces) | | | | | |+--------------------+-----------+-----------+-----------+-----------+-----------+|Book value per share| 48.7| 46.8| 53.2| 50.5| 48.1||(in PLN) | | | | | |+--------------------+-----------+-----------+-----------+-----------+-----------+|Diluted book value | 48.7| 46.8| 53.2| 50.5| 48.1||per share (in PLN) | | | | | |+--------------------+-----------+-----------+-----------+-----------+-----------+|Capital adequacy | 14.7| 18.4| 16.5| 19.5| 21.7||ratio | | | | | |+--------------------+-----------+-----------+-----------+-----------+-----------+|Earnings (loss) per | 6.2| 5.2| 10.7| 9.2| 7.9||share (in PLN) | | | | | |+--------------------+-----------+-----------+-----------+-----------+-----------+|Diluted earnings | 6.2| 5.2| 10.7| 9.2| 7.9||(loss) per share (in| | | | | ||PLN) | | | | | |+--------------------+-----------+-----------+-----------+-----------+-----------+|Declared or paid | 9.0| 7.4| 9.0| 7.4| 6.4||dividend per share | | | | | ||(in PLN) | | | | | |+--------------------+-----------+-----------+-----------+-----------+-----------+|Risk weighted assets| 42,690.9**| 34,281.8| 38,265.4| 31,277.9| 29,675.6*||(in PLN million) | | | | | |+--------------------+-----------+-----------+-----------+-----------+-----------+|Core funds (Tier I) | 6,258.0**| 6,625.3| 6,506.8| 6,142.6| 5,796.6*||(in PLN million) | | | | | |+--------------------+-----------+-----------+-----------+-----------+-----------+|Supplementary funds | 0.0**| (171.9)| (15.1)| 96.9| 151.8*||(Tier II) (in PLN | | | | | ||million) | | | | | |+--------------------+-----------+-----------+-----------+-----------+-----------+ * Data in accordance with Polish Accounting Standards incomparable with data for2005 and 2006 ** Data for June 30, 2007 were presented in keeping with Resolution 2/2007 ofthe BSC. Source: Pekao's schedules (unaudited), for 1H 2007 and 1H 2006: InterimConsolidated Financial Statements of Bank Pekao S.A. Capital Group for theperiod from January 1, 2007 to June 30, 2007 and Interim Consolidated FinancialStatements of Bank Pekao S.A. Capital Group for the period from January 1, 2006to June 30, 2006. 5.2 Consolidated pro-forma financial data (in million PLN) Table: Pro-forma consolidated assets as of December 31, 2006 Unaudited Pro Forma Adjustments Total ProPLN million Pekao BPH285 Eliminations Other Pro Forma Capital Capital of Forma Group* Group** Intercompany Adjustments Transactions ASSETSCash, due from 3,577.9 1,067.9 - (759.6) 3,886.2Central BankBills eligible 2.5 24.1 - - 26.6for rediscountingat Central BankDue from banks 10,512.9 8,631.9 (20.1) - 19,124.7Financial 2,391.4 1,471.4 - - 3,862.8assets held fortrading Derivative 526.6 1,764.2 (29.6) 15.7 2,276.9financial assetsOther financial 1,613.2 10,644.4 - - 12,257.6assetsrecognized atfair valuethrough profitand lossaccountLoans and 31,778.1 28,596.8 (19.5) - 60,355.4advances tocustomersFinance lease 966.6 1,536.5 - - 2,503.1receivablesInvestments in 13,000.1 1,239.4 - - 14,239.5securitiesAvailable for 12,574.7 1,239.4 - - 13,814.1saleHeld to 425.4 - - - 425.4maturityAssets held for 8.8 209.0 - - 217.8saleInvestments in 207.3 80.9 - - 288.2subordinatedentitiesIntangible 608.9 63.3 - 177.4 849.6assetsTangible fixed 1,445.5 596.9 - 101.6 2,144.0assetsInvestment 52.7 - - - 52.7propertiesTax assets 305.9 13.7 - (17.9) 301.7Current tax 1.5 - - - 1.5assetsDeferred tax 304.4 13.7 - (17.9) 300.2assetsOther assets 705.3 184.0 (39.4) - 849.9TOTAL ASSETS 67,703.7 56,124.4 (108.6) (482.8) 123,236.7 * Historical data ** Compiled based on historical data Table: Pro-forma consolidated liabilities as of December 31, 2006 Unaudited Pro Forma Adjustments Total ProPLN million Pekao BPH285 Eliminations Other Pro Forma Capital Capital of Forma Group* Group** Intercompany Adjustments TransactionsDue to Central 2,045.3 200.0 - - 2,245.3BankDue to other 2,010.0 2,360.4 (39.6) 2.8 4,333.6banksFinancial 211.4 153.1 - - 364.5liabilitiesheld fortradingDerivative 504.2 1,217.1 (29.6) 65.4 1,757.1financialliabilitiesDue to 51,793.6 36,707.8 - 105.4 88,606.8customersDebt - 8,422.5 - - 8,422.5securitiesissuedCurrent tax 202.1 207.1 - (140.1) 269.1liabilityDeferred tax - - - - -liabilityProvisions 223.9 87.8 - - 311.7Other 1,820.7 975.1 (39.4) 7.0 2,763.4liabilitiesTOTAL 58,811.2 50,330.9 (108.6) 40.5 109,074.0LIABILITIES SHAREHOLDERS'EQUITYShare capital 166.8 - - 94.8 261.6Reserves 7,028.1 4,137.3 - (34.3) 11,131.1Current and 1,680.9 1,601.6 - (583.8) 2,698.6prior yearprofitsTotal equity 8,875.8 5,738.9 - (523.3) 14,091.4attributableto Bank'sshareholdersMinority 16.7 54.6 - - 71.3interestTOTAL 8,892.5 5,793.5 - (523.3) 14,162.7SHAREHOLDERS'EQUITY TOTAL 67,703.7 56,124.4 (108.6) (482.8) 123,236.7LIABILITIESANDSHAREHOLDERS'EQUITY * Historical data ** Compiled based on historical data Table: Consolidated pro-forma income statement for the year ended December 31,2006 Unaudited Pro Forma Adjustments Total ProPLN million Pekao BPH285 Elimination Other Pro Forma Capital Capital of Forma Group* Group** Intercompany Adjustments Transactions Interest income 3,846.5 2.957.0 (6.3) - 6,797.2Interest expense (1,469.5) (1,243.8) 6.3 (8.7) (2,715.7)Net interest income 2,377.0 1,713.2 - (8.7) 4,081.5 Fee and commission 2,127.3 932.2 (0.5) 0.1 3,059.1incomeFee and commission (228.1) (128.6) 0.5 (0.1) (356.3)expenseNet fee and 1,899.2 803.6 - - 2,702.8commission income Dividend income 1.8 16.9 - - 18.7Result on financial 36.6 163.5 - (79.6) 120.5instrumentsrecognized at fairvalueResult on 86.2 17.5 - - 103.7investments insecuritiesForeign exchange 255.6 477.5 - (189.3) 543.8result Other operating 169.9 61.7 - - 231.6incomeOther operating (127.1) (62.0) - - (189.1)expenseNet other operating 42.8 (0.3) - - 42.5income Net provision (222.3) (205.0) - - (427.3)chargesGeneral (2,364.0) (1,071.4) - (347.6) (3,783.0)administrativeexpensesResult on operating 2,112.9 1,915.5 - (625.2) 3,403.2activities Share in profits 90.9 - - - 90.9(losses) ofassociates andjoint venturesvalued using equitymethodProfit before tax 2,203.8 1,915.5 - (625.2) 3,494.1 Income tax expense (414.1) (386.0) - 118.8 (681.3)Profit after tax 1,789.7 1,529.5 - (506.4) 2,812.8 1. Attributable to 1,787.5 1,524.1 - (506.4) 2,805.2parent entityholders2. Attributable to 2.2 5.4 - - 7.6minority interest * Historical data ** Compiled based on historical data 6 Business strategy 6.1 Pekao's business strategy 6.1.1 Overview After completing BPH's de-merger and the transfer of BPH285 to Pekao, the latterwill be Poland's largest bank in terms of assets (according to data published bythe NBP) and will become one of the leading institutions in the Central andEastern Europe banking sector in terms of the scale of the business. 6.1.2 Segment-based service model The service model of the Post-Spin-off Pekao will be based on segmentation andbuilt on the existing service models of the Banks. This will involve: •for individual customers - mass, affluent, and private banking customer segments will be defined. For individual segments, dedicated business models, service levels and product offerings will be developed, including dedicated relationship managers for affluent and private banking customers; •for small and micro enterprises (SME) - professional products and services by dedicated SME relationship managers will be provided; •for corporate customers - Mid Corporate and Large Corporate segments will be defined. Segmentation will be based on the turnover, sector of economy, ownership type (private/public, domestic/international and other). Such segmentation will ensure the presence of the Post-Spin-off Pekao in all attractive client segments. Customers will be served by relationship managers, which will enable optimization of the service levels and servicing costs. The relationship managers will focus on maximizing portfolio returns, while representing the relevant expertise and a customer-oriented approach, and providing high quality and efficient customer service, as well as support in all aspects of generating added value by employing the best sales management practices and integrated sales management tools. 