Declaration on the application of corporate governance

Declaration on the application of corporate governance

1. Description of the rules of corporate governance at PAMAPOL S.A.

The company and its bodies are subject to a set of rules of corporate governance adopted by a resolution of the Supervisory Board of the Warsaw Stock Exchange, No. 17/1249/2010 dated 19 May 2010 and entitled “Code of Best Practice for WSE Listed Companies” (Rules of Corporate Governance), published on the WSE website at (http://corp-gov.gpw.pl). The set of Rules of Corporate Governance contains a section entitled “Recommendations for Best Practice for Listed Companies” in which there is a description of the rules of best practice which the Issuer can decide to apply voluntarily.

2. Information on the scope within which PAMAPOL S.A. has withdrawn from applying the set of rules of corporate governance, identifying those provisions and explaining the reasons for not applying them.

Below, the Company indicates the scope of and reasons for not applying certain recommendations in section I of the rules of corporate governance:

Section I “Recommendations for Best Practice for Listed Companies”

Point 1. “A company should pursue and transparent and effective information policy using both traditional methods and modern technologies and latest communication tools ensuring fast, secure and effective access to information. Using such methods to the broadest extent possible, a company should in particular enable on-line broadcasts of General Meetings over the Internet, record General Meetings, and publish the recordings on the company website.”

In 2010, the Company did not follow the above recommendation because of the costs which would have to be incurred in connection with preparing the technical means necessary to transmit, record and publish its General Meetings. In the Company’s opinion, those costs would be disproportionate to the benefits obtained. The decision not to follow the recommendation was also based on the fact that, in previous years, more than 70 per cent of the total number of votes in the Company have been directly represented at the Company's General Meetings through the participation of interested shareholders.

Nevertheless, the Company intends to introduce the above rule as from 1 January 2013.

Point 9. “The WSE recommends to public companies and their shareholders that they ensure a balanced proportion of women and men in management and supervisory functions in companies, thus reinforcing the creativity and innovation of the companies' economic business.”

The Company points out that, in 2010, two of its five supervisory positions were held by women. Those supervisory persons were Ewa Szataniak, Secretary of the Supervisory Board, and Justyna Szataniak, Member of the Supervisory Board. However, the above recommendation was not followed in the Company in 2010 with regard to the Management Board. Nevertheless, the Company grants its assurance that members of the Management Board were appointed on the basis of their competence, skills and experience.

At the same time, the Company's governing bodies are large dependent on its shareholders, and so it is possible that the above recommendation will be implemented in the future.

The Company and its governing bodies do not apply the following rules of corporate governance:

Section II “Best Practice for Management Boards of Listed Companies”

Point 1, subpoint 6) “A company should operate a corporate website and publish on it, in addition to information required by legal regulations, annual reports on the activity of the Supervisory Board taking account of the work of its committees together with the evaluation of the work of the Supervisory Board and of the internal control system and the significant risk management system submitted by the Supervisory Board.”

At present, the Supervisory Board does not prepare annual reports on the activity of the Supervisory Board taking account of the work of its committees, and does not evaluate the work of the Supervisory Board and the significant risk management system at the Company. No such reports, therefore, are published on the Company’s website.

Point 2 “A company should ensure that its website is also available in English, at least to the extent described in section II.1.”

At the time of this report, Pamapol S.A. does not ensure that its website is available in English within the scope set out in section II pt. 1.

The Company does intend, however, to make its website available in English within the scope set out in section II pt. 1 (basic corporate documents, in particular the statute and by-laws of the Company's governing bodies) by 31 December 2011.

Section III. “Best Practice for Supervisory Board Members”

Point 8. “Annex 1 to the Commission Recommendation of 15 February 2005 on the role of non-executive or supervisory directors... should apply to the tasks and the operation of the committees of the supervisory board.”

Given the minimum legally required composition of the Supervisory Board, the Supervisory Board has not appointed any committees, including in particular an audit committee, and therefore does not apply this rule.

At the same time, , in reference to an audit committee as referred to in the Act on auditors and their self-regulation, on entities authorised to audit financial statements and on public supervision of 7 May 2009, the Management Board of the Company points out that the Supervisory Board carries out those duties collectively, mainly on the basis of the high professional competence of the two independent members of the Supervisory Board. Those independent members are Rafał Tuzimek and Piotr Kamiński.

