Appendix no 1 to the Management Board Report on the Operations of Polski Koncern Naftowy ORLEN Spółka Akcyjna for PDF

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Appendix no 1 to the Management Board Report on the Operations of Polski Koncern Naftowy ORLEN Spółka Akcyjna for 2008 Report on Compliance with Corporate Governance Rules in Polski Koncern Naftowy ORLEN

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Appendix no 1 to the Management Board Report on the Operations of Polski Koncern Naftowy ORLEN Spółka Akcyjna for 2008 Report on Compliance with Corporate Governance Rules in Polski Koncern Naftowy ORLEN in 2008 I. CORPORATE GOVERNANCE RULES FOLLOWED BY PKN IN II. DESCRIPTION OF KEY FEATURES OF INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS RELATED TO FINANCIAL REPORTING USED IN PKN... 3 III. SHAREHOLDERS OF PKN WITH A SIGNIFICANT STAKE... 4 IV. SHAREHOLDERS OF PKN VESTED WITH SPECIAL CONTROL RIGHTS AND VOTING RIGHT RESTRICTIONS... 5 V. RULES FOR REVISION OF PKN ARTICLES OF ASSOCIATION... 5 VI. RULES OF CONDUCT OF THE GENERAL SHAREHOLDERS MEETING OF PKN, ITS KEY POWERS AS WELL AS SHAREHOLDERS RIGHTS AND THEIR EXERCISE Convening and calling off PKN s General Shareholders Meetings Competence of the General Shareholders Meeting of PKN Voting at General Shareholders Meetings of PKN Participation in PKN General Shareholders Meetings... 7 VII. COMPOSITION AND RULES OF CONDUCT OF THE MANAGEMENT AND SUPERVISORY AUTHORITIES IN PKN AND THEIR COMMITTEES Composition of the Management Board of PKN in Composition of the Supervisory Board of PKN in Composition of the Committees of the Supervisory Board in PKN in Rules of conduct of the Management Board and Supervisory Board and Committees of the Supervisory Board of PKN Rules of conduct of the Supervisory Board of PKN Rules of conduct of the Management Board of PKN I. CORPORATE GOVERNANCE RULES FOLLOWED BY PKN IN 2008 In 2008 Polski Koncern Naftowy ( PKN ) complied with the Best Practices for Warsaw Stock Exchange Listed Companies (further the Best Practices for WSE Listed Companies ) valid for the Warsaw Stock Exchange. The Code of Best Practices for WSE Listed Companies can be found on the website dedicated to the corporate governance on the Warsaw Stock Exchange In 2008 PKN followed all the corporate governance rules set out in the Code of Best Practices for WSE Listed Companies. II. DESCRIPTION OF KEY FEATURES OF INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS RELATED TO FINANCIAL REPORTING USED IN PKN The Management Board of PKN is responsible for the internal control system in the Company and its effectiveness in financial reporting, which involves drawing up financial statements and regular reports prepared and published in accordance with the generally applicable law. The Company s system of internal control and risk management in the process of drawing up financial statements is designed to: - determine how financial reporting duties are to be divided; - establish the accounting policy for PKN and the PKN ORLEN Capital Group (the ORLEN Group ) as regards the measurement and disclosure methods under the International Financial Reporting Standards (IFRS); - oversee the application of uniform accounting principles in the ORLEN Group companies; - follow and monitor compliance with accounting standards; - review published financial reports for the 1 st quarter, the half-year and the 3 rd quarter of the year and audit of the yearly financial statements of PKN and ORLEN Group by an independent auditor; - comply with the procedures to authorize and give opinions about financial statements before they are published; - carry out an independent and objective evaluation of risk management and internal control systems. Periodic financial statements are prepared by the Head of the Corporate Accounting Office. He is also responsible for keeping the accounting principles updated to ensure that they comply with the applicable law, specifically, with the IFRS, the Accounting Act and the Minister of Finance Regulation on current and periodic information provided by issuers of securities. In order to ensure that uniform accounting standards are applied, the ORLEN Group companies are obliged to follow the accounting policy adopted by PKN The Corporate Accounting Office monitors whether this obligation is obeyed. The consolidated financial statements are drawn up based on the reporting packages provided by the ORLEN Group companies which are reviewed in terms of their cohesion, completeness and continuity. Data required for the unconsolidated financial statements is derived from accounting records kept in accordance with the PKN procedures. Disclosures also cover additional information provided by individual