6.1.3 Distribution network Post-Spin-off Pekao intends to offer its customers a superior physicaldistribution network, with convenient network access countrywide. After thetransfer of part of BPH's property to Pekao under the Spin-off the network willexpand by 285 retail branches. The branch network will be the primary location for sales of services for masscustomers (standard services) as well as affluent and small and micro enterprisecustomers (with dedicated relationship managers). Private banking customers will be served through a network of private bankingoffices, located in the largest cities in Poland. Corporate customers will be served by relationship managers. Large corporatecustomers will have their dedicated centralized team located in Warsaw whilemid-corporate customers will be served by relationship managers in regionalCorporate Customers Centers located throughout Poland. Transactionalcapabilities for corporate customers (cash transactions, night vaults, automatedcash withdrawals, etc) will be provided by the branches. 6.1.4 Expected synergies Thanks to the integration with BPH285, Pekao will be in a position to capturesynergies and strengthen its position as one of the leading financialinstitutions in Poland with a well structured and stable balance sheet and highgrowth potential. These synergies will be available though the combination of the experience andstrengths of both Banks, the most important of which are: • high quality and efficient sales network and sellers; • familiar credit products including mortgages, consumer loans, credit cards; • a wide range of saving products including deposits, mutual funds and structured products; • a modern internet banking platform; • professional service offering for SMEs; • a strong market position with large and medium-sized companies; • a leading position in complex corporate finance transactions; • a strong presence in electronic and cash management services; • a wide customer base. Positive business effects of the integration are expected in the followingareas: • Retail banking The Management Board of Pekao anticipates revenue synergies stemming fromimproved cross-selling and market penetration, supported by marketing campaigns.Credit cards, loans for SMEs and loans insurance, together with asset managementproducts are examples of products that will generate additional retail bankingrevenues. In addition, implementing internal best practices and deploying best practicesin sales management, multi-channel distribution system and CRM systems (CustomerRelationship Management) are expected to bring a deeper understanding ofcustomer preferences and thus to increase the efficiency of marketing effortsand campaign management. • Corporate banking Pekao expects that the alignment of key products to internal best practicescombined with the adjustment of credit risk policy and implementation of thebest-choice risk management solutions will bring additional revenues in themedium term. The highest cross-selling potential has been identified inderivative products offered to corporate customers including advanced hedginginstruments. These will be sold in accordance with appropriate risk managementpolicies (in particular, reputation risk management) to ensure proper sales ofthese innovative financial products. The Management Board of Pekao expects that additional efficiencies should bemade as a result of an improved balance sheet structure in view of bothliquidity and foreign currency position management. • Financial market operations The Management Board of Pekao anticipates that following the Spin-off, Pekaowill become the leader in Poland's market in terms of treasury productsincluding debt securities. Active market-making and a strong market positionaccompanied by the highest risk management standards, in Pekao's ManagementBoard opinion, should ensure the clients of Post-Spin-off Pekao broad access totreasury products and will enable Post-Spin-off Pekao to broaden its offering ofproducts to clients. • Cost savings The Management Board of Pekao anticipates that cost synergies are expected inboth non-personnel and personnel costs as well as in depreciation. The optimization of IT infrastructure, migrating BPH's customers to the sameplatform in key systems, as well as eliminating the cost of hardware/operatingsystems redundancies will generate additional savings once the migration processis completed. Cost synergies in consulting, auditing and marketing services,postal charges, telecommunications bills, insurance, maintenance etc., can beachieved by using the increased purchasing power and negotiation capabilities aswell as economies of scale. In addition, due to the fact that personnel costs account for a significantportion of tangible costs, Pekao's Management Board anticipates that the gradualreduction in the number of employees discussed below coupled with therationalization of processes will bring savings in lease costs, maintenance,supplies and telecommunications charges. Personnel costs represent the source of potential cost savings that canmaterialize through the rationalization of certain procedures and theelimination of duplicated roles. These savings can be supplemented with ongoinginitiatives to improve efficiency, particularly in the area of IT, logistics andaccountancy. Until March 31, 2008, Pekao will not reduce its staff by layoffsand does not plan any major headcount reductions within the two years followingthe Spin-off. Pekao's Management Board expects, however, that the naturalattrition of human resources combined with a necessary controlled approach torecruitment will result in lower employment figures during this period enablingit to achieve personnel cost savings. Despite substantial investments that will have to be made during the integrationprocess, especially in IT, there may be an additional potential to refinePekao's investment plans resulting in lower levels of investment leading to areduction in depreciation costs in future periods. 6.2 Dividend policy On April 5, 2005, Pekao's AGSM adopted a resolution on the distribution ofdividends for 2004 of PLN 6.40 per share. The dividend for 2005 was PLN 7.40 pershare (Pekao's AGSM resolution of May 4, 2006), and the dividend for 2006 wasPLN 9.00 per share. The relevant Pekao AGSM resolution on the distribution ofdividends for 2006 was adopted on April 26, 2007. Pekao implements a policy of increasing a nominal value of dividend per Share,with no restrictions on the payment of dividends. Such policy was followed inrecent years. The Management Board of Pekao intends to continue this in thefuture. 7 Issuer's key persons Jan Krzysztof Bielecki, President of the Management Board, ChiefExecutive OfficerLuigi Lovaglio, Vice President of the Management Board, GeneralManagerPaolo Iannone, Management Board MemberChristopher Kosmider, Management Board MemberMarian Wazynski, Management Board MemberJerzy Woznicki, Chairman of the Supervisory BoardPaolo Fiorentino, Deputy Chairman, Secretary of the SupervisoryBoardFederico Ghizzoni, Deputy Chairman of the Supervisory BoardPawel Dangel, Supervisory Board MemberFausto Galmarini, Supervisory Board MemberOliver Greene, Supervisory Board MemberLeszek Pawlowicz, Supervisory Board MemberEnrico Pavoni, Supervisory Board MemberKrzysztof Pawlowski, Supervisory Board Member 8 Dilution Before the Offering After the OfferingPekao's existing shareholders hold After the Offering, Pekao's167,103,098 Shares, which represent 100% existing shareholders' share in theof Pekao's share capital. total number of Shares will be approximately 63.8%. The Spin-off Issue Shares will represent approximately 36.2% of the total number of Shares after the Offering. 