Section IV. “Best Practice of Shareholders”

Point 10. “A company should enable its shareholders to participate in a General Meeting using electronic communication means through:

1) real-life broadcast of General Meetings;

2) real-time bilateral communication where shareholders may take the floor during a General Meeting from a location other than the General Meeting;

3) exercise their right to vote during a General Meeting either in person or through a plenipotentiary.”

The Company intends to introduce the above rule as from 1 January 2013.

3. Description of the basic feature of the Company’s internal control and risk management systems in reference to the process of preparing financial statements

The Management Board of the Company is directly responsible for the smooth operation of the internal control and risk management systems, and for their effectiveness and reliability in the cyclical processes of preparing financial statements.

The Management Board of the Company and managerial staff perform detailed monthly analyses of key financial data and indicators of business segments in order to eliminate threats posed by potential risks.

The President of the Management Board is responsible for preparing individual elements of financial statements and periodic reports. He performs that duty in cooperation with the Company’s accounting department, supported as necessary by the legal department.

The President of the Management Board coordinates the process of drawing up financial statements and periodic reports, and is responsible for the completeness of the required information therein.

The financial data required to draw up the financial statements and periodic reports are kept in the financial and accounting system, in which all transactions are recorded in accordance with the Company's accounting policy, which is based on the Polish Accounting Standards (a detailed description of the accounting policy can be found in the section on preparing the financial statements for 2010). For the needs of the consolidated financial statements, however, data are transformed in accordance with the International Financial Reporting Standards.

Immediately upon publication of the dates for publishing periodic reports in a given year, the Chief Accountant provides that information to all subsidiaries, enabling them to prepare their data for the consolidated financial statements on time.

The Chief Accountant at the Company level and the chief accountants at the level of subsidiaries are responsible for preparing the information on which the non-consolidated and consolidated financial statements are to be based.

Information on other elements of the periodic reports is sent to those units responsible for preparing them.

The presidents of the management boards of subsidiaries are responsible for the reliability, accuracy and completeness of the financial statements of subsidiaries, for providing them to the Chief Accountant of the Company in a timely manner, and for the reliability, accuracy, completeness and timely delivery of information for other sections of consolidated periodic reports.

The half-year and annual financial statements are subject to a review and audit, respectively, by the Company's auditor. The results of audits are presented by the auditor to the President of the Management Board and the Chief Accountant, who present them to the Management Board for the purpose of taking appropriate action.

Furthermore, within the structure of individual subsidiaries belonging to the Pamapol Capital Group, individuals are responsible for particular areas of internal control, as listed below:

ongoing costs (relating to the operations of a given company)
full control of receivables (inflows, clarification of invoice discrepancies, etc.)
control over settling sales and promotional costs
control over interest-bearing liabilities in the company, any forward transactions, real-cost calculation settlements
control over IT systems

The scope of control in question is the responsibility of the managers of particular departments in the companies of the Capital Group.

In order to coordinate and reinforce control, within the Group’s structures a person is assigned to a supervisory role – the internal auditor, whose duties include, in particular, settling departmental, management and sales costs.

Those elements are analysed on the basis of current data sent by each company within the Group.

4. List of shareholders holding significant blocks of shares as at 31 December 2010

As at 31 December 2010 and at the date of preparing this information, the list of shareholders holding significant blocks of shares is as follows:

1. Paweł Szataniak - holds 8,261,800 series A ordinary bearer shares, which constitutes 35.66 per cent of the share capital of Pamapol S.A. These shares entitle him to 8,261,800 votes at the General Meeting of Shareholders, constituting 35.66 per cent of the total number of votes.

2. Mariusz Szataniak - holds 8,262,700 series A ordinary bearer shares, which constitutes 35.67 per cent of the share capital of Pamapol S.A. These shares entitle him to 8,262,700 votes at the General Meeting of Shareholders, constituting 35.67 per cent of the total number of votes.