organizational units of PKN, which is also verified by the Corporate Accounting Office. In order to ensure for the financial statements to be currently reviewed, the statements are quarterly reviewed by an auditor, i.e. more often that required under the applicable law. The financial statements for the 1 st quarter, the half-year and the 3 rd quarter of the year are reviewed, whereas the yearly financial statements are subject to audit. The auditor presents the results of the reviews and audit to the Management Board and the Audit Committee of the Supervisory Board. The Company has certain procedures to authorize the financial statements. Periodic reports, are submitted to the Management Board upon the completion of reviews/audit by the auditor, and subsequently forwarded to the Audit Committee of the Supervisory Board for an opinion to be issued. Once the relevant opinion has been issued by the Audit Committee, the financial statements are approved by the Management Board for publication and subsequently forwarded by the Investor Relationship Office to the appropriate capital market institutions and made public. Before publishing, the financial statements are treated as confidential by the Company and provided solely to persons involved in the preparation, control and approval procedures. The Company has an Audit Office which has to ensure an independent and objective evaluation of the risk management and internal control systems, and analyze business processes. The Office operates based on the annual audit plans assessed by the Audit Committee of the Supervisory Board and approved by the Supervisory 3 Board. The Audit Office can also carry out ad hoc audits as ordered by the Company s Supervisory Board or the Management Board. In pursuit of the tasks and objectives set, the Audit Office provides recommendations as to the implementation of solutions and standards designed to reduce the risk of the Concern not meeting the targets set, improve the effectiveness of the internal control system and to increase the efficiency of business processes. Additionally, the Audit Office monitors the follow-up on its own recommendations as well as those given by the auditor of the Company s financial statements. Twice a year the Audit Office draws up a report for the Management Board and the Audit Committee of the Supervisory Board summarizing the conclusions regarding the audit tasks performed, identified risks and information about the follow-up on the recommendations given. III. SHAREHOLDERS OF PKN WITH A SIGNIFICANT STAKE Shares in PKN are listed on the Warsaw Stock Exchange and in the form of Global Depository Receipts (GDR) on the London Stock Exchange. Depository receipts are also traded in the USA on the OTC market. The share capital of PKN is divided into 427,709,061 ordinary shares with nominal value of PLN 1.25 each. PKN s depository receipts are lodged with The Bank of New York Mellon. The transaction unit on the London Stock Exchange is 1 GDR which accounts for two shares in PKN There are no restrictions concerning the transfer of ownership rights of shares in PKN Below one will find a list of shareholders of PKN with a significant stake specifying the number of shares held, the percentage of their share in the Company s share capital, the number of votes conferred by the same and their percentage in the total number of votes at PKN s General Shareholders Meeting. In 2008 the shareholders of the Company holding over 5% of the Company s share capital each were Nafta Polska S.A. and the State Treasury. The shareholding structure changed on 20 February 2009 when ING Otwarty Fundusz Emerytalny increased its interest in the Company s share capital to 5.17% of the share capital of PKN The shareholder structure in PKN as at 31 December 2008: Shareholders Number of shares Number of voting rights at the General Shareholders Meeting of PKN Share in total number of voting rights at the General Shareholders Meeting of PKN % share in share capital of PKN Nafta Polska S.A. 74,076,299 74,076, % 17.32% State Treasury 43,633,897 43,633, % 10.20% Others 309,998, ,998, % 72.48% Total 427,709, ,709, % % The shareholder structure in PKN as at 20 February 2009: Shareholders Number of shares Number of voting rights at the General Shareholders Meeting of PKN Share in total number of voting rights at the General Shareholders Meeting of PKN % share in share capital of PKN Nafta Polska S.A. 74,076,299 74,076, % 17.32% State Treasury 43,633,897 43,633, % 10.20% ING Otwarty Fundusz Emerytalny 22,118,813 22,118, % 5.17% Others 287,880, ,880, % 67.31% Total 427,709, ,709, % % 4 IV. SHAREHOLDERS OF PKN VESTED WITH SPECIAL CONTROL RIGHTS AND VOTING RIGHT RESTRICTIONS One share in PKN confers the