9 Risk Factors Potential investors should review the following Risk Factors, as well as theother information contained in this Prospectus thoroughly. Any of the RiskFactors discussed below may materially and adversely affect Pekao's business,financial condition and development prospects, which in turn may materially andadversely affect the value and the price of Pekao Shares or investors' rightsattached to the Spin-off Issue Shares, as a result of which such investors maynot obtain their expected return on the Spin-off Issue Shares. Potential investors should be aware that the Risk Factors described below arenot the only risks to which Pekao and its Group may be exposed. Pekao presentsonly those Risk Factors relating to its business which it considers significant.There may be other Risk Factors, which in Pekao's view are currently notrelevant or have not been identified, which could produce the effects referredto above. 9.1 Risk factors relating to Pekao Group's business 9.1.1 Risk of adverse changes in Pekao's macroeconomic environment Pekao's business largely depends on the macroeconomic situation and the pace ofeconomic growth in Poland. Pekao operates under Polish law and European Unionregulations, and its assets are predominantly located in Poland. Therefore,external factors such as the policy of the Polish Government, decisions made bythe Monetary Policy Council, tax rates, Gross Domestic Product's growth rate,inflation rate, as well as other factors or events affecting Poland's economicsituation, also directly or indirectly affect Pekao's financial condition.Adverse changes in Pekao's macroeconomic environment may adversely affectPekao's performance. 9.1.2 Competition Risk For a few years the Polish banking sector has been subject to intensifyingcompetition, including among other things an increased presence of new entities.Banks operating in the Polish market continue to broaden the range of servicesand distribution channels, resulting in intensifying competition in the Polishbanking sector. Additionally, there are many financial institutions which arenot banks, but which compete with Pekao in soliciting deposits and loans. Competition in the banking sector may adversely affect the activities andfinancial condition of Pekao and the Pekao Group, its financial results anddevelopment prospects. 9.1.3 Risks relating to the legal environment The Pekao Group's business is also exposed to the potential threat of changes inlaw and variance in their interpretation. The enforcement of any new regulationsthat are of importance to the Pekao Group may involve difficulties in terms ofinterpretation, inconsistency of judicial decisions and an unfavorable positionadopted by governmental agencies. Any adverse amendments to laws, including theBanking Law, corporate law and laws governing the operation of public companies,labor law and social insurance law, may adversely affect the activities andfinancial condition of the Pekao Group, its financial results and developmentprospects. 9.1.4 Risk related to tax regulations The Polish tax system is characterized by a high number of amendments toregulations and a lack of clear interpretation. Tax law regulations are subjectto frequently changing interpretations by different tax authorities and courts.Additionally, Polish tax law does not define in sufficient detail the formalprocedures regulating calculating tax obligations due for a given period oftime. Therefore, there is a risk that the tax settlements of Pekao Group'sentities in Poland may be deemed to be inconsistent with the tax regulations. Tax settlements may be questioned and changed by the tax authorities and taxaudits within five or, in certain cases, six years from being effected by PekaoGroup's entities. If the auditing bodies interpret the tax regulations in amanner different than the Pekao Group, it may adversely affect the activitiesand financial condition of the Pekao Group, its financial results anddevelopment prospects. 9.1.5 Risk relating to the management of Pekao's assets and liabilities In providing financial services, Pekao is exposed to risks relating to that typeof activities, including but not limited to credit risk, liquidity risk,operating risk, market risk (which includes exchange rate risk and interest raterisk) and risk relating to the investment portfolio. Pekao takes a range of actions aimed at mitigating the adverse effect of theserisks: The policy of Pekao's asset and liability management aims to optimize thestructure of the bank's balance sheet and off-balance-sheet items, taking intoaccount the assumed risk/income ratio and the combined effect of various typesof risk. These risks are monitored and controlled with respect to profitabilityand the capital required to take such risks and regularly reported as part ofmanagement information. Pekao's asset and liability management committee controls Pekao's capitaladequacy and the level of liquidity risk, market risk (the interest rate riskand exchange rate risk) and the portfolio market risk with respect to externallimits set forth by the banking supervision authorities and the Pekao's internallimits. Furthermore, in line with the recommendations of the banking supervisionauthorities, Pekao monitors the level of liquidity risk and market risks(interest rates and the exchange rate risk) in its foreign subsidiaries and inselected domestic subsidiaries. Credit risk Pekao pursues a conservative credit risk policy through the application ofpre-defined lending safety rules in individual market segments and the necessaryinstruments limiting the assets' exposure to the credit risk. The Pekao Group'slending policy objectives are inline with Pekao's lending policy objectives. The credit risk assessment procedures employed in the Pekao Group companies areconsistent with the procedures employed in Pekao. According to Pekao's lending policy, new lending is developed by, among others: • identifying individual client segments in which to target lending activities; • defining receivables concentration limits; • mitigating risk in particular business sectors; • structuring the decision-making process for high-risk transactions; and • defining product parameters, formulating lending procedures and methods for appraising clients' credit rating and adhering to such parameters, procedures and methods. As part of its cooperation with UniCredito Italiano, Pekao is workingintensively to further rationalize the lending process to enhance itseffectiveness and safety. The primary focus is on improving risk measurement andmonitoring procedures and tools. Nevertheless, there is no assurance that lending activities will not result inlowering the quality of the Pekao Group's loan portfolio and that this will notadversely affect the activities and financial condition of the Pekao Group, itsfinancial results and development prospects. Liquidity risk The objectives of liquidity risk management are: • to ensure and maintain Pekao's ability to meet both its current and future payment obligations, taking into account the cost of liquidity and the return on equity; • to prevent a crisis situation; • to define solutions that will enable Pekao to carry on in a crisis situation if one occurs. Pekao's investments (in PLN and in foreign currencies) are carried out inaccordance with the requirements of the Banking Law and the recommendations ofthe NBP. Pekao invests primarily in Polish treasury securities and securitiesissued by the states and financial institutions with the highest ratings,characterized by high levels of liquidity and the desired yield. Theseinstruments also constitute Pekao's liquidity stock, enabling it to survive anypossible crisis. In line with the recommendations of the banking supervision authorities, Pekaoemploys and internally monitors internal liquidity indices that define the ratioof the total adjusted maturing assets to the total adjusted liabilities due. Pekao employs appropriate emergency procedures to protect the bank against bothincreases in liquidity risk and a substantial deterioration in Pekao's financialliquidity. However, there is no assurance that a continuing failure to match the maturitiesof assets and liabilities will