3. Investment funds: DWS Zrównoważony SF IK, DWS Polska F.I.O. Top 50 Miss Plus, DWS Polska F.I.O. Top 25 Małych Spółek, DWS Polska F.I.O. Zrównoważony, DWS Polska F.I.O. Zabezpieczenia emerytalne DWS Polska F.I.O. Z.E., and DWS Polska F.I.O. Akcji Plus, managed by DWS Polska TFI S.A., hold 1,171,841 series B ordinary bearer shares, constituting 5.058 per cent of the share capital of Pamapol S.A. These shares provide entitlement to 1,171,841 votes at the General Meeting of Shareholders, constituting 5.058 per cent of the total number of votes.

4. The open-end investment fund Millennium Fundusz Inwestycyjny Otwarty, on behalf of which Millennium Towarzystwo Funduszy Inwestycyjnych S.A. operates, holds 1,159,729 votes at the General Meeting of Shareholders, constituting 5.0060 per cent of the share capital of Pamapol S.A. These shares provide entitlement to 1,159,729 votes at the General Meeting of Shareholders, constituting 5.0060 per cent of the total number of votes.

List of shareholders holding significant blocks of shares as at the date of preparing this information

As at the date of publication of this information, the above list of shareholders holding significant blocks of shares has not changed.

5. List of holders of all securities providing special control entitlements, together with a description of those entitlements.

The Company has not issued any securities providing special control entitlements. All shares issued by the Company are ordinary shares.

6. List of all restriction on voting rights

There are no restrictions on voting rights.

7. List of all restrictions concerning transfers of ownership title to securities.

There are no restrictions pertaining to transfers of ownership title to securities.

8. Rules concerning the appointment and recall of the Management Board

The Management Board of the Company is composed of from 1 (one) to 5 (five) persons appointed and recalled by the Supervisory Board. The Management Board is composed of the President of the Management Board of the Company and members of the Management Board of the Company. The function of Vice-President of the Management Board cannot be entrusted to more than two members of the Management Board.

The Supervisory Board of the Company determines the number of members of the Management Board. In the case of a single-person Management Board, the sole member of the Management Board exercises the function of President of the Management Board. In the case of a Management Board composed of two or more members, the Supervisory Board entrusts the function of President of the Management Board to one of the Management Board members. During the term of office of the Management Board, the Supervisory Board can recall the President of the Management Board from his/her function, leaving him/her on the Management Board and at the same time appointing another member of the Management Board as President of the Management Board.

9. Rules for amending the Statute of the Company

In accordance with Clause 26 pt. 1d) of the Statute of the Company, amendments of the Statute are made by resolutions adopted by the General Meeting of Shareholders.

10. Description of the activity of the General Meeting of Shareholders and its fundamental entitlements, and or shareholders’ rights and the means of exercising them

The General Meeting of Shareholders of the Company operates on the basis of the Commercial Companies Code, the Statute, and the By-laws of the General Meeting of Shareholders.

General Meetings of Shareholders are held at the registered office of the Company, in Bełchatów, Wieluń or in Warsaw.

The Extraordinary General Meeting of Shareholders appoints the Management Board of the Company on its own initiative, upon a written motion by the Supervisory Board or by Shareholders representing at least 1/20 (one twentieth) of the share capital.

The Extraordinary General Meeting of Shareholders should be convened within 14 (fourteen) days following the submission of such a motion.

The Supervisory Board has the right to convene the General Meeting of Shareholders in the situation where none is held for six months following the end of a financial year, and also when it is not convened within 14 days following the submission of a relevant motion. Such a right is also held by Shareholders who have demanded that the Extraordinary General Meeting of Shareholders be convened, to no avail, and who become entitled to convene it by the register court.

The General Meeting of Shareholders is convened under the procedure resulting from the provisions of the Commercial Companies Code.

The General Meeting of Shareholders may adopt resolutions only on matters placed on the agenda, unless the entire share capital is represented at the Meeting, and none of those present voices an objection to the General Meeting being held or to placing particular items on the agenda.

A shareholder or shareholders representing at least one twentieth of the share capital can demand that particular matters be placed on the agenda for the upcoming General Meeting of Shareholders. A demand should be submitted to the Management Board of the Company not later than twenty-one days before the date of the General Meeting. The demand should contain a justification or draft resolution concerning the proposed item on the agenda. The demand may be submitted by e-mail.