right to one vote at the General Shareholders Meeting of the Company. The voting right of the Shareholders of the Company is restricted to the extent that at the General Shareholders Meeting none of them (but for those specified in the Company s Articles of Association) can execute more than 10% of the total votes existing in the Company as at the date the General Shareholders Meeting is held. The restriction does not apply to Nafta Polska S.A., the State Treasury and the depository bank which issued depository receipts in connection with the Company s shares under an agreement with the Company (if the bank exercises the voting right from the Company s shares). As long as the Minister for the State Treasury Affairs or other minister executes the rights conferred by the shares in PKN owned by the State Treasury under the generally applicable law, the appropriate minister can appoint one or two Observers for the Company, who will be authorized to monitor the Company s activities, participate in the meetings of the Company s authorities, review the Company s documents, require reports and explanations, inspect the Company s assets. Detailed rules regulating the Observers activity and their powers are set out in the General Shareholders Meeting, Supervisory Board and Management Board Constitutions. Until the date this report was released, the Minister for the State Treasury affairs has not appointed an Observer for PKN The State Treasury is entitled to appoint and recall one member of the Supervisory Board. Additionally, one member of the Management Board of PKN is appointed and recalled by the Supervisory Board by motion of the Minister for the State Treasury affairs. Moreover, special rights for the State Treasury shareholder may also be derived from the generally applicable law. V. RULES FOR REVISION OF PKN ARTICLES OF ASSOCIATION An amendment to PKN s Articles of Association requires a resolution of the General Shareholders Meeting of the Company and has to be entered in the commercial register. The resolution of the General Shareholders Meeting to amend the Company s Articles of Association is adopted with three quarters of the votes. The General Shareholders Meeting may authorize the Supervisory Board to formulate the uniform text of the Articles of Association or make other, editorial changes as set out in the resolution passed by the General Shareholders Meeting. Once the amendments to the Articles of Association are entered in the commercial register, PKN publishes the relevant current report. VI. RULES OF CONDUCT OF THE GENERAL SHAREHOLDERS MEETING OF PKN, ITS KEY POWERS AS WELL AS SHAREHOLDERS RIGHTS AND THEIR EXERCISE Rules of conduct of the PKN s General Shareholders Meeting are regulated in the Articles of Association and the Constitution of the PKN s General Shareholders Meeting. The documents can be found on the PKN s website: in the corporate governance section. 6.1 Convening and calling off PKN s General Shareholders Meetings A General Shareholders Meeting of PKN is convened by the Management Board in the situations specified in the Company s Articles of Association or the Code of Commercial Companies. The ordinary General Shareholders Meeting of the Company should be held within six months from the end of every financial year. An extraordinary General Shareholders Meeting is convened by the Management Board on their own initiative, on the motion of the Supervisory Board or on the motion of a Shareholder or Shareholders representing no less than one tenth of the Company s share capital, within fourteen days from filing the motion. The motion for the General Shareholders Meeting to be held should include specific issues for the agenda and does not need any justification. A General Shareholders Meeting is convened by an announcement in the official newspaper of the Republic of Poland Monitor Sądowy i Gospodarczy at least three weeks before the date of the Meeting. Additionally, the Company submits the relevant ongoing report on convening the General Shareholders Meeting to the appropriate capital market authorities and makes a public announcement in accordance with the regulations on public 5 companies reporting obligations, at least 22 days before the date of the General Shareholders Meeting and no later than on the day when the announcement is lodged with the Monitor Sądowy i Gospodarczy. The Supervisory Board can convene an extraordinary General Shareholders Meeting each time it files the relevant motion and the Management Board will not convene a meeting within the prescribed time. Notwithstanding the requirements set out in the generally applicable law on publishing draft resolutions at least 8 days before the General Shareholders Meeting in order to