not adversely affect in the future the activitiesand financial condition of the Pekao Group, its financial results anddevelopment prospects. Operating risk Operating risk management is based on internal procedures approved by Pekao'sManagement Board. The documents are consistent with the assumptions presented inthe "M Recommendation" issued by the BSC as well as the European Parliament andCouncil Directive No. 2006/49/EC of June 14, 2006 on the capital adequacy ofinvestment firms and credit institutions (as amended and restated) (OJ L06.177.201) and the European Parliament and Council Directive No. 2006/48/ECdated June 14, 2006 on the taking up and pursuit of the business of creditinstitutions (as amended and restated) (OJ L.06.177.1). The procedures definethe system of operating risk management, evaluating, monitoring, controlling/limiting, reporting, outsourcing and classifying operational events. The operating risk management system covers both Pekao and its subsidiaries. For the purpose of mitigating operating risk, Pekao has security procedures inplace, including anti-money laundering procedures and rules for safeguardingPekao units, operational continuity management, banking secrecy compliance,personal data protection and the terms on which Pekao may cooperate with thirdparties. There is, however, no certainty that the circumstances and events whichinfluence Pekao's operating activities will not adversely affect the activitiesand financial condition of the Pekao Group, its financial results anddevelopment prospects in the future. Market risk In its activities, Pekao is exposed to market risks, i.e. interest rate risk,exchange rate risk and risk relating to securities held by it, as well as othertypes of risk arising from changes in market parameters. In managing interest rate risk, Pekao seeks to maximize the economic value ofcapital and realize the budgeted net interest income within the adopted limits.Pekao's exposure to changing interest rates is monitored through an interestrate gap (revaluation gap) analysis, duration analysis, simulation analyses,stress testing and back testing. The objective of exchange rate risk management is to create a currency profileof on-balance and off-balance sheet items, so that it remains within externaland internal limits. Pekao's exposure to exchange rate risk is measured on adaily basis, for internal needs, by means of the Value at Risk (VaR) model andan extreme scenario analysis testing that is supplementary to the VaR method. The VaR method is an integral component of the market risk management of allPekao's investment portfolios. The actual application of VaR limits is monitoredon a daily basis. However, these limits do not protect Pekao against rare andvery significant changes on the market. Therefore, the market risk managementsystem is supplemented by an analysis of shock scenarios (stress test) in orderto estimate the effects of changes to market parameters on Pekao's results,should such events occur. Derivatives and instruments in the trading portfolio and in theavailable-for-sale portfolio are valued on a regular basis based on the currentmarket prices or, if no such quotations are available, based on valuation modelsthat, in Pekao's view, best reflect the fair value of such instruments. There is, however, no assurance that in the future the above market risks willnot adversely affect the activities and financial condition of the Pekao Group,its financial results and development prospects. Investment portfolio risk Pekao is exposed to risk relating to maintaining an investment portfolio. Themarket risk management process at Pekao, for all investment portfolios is basedon the value at risk method (VaR). The Pekao Management Board set the VaRlimits, the actual use of which is monitored on a daily basis. There is, however, no certainty that in the future the investment portfolio riskwill not adversely affect the activities and financial condition of the PekaoGroup, its financial results and development prospects. 9.1.6 Reliance on management staff The organizational structure of Pekao centers around the Management Board andthe key directors. This group of individuals is responsible for making themajority of decisions relating to Pekao's business activities. Taking into account the important influence of management staff on Pekao'sactivities and performance, a system of Management by Objectives (MBO) has beenput in place. This system involves members of Pekao's executive staff and otheremployees important to Pekao's operations, and makes their remunerationpartially dependent on performance. In addition, Pekao has implemented incentive and loyalty schemes with a view tobuilding strong ties between the management staff and Pekao, and enhancing theireffectiveness and stability. Under the management option program, eligible individuals participating in thescheme are awarded non-negotiable management options, entitling them to acquirePekao Shares. Pekao is also implementing a long-term cash incentive scheme. In order to exercise his right to acquire Pekao Shares or receive a cash bonus,depending on the type of scheme, the scheme participant must achieve anindividual target, the Pekao Group must have achieved its common target and thescheme participant must have worked for the Pekao Group for a certain period oftime. Pekao has also implemented the "Key Employee Retention Scheme". Individualsparticipating in the scheme are entitled to a bonus for having worked for Pekaofor three years. The scheme covers two or three year periods. It is primarilyintended for key employees involved in direct contact with both institutionaland retail clients. However, despite these efforts there is no guarantee that Pekao will be able toretain its key personnel. A failure to retain highly qualified members of topexecutive staff and key personnel to meet current needs, may adversely affectthe activities and financial condition of the Pekao Group, its financial resultsand development prospects. 9.1.7 Risk relating to Pekao's foreign investments One of the Pekao Group's key investment projects is its investment in theUkrainian market (see Chapter IX Investments, Section 2). As this is conductedin a different economic and legal environment, the project involves higher risksthan any activities in the domestic market. If the economic forecasts for the Ukrainian market's development do nottranspire or the legal environment for conducting business in Ukraine changesmaterially, there is a risk that the Pekao Group's expansion in that market andits financial results relating to that investment will differ from expectation.This situation may adversely affect the activities and financial condition ofthe Pekao Group, its financial results and development prospects. 9.2 Risk factors relating to the integration of Pekao with BPH The integration of the Banks to be implemented through the Spin-off is a complexprocess, involving a range of legal and operating risks. 