The Management Board is obliged to announce any change in the agenda introduced at the demand of shareholders without delay, and not later than eighteen days before the scheduled date of the General Meeting. Such announcement shall be made in the same manner as convening the General Meeting.

Before the date of the General Meeting, a shareholder or shareholders of the Company representing at least one twentieth of the share capital may submit to the Company draft resolutions concerning matters which have been or are to be placed on the agenda of the General Meeting, in writing or using electronic means of remote communication. The Company will promptly publish such draft resolutions on its website.

During the General Meeting of Shareholders, any shareholder can submit draft resolutions on matters placed on the agenda.

The General Meeting can adopt resolutions regardless of the number of Shareholders present or shares represented, unless the provisions of law or the Statute provide stricter conditions for adopting resolutions.

Resolutions of the General Meeting of Shareholders are adopted by a simple majority of votes (more votes ‘for' than 'against', where abstentions are not counted), unless the provisions of law, the Statute or the By-laws of the General Meeting of Shareholders provide stricted conditions for adopting resolutions. In accordance with Clause 11 of the By-laws of the General Meeting of Shareholders of the Company, a resolution of the General Meeting on recalling a member of the Management Board of the Company or suspending him/her from the performance of his/her duties adopted under Article 368 par. 4 sentence 2 CCC requires a 2/3 majority of votes.

In a case as foreseen in Article 397 of the Commercial Companies Code, an absolute majority of votes is required for an effective resolution on winding up the Company.

Voting is conducted in an open ballot. Voting is conducted in a secret ballot during elections or when voting on motions for the recall or suspension of members of the governing bodies of the Company or its liquidators, or when holding them liable for their actions, including in personal matters. In addition to the situations specified in Article 420 par. 2 CCC, voting is conducted in a secret ballot at the request of even one Shareholders entitled to vote.

Resolutions on a significant change to the corporate purpose of the Company are always voted on by roll call.

A significant change in the corporate purpose of the Company is made without buying back the shares of Shareholders who do not agree to the change of corporate purpose. A resolution on a significant change in the corporate purpose of the Company requires a 2/3 majority of votes cast in the presence of shareholders representing at least half of the share capital. In voting, each share carried one vote, without privileges or restrictions.

The General Meeting of Shareholders is opened by the Chairman of the Supervisory Board or a person appointed by him/her. In the case where the Chairman of the Supervisory Board will not be present at the General Meeting of Shareholders or does not appoint a person to open the meeting, the General Meeting will be opened by the President of the Management Board or a person appointed by him/her or, in the absence of such persons, by the Shareholder at the General Meeting holding the largest percentage of shares in the Company’s share capital or by that Shareholder’s representative. The Chairman of the General Meeting is chosen from among those entitled to participate in the General Meeting.

The General Meeting adopts its own by-laws specifying the specific procedures for conducting the meeting.

The General Meeting of Shareholders is responsible for adopting resolutions in the following matters:

- reviewing and approving the financial statements of the Company and the report of the Management Board on the operations of the Company in the preceding financial year

- the distribution of profit or covering of losses

- granting members of the governing bodies of the Company a discharge from liability in the performance of their duties

- amending the Statute of the Company

- increases or decreases in share capital

- mergers or transformations of the Company

- winding up or liquidation of the Company

- issuing convertible bonds or bonds with a pre-emptive right, issuing subscription warrants as referred to in Article 453 par. 2 of the Commercial Companies Code

- acquiring own shares in a case as specified in Article 362 par. 1 pt. 2 of the Commercial Companies Code and providing authorisation to acquire them in a case as specified in Article 362 par. 1 pt. 8 of the Commercial Companies Code

- redeeming shares and determining the conditions for such redemption

- disposing of or leasing a business or organised part thereof and establishing thereon limited rights in rem

- creating and dissolving reserves, special funds, and determining their purpose

- deciding on claims for the remedy of loss caused by the formation of the Company or in managing or supervising it

- concluding an agreement between the Company and a subsidiary providing for management of the subsidiary or the subsidiary handing over its profit

- appointing and recalling members of the Supervisory Board of the Company

- appointing and recalling liquidators

- determining remuneration for members of the Supervisory Board of the Company

- adopting the by-laws of the Supervisory Board

- adopting the by-laws of the General Meeting of Shareholders

- brought forward by the Supervisory Board, Management Board or Shareholders

- introducing shares in the Company to the organised system of trading in securities

In addition to the matterslisted above, other matters as specified in the provisions of law and the Company's Statute also require a resolution of the General Meeting of Shareholders.

Motions on matters for which the Statute requires the consent of the Supervisory Board should be submitted together with the relevant opinion of the Supervisory Board.

No resolution of the General Meeting of Shareholders is required in order for the Company to acquire or dispose of real property, rights of perpetual usufruct or ownership interest in real property.

11. Personal composition of, changes in and description of the managerial and supervisory bodies of the Company

Management Board

Composition of the Management Board in 2010:

As at 31 December 2010 and at the date of preparing this information, the Management Board was composed as follows:

- Krzysztof Półgrabia – President of the Management Board (appointed on 1 October 2008 by a resolution of the Supervisory Board as a Member of the Management Board, President of the Management Board since 1 December 2008)

- Mariusz Szataniak – Vice President of the Management Board, appointed on 28 June 2006 to the first Joint Term of Office of the Management Board, again acting as Vice President of the Management Board

- Roman Żuberek – Vice President of the Management Board, appointed on 28 June 2006 to the first Joint Term of Office of the Management Board, again acting as Vice President of the Management Board

The procedure of work of the Management Board and the division of powers between individual members of the Management Board are determined by the By-laws of the Management Board resolved by the Management Board and approved by the Supervisory Board.

The term of office of the Management Board is five years. Members of the Management Board are appointed for a joint term of office (Joint Term of Office).

The mandates of members of the Management Board expire on the day on which the General Meeting of Shareholders approving the financial statements for the last financial year of the Joint Term of Office is held. The mandate of a Management Board member appointed before the lapse of a given Joint Term of Office expires at the same time as the mandates of the other members of the Management Board.

The following are authorised to submit declarations of will and to sign documents on behalf of the Company:

- the President of the Management Board acting individually.

- two members of the Management Board acting jointly, or one member of the Management Board acting jointly with a registered holder of a commercial power of attorney or an authorised representative within the limits of his/her authorisation, in exercising rights or incurring liabilities having a value which exceeds PLN 500,000.00 (five hundred thousand zlotys)

- one member of the Management Board acting individually in exercising rights or incurring liabilities having a value which does not exceed PLN 500,000.00 (five hundred thousand zlotys).

Establishing a commercial power of attorney requires the consent of all members of the Management Board. Each member of the Management Board can revoke a commercial power of attorney.

An authorised representative or representatives of the Company, acting independently or jointly within the limits of the power of attorney granted to them, can be appointed to perform legal or factual acts. A power of attorney shall be granted and revoked according to the procedure envisaged for submitting declarations of will on behalf of the Company.

Without the consent of the Supervisory Board, a Management Board member cannot be involved in competitive interests or participate in a rival company as a partner of a civil or private partnership or as a member of a corporate body of an incorporated entity, or take part in another rival legal person as a member of a corporate body. This prohibition also applies to participation in a rival incorporated entity if a member of the Management Board holds at least 10 per cent of the ownership interests or shares in it, or the right to appoint at least one member of the Management Board.

The Management Board is obliged to draw up financial statements and a report on the Company’s operations not later than within three months after the lapse of the financial year.

The President of the Management Board directs the work of the Management Board, in particular by coordinating, supervising and organising the work of members of the Management Board, and by convening and chairing Management Board meetings. In the case of a tied vote during a Management Board meeting, the President of the Management Board has the deciding vote.

Within the normal scope of management, each Member of the Management Board can conduct the matters of the Company individually. A resolution of the Management Board is required in matters beyond the normal scope of management, as well as in any case where even one Member of the Management Board so demands.

Members of the Management Board can be employed by the Company on the basis of an employment contract or another agreement, or can receive remuneration for exercising functions on the corporate bodies of the Company.