9.2.1 Risk related to the failure or delay of the Spin-off and of theincrease in Pekao's share capital Pursuant to Art. 530 (S)2 of the CCC, where the portion of a de-merged company'sproperty is transferred to an existing company, the spin-off becomes effectiveon the date on which the share capital increase in the bidding company isregistered. The increase in Pekao's share capital in relation to the Spin-off will not beeffected unless Pekao's Management Board files an application with the registrycourt to register Pekao's share capital increase and amendments to Pekao'sCharter set forth in the Pekao Spin-off Resolution, together with the requiredBSC permits and other necessary documents, within the six months period providedfor in the CCC; however there is some doubt as to whether the term begins to runon the day of the adoption of the Spin-off Resolutions (Art. 532 (S)1 inconnection with Art. 325 (S) 1 of the CCC) or on the day the Prospectus isapproved (Art. 532 (S)1 in connection with Art. 431 (S)4 of the CCC). The increase in Pekao's share capital and the Spin-off will also not be effectedif the appropriate court refuses to register such an increase in connection withthe Spin-off in a final decision. The Spin-off may not be effected, or may be subject to a considerable delay,also in connection with the Spin-off Resolutions being challenged or other legalactions being taken by eligible persons, in particular Pekao's or BPH'sshareholders (see Section 9.2.2 below). The Spin-off is a landmark transaction, and a number of regulations based onwhich it is to be carried out may raise concerns in terms of theirinterpretation. Pekao's Management Board cannot guarantee that governmentalagencies and courts will interpret the provisions of laws pursuant to which theSpin-off is to be carried out in accordance with the interpretation adopted byPekao. If governmental agencies or courts adopt a different interpretation ofthe relevant provisions of law, the Spin-off procedure may be significantlyextended, may not be effected at all or may be cancelled. The failure or a significant delay in the performance of the Spin-off andregistration of an increase in Pekao's share capital may adversely affect theactivities and financial condition of the Pekao Group, its financial results anddevelopment prospects. 9.2.2 Risks related to the Spin-off Resolutions being challenged The Spin-off Resolutions may be challenged and this may adversely affect theprocess and the timeframe for registering the Spin-off. If the court, in itsfinal judgment, upholds the suit challenging the Spin-off Resolutions, theSpin-off may not be effected or, if it has already been registered, cancelled. Each of the Spin-off Resolutions may be challenged in a lawsuit to set aside theresolution or declare it invalid, brought against BPH or Pekao (Art. 544 of theCCC), as the case may be. The Spin-off Resolutions may be challenged by: • the Management and Supervisory Boards and any members thereof; • a shareholder who voted against the resolution and requested that his/ her objection be recorded in the minutes; • a shareholder that was unjustifiably denied the right to participate in the general shareholders' meeting; and • shareholders that were absent from the general shareholders' meeting because the general shareholders' meeting had been improperly convened or adopted a resolution on a matter that was not included on the agenda. In a lawsuit to set aside a resolution the claimant must prove that theresolution: (i) is in conflict with the provisions of the company's charter,(ii) is in conflict with good practice and is prejudicial to the company'sinterests or that it was intended to harm a shareholder. In a lawsuit to declarea resolution invalid, the claimant has to prove that the resolution conflictswith the provisions of law. The Spin-off Resolutions may not be challenged on the grounds of objectionsconcerning, exclusively, the share exchange ratio (which does not preclude thatsuch objections may be raised together with other charges). This shall notprejudice any right to seek damages available under law. Two shareholders have voiced their objections to the Pekao Spin-off Resolution.Given that the objections were not voiced immediately after the adoption of theresolution, but only after the next item on the agenda had been discussed andPekao's EGSM had adopted a subsequent resolution, these objections may be deemedto have been filed passed the deadline. The Issuer is not aware of anyunjustified refusal to allow a shareholder to participate in Pekao's EGSM.Pekao's Management Board believes that Pekao's EGSM was duly convened. To the best of the Issuer's knowledge, two objections have been voiced againstthe BPH Spin-off Resolution. The Issuer is not aware of any unjustified refusalto allow BPH shareholders to participate in the EGSM of BPH or of anyirregularities in its convening. According to Art. 544 (S)2 of the CCC, the deadline for challenging the Spin-offResolutions is one month following their adoption by the EGSM of Pekao and BPH,respectively. That deadline passed on May 28, 2007. To the best of the Issuer's knowledge, no copy of any suit filed against BPH andconcerning the BPH Spin-off Resolution has been delivered to BPH so far. On August 13, 2007 the Issuer received a copy of a lawsuit filed by a Pekao'sshareholder for setting aside the Pekao Spin-off Resolution. From the Issuer'spoint of view, the lawsuit is entirely groundless. Challenging the Spin-off Resolutions will not generally impede the proceedingsrelating to the registration of the Spin-off and the increase in Pekao's sharecapital. However, the appropriate registry court may suspend the registrationproceedings ex officio, or upon a motion, upon hearing the case (Art. 423 (S)1of the CCC), and therefore, without limitation, after examining the position ofthe Company concerned. An additional issue, even if raising certain legal concerns, is that theregistration proceedings may also be suspended based on a trial court's decisionissued as an injunctive relief in a lawsuit to set aside the Spin-off Resolutionor to declare it invalid. It is debatable whether or not the trial court mayaward an injunctive relief suspending the registration proceedings becausesuspending registration proceedings "is a domain" of the registry court.Moreover, in order for the trial court to award an injunctive relief it has tobe credibly demonstrated that the claim has been legitimate and that a legalinterest in the award of such relief exists. In other words, it has to becredibly demonstrated that failing such an injunctive relief the enforcement ofthe judgment passed in the pertinent case would be rendered impossible ormaterially hampered, or that attaining an objective of these proceedings wouldbe otherwise frustrated or hampered. The Issuer is convinced that the Pekao Spin-off Resolution complies with theprovisions of law, good practice and the Charter of Pekao, and does notcontravene the interests of Pekao and was not intended to harm Pekao'sshareholders. However, it cannot be ruled out that in the event of the PekaoSpin-off Resolution being challenged, the registration proceedings will besuspended or that the Resolution itself will be set aside. In such event, thepersons to whom the Series I Shares are allotted should consider the relatedrisks. If the registration procedure is suspended, the Spin-off will be delayed. Therealso is a risk, that a lengthy suspension may result in the Banks abandoning theSpin-off on the terms set forth in the Spin-off Plan. Such developments, if theyoccur, may adversely affect the activities and financial condition of the PekaoGroup, its financial results and development prospects. If the Spin-off Resolution is set aside or declared invalid before the Pekao'sshare capital increase related to the Spin-off has been registered, the Spin-offand the related Series I Share issuance will not occur. However if, despite the lawsuit to set aside or declare invalid the Spin-offResolution, the court registers the Spin-off, then pursuant to Art. 545 (S)1 ofthe CCC, as a consequence of the Spin-off Resolution being finally set aside ordeclared invalid, the Spin-off may be cancelled and the registry court maystrike out the records made in connection with the Spin-off. The Spin-off mayalso be cancelled in other circumstances set forth in Art. 21 of the CCC inconjunction with Art. 532 (S)1 of the CCC. If cancelled, the Spin-off would bedeemed null and void and Pekao would be required to return the BPH propertyassigned to it in connection with the Spin-off. This situation would havefar-reaching consequences for the Banks and their shareholders. The legalsituation which would be created as a result of canceling the Spin-off would beextremely complex. In particular, there would be no assurance that Pekao andPekao's shareholders (including those to whom the Spin-off Issue Shares havebeen issued or who have acquired such shares) would receive adequatecompensation for the loss of property or value incurred (uszczerbek majatkowy)as a result of canceling the Spin-off. The above events may, if they occur, have an adverse effect on the activitiesand financial condition of the Pekao Group, its financial results anddevelopment prospects, as well as directly affect the financial standing ofPekao's shareholders. 