In agreements between the Company and members of the Management Board, and in disputes between them, the Company shall be represented by the Supervisory Board. Agreements, including employment contracts with members of the Management Board, shall be signed on behalf of the Supervisory Board by its Chairman, determining the amount of their remuneration and bonuses, after the content of such agreements and the amount of the remuneration and bonuses are first approved by a resolution of the Supervisory Board. In the event of the absence of the Chairman of the Supervisory Board, the Deputy Chairman of the Supervisory Board shall sign agreements. Other operations connected with the employment relationship of a member of the Management Board shall be carried out according to the same procedure.

Individual or all members of the Management Board of the Company can be suspended from their duties for important reasons by way of a resolution of the Supervisory Board.

A resolution of the Management Board must be adopted in the following matters:

1) matters on which the Management Board approaches the Supervisory Board or General Meeting of Shareholders in accordance with the provisions of the Commercial Companies Code or the Statute

2) assigning specific members of the Management Board to individually manage matters or categories of matters which do not exceed the normal course of business of the Company

3) determining the Company's strategy and its policy with regard to its fundamental areas of activity

4) preparing the annual budget and long-term development plan of the Company

5) the Company incurring liabilites (including granting guarantees and suretyships) or making outlays and managing rights within a single transaction or two or more related transactions having a value equivalent to at least 10 per cent of the Company’s equity according to the last audited financial statements and not foreseen in the approved budget.

In the case of liabilities resulting from long-term agreements, the amount of liability shall be understood as the total value of benefits to be rendered by the Company resulting from such agreements determined during the entire period in which they are in force. In the case of liabilities resulting from agreements concluded for an indefinite period of time, the value of liabilities is the total value of benefits to be rendered by the Company under such agreements for a period of 3 years. In the case where it is not possible to determine the value of liabilities resulting from an agreement, an estimate of the value should be made. Where the Company’s liabilities or the value of goods or rights are expressed in a foreign currency, the value of the liability, outlay or disposal should be calculated according to the average exchange rate announced by the National Bank of Poland on the last day of the month preceding the conclusion of the agreement from which the liability, outlay or disposal results.

6) purchasing or taking up ownership interests or shares in other companies

7) disposing of fixed asset components of the Company or a subsidiary whose value exceeds 10 % (ten per cent) of the net book value of the fixed assets of, as appropriate, the Company or subsidiary of the Company, as determined on the basis of the most recent audited financial statements of, as appropriate, the Company or subsidiary of the Company, with the exception of those components which constitute normal, disposable inventories

8) establishing limited rights in rem on real property

9) approaching other bodies of the Company is situations as foreseen in the Commercial Companies Code and the Statute

10) approving the report on the operations of the Company and the financial statements for a given financial year, approving motions on the distribution of profit or covering of loss

11) approving the By-laws of the Management Board

12) approving the Organisational Rules

13) granting commercial powers of attorney – with the requirement of the consent thereto of all members of the Management Board

14) convening the General Meeting of Shareholders and determining its agenda

15) making decisions on group layoffs.

Supervisory Board

Composition of the Supervisory Board in 2010:

On 26 June 2009, the Ordinary General Meeting of Shareholders of PAMAPO S.A. adopted a resolution on appointing Members of the Supervisory board for a 2nd Joint Term of Office in which the Supervisory Board was composed as follows:

Paweł Szataniak – Chairman of the Supervisory board,

Rafał Tuzimek – Vice Chairman of the Supervisory Board, Independent Member of the Supervisory Board,

Ewa Szataniak – Secretary of the Supervisory Board,

Justyna Szataniak – Member of the Supervisory Board,

Piotr Kamiński – Independent Member of the Supervisory Board,

The Supervisory Board acts on the basis of the detailed rules set out in its By-laws approved by the General Meeting of Shareholders.

The Supervisory Board is composed of at least 5 (five) and not more than 7 (seven) members appointed and recalled by the General Meeting of Shareholders.

The term of office of the Supervisory Board is three years. The General Meeting of Shareholders determines the number of members of the Supervisory Board.

Members of the Supervisory Board are appointed for a joint term of office (Joint Term of Office). Each member of the Supervisory Board can be appointed for a further term of office.

The Supervisory Board elects from its members the Chairman of the Supervisory Board, the Deputy Chairman and the Secretary at the first meeting of a new term of office. During a term of office, the Supervisory Board can recall the Chairman, the Deputy Chairman and the Secretary of the Supervisory Board from their functions, leaving them on the Supervisory Board and at the same time appointing another member of the Supervisory Board to those functions.

The mandates of members of the Supervisory Board expire on the day on which the General Meeting of Shareholders approving the financial statements for the last financial year of the Joint Term of Office is held. The mandate of a Supervisory Board member appointed before the lapse of a given Joint Term of Office shall expire at the same time as the mandates of the other members of the Supervisory Board.

At least two of the members of the Supervisory Board should be Independent Members, that is, persons who have no commercial, family or other ties with the Company, with shareholders holding significant blocks of shares in the Company (providing entitlement to more than 5 per cent of the votes at the General Meeting of Shareholders) or with members of the Management Board of the Company which could lead to a conflict of interests which could affect their judgment.

Independent Members should meet the following conditions:

a) an Independent Members cannot be a person who was a member of the Management Board of the Company or affiliate of the Company in the meaning of the Commercial Companies Code, or who was a registered holder of a commercial power of attorney of the Company or affiliate of the Company during the preceding five years

b) an Independent Member cannot be a high-level managerial employee of the Company or affiliate of the Company in the meaning of the Commercial Companies Code, or a person who was such an employee within the preceding three years High-level managerial employee is understood to mean a person who is a manager or director of an organisational unit of the Company or affiliate of the Company directly responsible to the Management Board of the Company, to particular members of the Management Board of the Company, or to the management board of an affiliate of the Company

c) an Independent Member of the Supervisory Board cannot receive any remuneration from the Company or affiliate of the Company other than for functioning on the Supervisory Board, including in particular by participating in an options programme or other programme where remuneration is based on results

d) an Independent Member cannot be a Shareholder holding shares in the Company constituting at least 10 per cent of its share capital, or a person connected with or representing such a Shareholder

e) an Independent Member cannot be a person who has or has had, within the past year, significant commercial ties with the Company or an affiliate of the Company, whether directly or indirectly, or as a partner, shareholder, member of the management board, registered holder of a commercial power of attorney or high-level managerial employee of an entity having such ties with the Company or an affiliate of the Company.

f) an Independent Member cannot be a person who is or was, within the past three years, a partner or employee of a current or former auditor of the Company

g) an Independent Member cannot be a member of the management board or a registered holder of a commercial power of attorney in another company in which a Member of the Management Board or a registered holder of a commercial power of attorney in the Company functions as a member of that company's supervisory board

h) an Independent Member cannot sit on the Supervisory Board for more than three terms of office

i) an Independent Member cannot be the spouse or close family member of a Member of the Management Board, registered holder of a commercial power of attorney or other person as referred to in letters a) to h) above. Close relatives shall be considered to be relatives and relations by affinity up to the second degree.

Independent Members of the Supervisory Board are appointed by the General Meeting of Shareholders from among the candidates indicated by a Shareholder or a group of Shareholders representing not more than 20 per cent of the share capital of the Company present at the Meeting of Shareholders. If no Shareholder entitled to put forward candidates as Independent Members of the Supervisory Board exercises that right, a Shareholder or a group of Shareholders representing over 20 per cent of the share capital present at the General Meeting of Shareholders can put forward candidates as Independent Members of the Supervisory Board. If no candidate is put forward, no Independent Member of the Supervisory Board will be appointed.

The Supervisory Board supervises the operations of the Company.

The responsibilities of the Supervisory Board include in particular:

- evaluating the financial statements of the Company for the previous financial year in terms of their compliance with the books of account, documents, and factual status.

- evaluating the report of the Management Board on the operation s of the Company in the previous financial year in terms of their compliance with the books of account, documents and factual status, and evaluating motions of the Management Board on the distribution of profit or covering of losses

- submitting a written report to the General Meeting of Shareholders on the results of the aforementioned activities

- appointing and recalling members of the Management Board

- granting consent for members of the Management Board to conduct competitive activity in relation to the Company or to participate in a competing enterprise as a general partner or member of a corporate body

- suspending a member of the Management Board or the entire Management Board from the performance of its duties for serious reason

- delegating a member or members of the Supervisory Board to temporarily perform the duties of members of the Management Board where a member, members or the entire Management Board has been suspended or recalled, or where the Management Board is not able to function for some other reason.