9.2.3 Risks relating to the adopted Share Allocation Ratio Pursuant to the Spin-off Resolutions, BPH shareholders will receive the Spin-offIssue Shares due to their holding of shares in BPH, in accordance with the ShareAllocation Ratio defined in the Spin-off Plan. The Share Allocation Ratio specified by the Banks' Management Boards in theSpin-off Plan was determined according to the best market practice, on the basisof valuations of BPH285 and Pekao using the most frequently used standardmethodologies applicable to financial institutions, as described in the Spin-offPlan. The Share Allocation Ratio was examined as part of an audit of the Spin-off Planconducted by an independent expert appointed by the District Court forKrakow-Srodmiescie, XI Business Division of the National Court Register, namelyJanina Niedospial, a court expert registered with the regional court in Krakow. Based on the conducted review, the court expert stated that the Share AllocationRatio had been duly determined and that the methods used to determine the Ratiowere justified. As a source of particular difficulties relating to the sharevaluation, the expert's opinion indicates the impact of market speculations onthe Pekao market price in connection with the potential consequences of theintegration with BPH and the lack of market certainty with regard to Pekao'sfuture profits. Both Pekao and BPH approved the Spin-off Plan in the form of the relevantSpin-off Resolutions adopted by their EGSMs. According to Art. 544 (S)3 of theCCC, the Spin-off Resolutions cannot be challenged solely on the grounds ofreservations regarding the Share Allocation Ratio. However, this does notprejudice the right to claim damages on general terms. The Management Board ofPekao is convinced that the Share Allocation Ratio has been correctlyestablished. However, the risk relating to possible shareholder claims fordamages being raised against Pekao cannot be excluded. Any damages awarded toshareholders in this respect may adversely affect the activities and financialcondition of the Pekao Group, its financial results and development prospects. 9.2.4 Risk relating to Pekao failing to obtain the license to engage inbrokerage activities As stipulated in the Spin-off Plan, Pekao will assume the rights and obligationsunder certain agreements entered into in the course of the BPH's BrokerageHouse, and the brokerage license will remain with BPH. On August 10, 2007 Pekaoapplied to the FSC for a license to engage in brokerage activities. If the process of obtaining the brokerage license is extended, there is a riskthat the Spin-off may also be delayed. Pekao has taken steps to satisfy the applicable requirements and to prepare therelevant documents in order promptly to obtain the license. However, the riskdescribed above cannot be entirely excluded. Should such risk transpire, it mayadversely affect the activities and financial condition of the Pekao Group, itsfinancial results and development prospects. 9.2.5 Risk relating to joint and several liability for BPH's obligations Pursuant to Art. 536 (S)1 of the CCC, the companies to which the property of ade-merged company has been transferred shall be jointly and severally liable forthe obligations assigned to the bidding company or the newly-formed company inthe de-merger plan, for three years after the de-merger is announced. Thisliability is limited to the net value of the assets assigned to each company inthe de-merger plan. There is no certainty as to the way in which this provisionwill be interpreted in the case of the Spin-off. There is a risk that, based onthis provision, Pekao and BPH may be held jointly and severally liable for BPH'sobligations incurred prior to the Spin-off Date and assigned to each of theBanks under the Spin-off. Pekao intends to agree with BPH on the procedure andterms of mutual settlements, if claims assigned to the one of the Banks underthe Spin-off are directed to the other Bank. It may not be ruled out that BPH's creditors to which BPH remains liable afterthe Spin-off Date will direct their claims against Pekao. This situation may adversely affect the activities and financial condition ofthe Pekao Group, its financial results and development prospects. 9.2.6 Tax risks related to the Spin-off Pekao believes that both the property to remain with BPH and the property to beacquired by Pekao will constitute "organized parts of the enterprise" within themeaning of the tax regulations. As a result, Art. 93c of the Tax Code shouldapply, among others, according to which as of the Spin-off Day, Pekao willassume all of BPH's rights and obligations related to the property assigned toit in the Spin-off Plan and specified in the relevant provisions of the tax law(tax succession). Furthermore, as regards BPH shareholders, their acquisition ofshares in Pekao's increased share capital (the Spin-off Issue Shares) will notresult in any profit-sharing income from corporate entities. The Spin-off is a precedent-setting transaction and certain provisions based onwhich it is conducted may raise difficulties in terms of their interpretation.Therefore, if the tax authorities take a different position, as a result ofwhich the property, whether that remaining in BPH or that transferred to Pekao,would not qualify as an "organized part of the enterprise", a risk might arisethat a different interpretation would be adopted with respect to the issue oflegal succession. As a result, the terms of settling tax liabilities may change,including the right to recognize the tax deductible costs associated with thatproperty taken over by Pekao. In particular, this might rule out the ability torecognize certain material costs as tax deductible costs. With respect to income taxes related directly to shareholders, pursuant to Art.10 Section 1 item 6 of the Corporate Income Tax Act and Art. 24 Section 5 item 7of the Personal Income Tax Act, with respect to a de-merger of a company byspin-off, where the property taken over in the de-merger or the propertyremaining in the company does not constitute "organized parts of theenterprise", the income from sharing profits is the amount of excess of thenominal value of the shares allotted in the bidding company (in this case thenominal value of the Spin-off Issue Shares) established as of the spin-off dayover the costs of acquisition or subscription for the shares in the de-mergedcompany, calculated pursuant to Art. 15 Section 1k or Art. 16 Section 1 item 8of the Corporate Income Tax Act (respectively, Art. 22 Section 1e or Art. 23Section 1 item 38 of the Personal Income Tax Act). As a rule, the income wouldbe subject to a flat rate 19% tax to be remitted by Pekao. It should be added that, based on Art. 30 (S)1 in conjunction with (S)5 of theTax Code, any liability for overdue tax obligations on this account shall beborne by Pekao, as a tax remitter. 9.2.7 Operating risks The Spin-off and then the integration process may result in certain operatingconsequences which may constitute a potential threat to the Pekao's smoothoperation. Due to its complexity, the integration is absorbing Pekao's resources to asignificant extent, including in particular the time of key persons, which mayadversely affect Pekao's current operations. There also is the risk of losingsome customers and key personnel, as well as the additional operating risksrelated to migrating customer data of the customers transferred to Pekao,harmonizing the processes, products and systems, transferring a significantnumber of BPH's employees to Pekao and undertaking by these employees of newresponsibilities in a new organization. These risks may adversely affect theactivities and financial condition of the Pekao Group, its financial results anddevelopment prospects. Based on its earlier experience with integration processes, Pekao has takensteps to mitigate the above risks, in particular it has prepared additionalloyalty programs for its key persons. Pekao operates and will operate an opencommunications policy towards its employees and clients, informing them of theprogress and anticipated effects of the integration. There is no guarantee that the speed, effectiveness and effects of theintegration process will meet expectations. Any difficulties in completing theintegration process may have an adverse effect on the activities and financialcondition of the Pekao Group, its financial results and development prospects. 9.3 Risk factors relating to the capital market and trading in shares 9.3.1 Risk of the failure to list Series I Shares on the WSE In order to be introduced to trading on the WSE, the Spin-off Issue Shares mustbe registered in the securities deposit operated by the NDS and introduced totrading on the WSE by the Management Board of the WSE upon the Issuer's motion((S)37 Section 2 in conjunction with (S)38 Section 1 of the WSE Rules). Pekao intends to comply with all requirements stipulated by the WSE Rules inrelation to the introduction of Series I Shares to trading on the WSE, and doesnot recognize any grounds for the Management Board of the WSE to refuse tointroduce the Series I Shares to trading on the WSE. Failure to obtain theconsent of the WSE Management Board to the introduction of the Series I Sharesto trading on the WSE could adversely affect their transferability. There is no certainty that such situation will not occur in respect of theSpin-off Issue Shares. Therefore, there is a risk that investors may not earntheir expected return on the Spin-off Issue Shares. 9.3.2 Risk of the Shares being excluded from trading on the regulatedmarket by or upon request of the FSC If the issuer or the introducing party (wprowadzajacy) fails to perform orimproperly performs the obligations referred to in the Public Offering andPublic Companies Act, in Art. 14 Section 2, Art. 15 Section 2, Art. 37 Sections4 and 5, Art. 38 Sections 1 and 5, Art. 39 Section 1, Art. 42 Sections 1 and 6,Art. 44 Section 1, Art. 45, Art. 46, Art. 47 Sections 1, 2 and 4, Art. 48, Art.50, Art. 51 Section 4, Art. 52, Art. 54 Sections 2 and 3, Art. 56 and 57, Art.58 Section 1, Art. 59, Art. 62 Sections 2, 5 and 6, Art. 63 Sections 5 and 6,Art. 64, Art. 66 and Art. 70, or fails to perform or improperly performs theobligations arising from Art. 42 Section 5 in conjunction with Art. 45, Art. 46,Art. 47 Sections 1, 2 and 4, Art. 51 Section 4, Art. 52, Art. 54 Sections 2 and3, fails to perform or improperly performs the obligation arising from Art. 16item 1, fails to comply with the prohibition referred to in Art. 16 item 2, orfails to perform or improperly performs the obligations referred to in Art. 22Sections 4 and 7, Art. 26 Sections 5 and 7, Art. 27, Art. 29-31 and Art. 33 ofRegulation 809, the FSC may issue a decision to exclude the securities fromtrading on the regulated market for a specified period of time or indefinitely,or, taking into consideration the financial situation of the entity on which thepenalty is to be imposed, impose a cash penalty up to PLN 1 million or applyboth sanctions simultaneously. Furthermore, pursuant to Art. 20 Section 3 of the Trading in FinancialInstruments Act, at the FSC's request the company that operates the regulatedmarket excludes the securities or other financial instruments indicated by theFSC from trading, if trading in such instruments poses a significant threat tothe proper operation of the regulated market or the security of trading on suchmarket, or is against investors' interests. Pursuant to Art. 176 of the Trading in Financial Instruments Act, the risk thatthe Shares may be excluded from trading on the regulated market also arises ifthe Issuer fails to perform or improperly performs the obligations referred toin Arts. 157 and 158 of the Act or the obligations stipulated by the secondarylegislation adopted on the basis of Art. 160 Section 5 thereof. There is no certainty that such a situation will not occur in the future inrespect of the Spin-off Issue Shares. Therefore, there is a risk that investorsmay not earn their expected return on the Spin-off Issue Shares. 9.3.3 Risk of the Shares being de-listed by the WSE Pursuant to (S)31 of the WSE Rules, the Management Board of the WSE de-listssecurities if their transferability has become restricted, at the FSC's requestsubmitted as provided by the Trading in Financial Instruments Act, in the eventthat they are reverted from book-entry form, or if they are excluded fromtrading on a regulated market by the appropriate regulatory authority.Additionally, the WSE's Management Board may de-list securities pursuant to (S)31 Section 2 of the WSE Rules. There can be no assurance that such a situation will not occur in the future inrespect of the Spin-off Issue Shares. Therefore, there is a risk that investorsmay not earn their expected return on the Spin-off Issue Shares. 9.3.4 Risk of breaching the law in connection with the Offering and ofSeries I Shares not being admitted to trading on the regulated market In the event that an issuer, an introducing party or other entitiesparticipating in an offering on behalf of or upon instructions from the issueror the introducing party, are in breach or there is a reasonable suspicion oftheir being in breach of the law in connection with the public offering inPoland, or a reasonable suspicion that such breach may occur, the FSC may: • order that the commencement of the public offering is withheld or the offering interrupted for up to 10 business days; • prohibit the commencement of the public offering or its further conduct; • publish, at the issuer's or offering party's expense, information on acting in breach of the law in connection with the public offering. In the event that an issuer, an introducing party or other entities acting onbehalf of or upon instructions from the issuer or the introducing party are inbreach, or there is a reasonable suspicion of their being in breach, of the lawin connection with the admission to trading on a regulated market in Poland, orthere is a reasonable suspicion that such breach may occur, the FSC may: • order the suspension of the admission of the securities to trading on the regulated market for up to 10 business days; • prohibit the admission of the securities to trading on the regulated market; • publish, at the issuer's or introducing party's expense, information on acting in breach of the law when seeking to have the securities admitted to trading on a regulated market. There is no certainty that such a situation will not occur in the future inrespect of the Spin-off Issue Shares. The FSC may also employ the measures described in this Section if based on thecontents of the Prospectus it appears that: • the public offering of securities or their admission to trading on the regulated market is materially against investors' interests; • the incorporation of the issuer was made in flagrant breach of law, and such breach remains unremedied; • the issuer's business has been or is conducted in flagrant breach of the law and such breach remains unremedied; • the legal status of securities is in breach of the provisions of law. The risk of the FSC taking the above actions in respect of the Offering cannotbe precluded. Therefore, there is a risk that investors may not earn theirexpected return on the Spin-off Issue Shares. 