- approving the By-laws of the Management Board

- approving the annual budget and annual and long-term development plan of the Company

- granting consent to the Company incurring liabilities or outlays or disposing of rights in a single transaction or two or more related transactions having a value equal to at least 10 per cent of the Company's equity according to the last audited financial statements of the Company and which were not foreseen in the approved budget.

In the case of liabilities resulting from long-term agreements, the amount of liability shall be understood as the total value of benefits to be rendered by the Company resulting from such agreements determined during the entire period in which they are in force. In the case of liabilities resulting from agreements concluded for an indefinite period of time, the value of liabilities is the total value of benefits to be rendered by the Company under such agreements for a period of 3 years. In the case where it is not possible to determine the value of liabilities resulting from an agreement, an estimate of the value should be made. When the Company’s liabilities or the value of goods or rights are expressed in a foreign currency, the value of the liability, outlay or disposal is calculated according to the average exchange rate announced by the National Bank of Poland on the last day of the month preceding the conclusion of the agreement from which the liability, outlay or disposal arises,

- granting consent to acquiring or taking up ownership interest or shares in other companies

- granting consent to disposing of fixed asset components of the Company or subsidiary, where the value of the components exceeds 10 % (ten per cent) of the net book value of fixed assets of the Company or subsidiary of the Company, respectively, as determined on the basis of the most recent audited financial statements of the Company or the subsidiary, respectively, with the exception of those assets which constitute disposable inventories within the normal activities of the business,

- concluding agreements between the Company and members of the Management Board. No agreement on concluding an agreement in the above matters can be adopted if one Independent Member submits a written objection, unless the other Independent Members consented to the conclusion of the agreement,

- granting consent to concluding agreements between the Company or a subsidiary and shareholders of the Company or entities connected with shareholders, members of the Management Board or employees of the Company reporting directly to members of the Management Board, in the case of concluding a single agreement or series of related agreements whose value exceeds the zloty equivalent of USD 15,000 (fifteen thousand U.S. dollars) determined according to the average USD exchange rate announced by the National Bank of Poland on the day preceding the request for such consent.

No resolution granting consent to the conclusion of such agreements as above can be adopted if an Independent Member submits a written objection, unless the other Independent Members consented to the conclusion of such agreement.

- determining the rules of remuneration for the Management Board. A resolution on determining the remuneration of the Management Board can be adopted if even one Independent Member (in a Supervisory Board composed of 5 or 6 members) or two Independent Members (in a Supervisory Board composed of 7 members) consented to the content of the rules of remuneration.

- appointing a certified auditor to conduct the audit of the financial statements of the Company. A resolution on appointing a certified auditor to audit the financial statements can be adopted if even one Independent Member consents to the appointment. An Independent Member’s objection to a proposed selection of certified auditor should be justified in writing.

In financial year 2010, and up to the dat of publication of this report, no committees were appointed within the Supervisory Board to perform special tasks. Given the five-person composition of the Supervisory Board, the duties of the Audit Committee in the Act on Certified Auditors is carried out by the Supervisory Board as a whole. The statutory duties in this scope include in particular:

1. monitoring the process of financial reporting

2. monitoring the effectiveness of the internal control, internal audit and risk management systems

3. monitoring the performance of financial review activities

4. monitoring the independence of the certified auditor and the entity authorised to audit the financial statements, including in the case of the provision of services as referred to in Article 48 par. 2 of the Act on Certified Auditors, such as, for example, keeping books of accounts and tax books, and tax consultancy.

Furthermore, in performing the duties of the Audit Committee, the Supervisory Board familiarises itself with written information from the entity authorised to audit the financial statements on significant issues concerning financial review activities, including in particular on significant irregularities in the internal system of control for units with reference to the process of financial reporting, on threats to the independence of the entity authorised to audit the financial statements, and on measures taken in order to limit those threats.

The above-described tasks of the audit committee are performed mainly on the basis of the high professional competence in the area of finance of the two independent members of the Supervisory Board. Those independent members are Rafał Tuzimek and Piotr Kamiński.