9.3.5 Possibility of suspension of trading in the Shares on the WSE Pursuant to (S)30 Section 1 items 2 and 3 of the WSE Rules, if the Issuer isfound to act in breach of the regulations governing the WSE or if the ManagementBoard of the WSE determines that it is necessary for the interests or safety ofthe participants in trading, the WSE Management Board may suspend trading inPekao Shares for up to three months. Simultaneously, pursuant to (S)30 Section 2of the WSE Rules, the Management Board of the WSE suspends trading in the sharesfor up to one month, at the FSC's request submitted in accordance with theTrading in Financial Instruments Act. There is no assurance that such situation will not occur in the future inrespect of the Spin-off Issue Shares. Therefore, there is a risk that investorsmay not earn their expected return on the Spin-off Issue Shares. 9.3.6 Risks relating to volatile stock prices The purchase of Pekao Shares involves the risk relating to volatile stockprices. Stock exchange quotations are subject by the relationship of supply anddemand, which is the outcome of many factors and the result of investors'reactions which are difficult to predict. In the event of significantfluctuations in stock prices, shareholders may be at risk of not earning anexpected return. Furthermore, it should be taken into account that periodicchanges in Pekao's performance, the value and liquidity of the share market, theturns of the business cycle on the WSE and the world's stock exchanges, combinedwith changes in business and political factors, may all affect Pekao Sharesprices. 9.3.7 Risks relating to the supply of Spin-off Issue Shares Pekao is planning to list all of the Series I Shares on the WSE. Pekao is unableto predict the supply level of the Shares immediately after the listing of theSeries I Shares. The sale of a significant number of Pekao Shares on theregulated market may adversely affect their stock price. Therefore, there is arisk that investors may not earn their expected return on the Spin-off IssueShares. 10 Major Shareholders Pekao's parent entity is UniCredito Italiano. UniCredito Italiano holds88,121,725 shares in Pekao, which represent 52.73% of the share capital andcarry the right to exercise 52.73% of the votes at Pekao's GSM. 11 Organizational structure The Pekao Group consists of financial and non-financial institutions groupedaround the universal bank and offers a full range of financial services toindividual and corporate clients. On March 31, 2007, the Pekao Group comprised of 14 entities: Pekao as the parententity and 13 subsidiaries. The key subsidiaries are CDM Pekao, Pekao LeasingSp. z o.o., Pekao Faktoring Sp. z o.o., Pekao Pioneer Powszechne TowarzystwoEmerytalne S.A., Centrum Kart S.A., Pekao Financial Services Sp. z o.o.,UniCredit Bank (Ukraine) and HVB Ukraine. Table: Subsidiaries comprising the Pekao Group as at June 30, 2007+----------------------+-----------+------------+-------------+-------------+| Name of subsidiary | Type of | Registered | Percentage |Consolidation|| | business | office |share in the | method or || | activity | |capital/votes| valuation || | | |at the GSM in| method || | | | % | |+----------------------+-----------+------------+-------------+-------------+|UniCredit Bank |banking |Lutsk, |100.00 |Full ||(Ukraine) | |Ukraine | | |+----------------------+-----------+------------+-------------+-------------+|HVB Ukraine |banking |Kiev, |100.00 |Full || | |Ukraine | | |+----------------------+-----------+------------+-------------+-------------+|CDM Pekao |brokerage |Warsaw |100.00 |Full |+----------------------+-----------+------------+-------------+-------------+|Pekao Fundusz |financing |Warsaw |100.00 |Full ||Kapitalowy Sp. z o.o. | | | | |+----------------------+-----------+------------+-------------+-------------+|Pekao Leasing Sp. z |leasing |Warsaw |100.00 |Full ||o.o. | | | | |+----------------------+-----------+------------+-------------+-------------+|Pekao Faktoring Sp. z |financing |Lublin |100.00 |Full ||o.o. | | | | |+----------------------+-----------+------------+-------------+-------------+|Pekao Pioneer |financing |Warsaw |65.00 |Full ||Powszechne Towarzystwo| | | | ||Emerytalne S.A. | | | | |+----------------------+-----------+------------+-------------+-------------+|Drukbank Sp. z o.o. |does not |Warsaw |100.00 |Full || |conduct any| | | || |business | | | |+----------------------+-----------+------------+-------------+-------------+|Centrum Kart S.A. |auxiliary |Warsaw |100.00 |Full || |financing | | | |+----------------------+-----------+------------+-------------+-------------+|Pekao Financial |financing |Warsaw |100.00 |Full ||Services Sp. z o.o. |services | | | |+----------------------+-----------+------------+-------------+-------------+|Pekao Access Sp. z |business |Warsaw |55.26 |Full ||o.o. |consultancy| | | |+----------------------+-----------+------------+-------------+-------------+|BDK Consulting Sp. z |consulting,|Lutsk, |99.99 |Full ||o.o. |hospitality|Ukraine | | || |and | | | || |transport | | | |+----------------------+-----------+------------+-------------+-------------+|SARL Pekao Immobilier |real estate|Paris, |100.00 |Not covered || |management |France | |by || | | | |consolidation|+----------------------+-----------+------------+-------------+-------------+ Source: Interim Consolidated Financial Statements of Bank Pekao S.A. CapitalGroup for the period from January 1, 2007 to June 30, 2007 (unaudited). The above entities are described in more detail in Chapter XII OrganizationalStructure. Pekao holds shares in associated entities, of which the most important include:Pioneer Pekao Investment Management S.A., Xelion. Doradcy Finansowi Sp. z o.o.and Pirelli Pekao Real Estate Sp. z o.o. Pekao's strategy assumes that blocks of shares and stock in strategic companieswill be retained in its portfolio. 12 Pekao's activities in Ukraine Pekao entered the Ukrainian market in 1997. Given the attractiveness of theUkrainian economy and the prospects for the Ukrainian banking sector, Pekao, incooperation with the UniCredit Group, has prepared a new strategy regardingbusiness activity in Ukraine. The objective is to build a strong bankingorganization operating both in the retail and in corporate market segments. The retail business is developed by organic growth and expansion of the networkof UniCredit Bank (Ukraine), a wholly-owned subsidiary of Pekao, with Pekao'scapital support to this bank. As of September 3, 2007, UniCredit Bank (Ukraine)had opened 36 branches, including branches in Kiev, Odessa, Lutsk, Kharkov,Donetsk and Dniepropietrovsk. The Management Board of Pekao expects that 24 morebranches will have been opened by the end of 2007. In 2006, the share capital ofUniCredit Bank (Ukraine) was increased by USD 50 million. On March 7, 2007, theextraordinary shareholders' meeting of UniCredit Bank (Ukraine) adopted aresolution for an increases of another USD 50 million and the taking up of allnewly-issued shares by Pekao. The increase in the share capital was registeredin the register of banks in the National Bank of Ukraine on May 17, 2007. The corporate business was developed by Pekao's acquisition of 100% of shares inHVB Ukraine for EUR 84.3 million in March 2007. The bank operates mainly in thecorporate banking sector. The next step envisaged in the strategy pursued byPekao in Ukraine is to merge HVB Ukraine with UniCredit Bank. On September 3, 2007 the two banks underwent an organizational integration andthe Extraordinary General Shareholders' Meetings of HVB Ukraine and UniCreditBank approved the merger. At present, a registration process is pending at theNational Bank of Ukraine and in the State Court Register. According to information provided by UniCredito Italiano, on July 5, 2007 BankAustria Creditanstalt AG, a member of UniCredit Group, has signed an agreementto acquire approximately 95% of the share capital of Ukrsotsbank ("USB") fromthe group of investors represented by Interpipe Group. The structure of theUkrainian operations belonging to the UniCredit Group will be finally assessedfollowing the transaction completion expected in last quarter of 2007 and aftercompletion of the Spin-off transaction and of the transfer of control of BPH. This information is provided by RNS The company news service from the London Stock Exchange

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