enable the Shareholders to review and assess the same, the Company publishes draft resolutions in the form of ongoing reports at least 22 days before the date the General Shareholders Meeting is to be held. All the materials to be presented to the Shareholders at the General Shareholders Meeting, specifically draft resolutions to be adopted by the General Shareholders Meeting and other important documents with a justification and an opinion of the Supervisory Board are provided by the Company in advance to allow time for the Shareholders to review and evaluate the same, in the Company s seat in Plock and in the Warsaw office, as well as on the corporate website Pursuant to the Best Practices of WSE Listed Companies, materials are provided at least 14 days before the date of the Meeting (whereas the copies of the Management Board report on the Company s operations and the financial statements together with a copy of the Supervisory Board report and the certified auditor s opinion are provided by the Company at least 15 days before the date of the General Shareholders Meeting). General Shareholders Meetings of PKN are held in the Company s seat in Plock, however, they can also be held in Warsaw. For the Shareholders who cannot participate in the General Shareholders Meeting in person, the Company arranges for an internet broadcast of the Meeting and offers simultaneous translation into English. The Shareholders used to be able to vote at the General Shareholders Meeting via internet, however, in view of little interest in the service, the Company ceased to offer it. A General Shareholders Meeting whose agenda includes certain issues at the request of authorized entities or which has been convened at such request may be cancelled only upon consent of the requesting parties. In all other instances, a General Shareholders Meeting may be cancelled if its holding is hindered or is obviously groundless. The General Meeting is called off and the date of the General Meeting is changed in the same manner as it has been convened, ensuring as few negative consequences for the Company and its shareholders as possible. The cancellation and change in the date of the General Shareholders Meeting can be made no later than three weeks prior to the original date of the meeting. 6.2 Competence of the General Shareholders Meeting of PKN The General Shareholders Meeting is especially authorized to: - consider and approve the Company s annual financial statements, report on the Company s operations, consolidated financial statements of the ORLEN Group and report on the ORLEN Group s operations for the previous financial year; - acknowledge the discharge of duties by the Supervisory Board and Management Board members; - decide on the distribution of profit and cover of losses as well as on the consumption of funds set up from profit, subject to special regulations which provide for a different way of their consumption; - appoint the Supervisory Board members and establish principles for their remuneration; - increase and decrease the share capital unless otherwise stated in the Code of Commercial Companies and the Company s Articles of Association; - decide on claims for the rectification of damage caused when setting up the Company or exercising supervision or management; - approve the sale and lease of the Company s enterprise or an organized part thereof and establish a limited property right on such enterprise or an organized part thereof; - grant consent to the sale of real estate, perpetual usufruct or interest in real estate whose net book value exceeds one twentieth of the Company s share capital; - amend the Company s Articles of Association; - set up and dissolve reserve capitals and other capitals and the Company s funds; - pass resolutions to redeem shares and purchase shares to be redeemed and to establish the redemption rules; - issue convertible bonds or bonds with pre-emptive rights; - pass resolutions on winding-up the Company, its liquidation, restructuring and merger with another Company. 6 Purchase of real estate, perpetual usufruct or interest in real estate, regardless of its value, as well as disposal of real estate, perpetual usufruct or interest in real estate whose net book value does not exceed one twentieth of the Company s share capital does not require a resolution of the General Shareholders Meeting. 6.3 Voting at General Shareholders Meetings of PKN Except as provided otherwise in the Code of Commercial Companies and the Articles of Association, resolutions of the General Shareholders Meeting are passed with an absolute majority of votes cast, while votes cast mean votes for, against and abstain. The resolutions of the General Shareholders Meeting regarding premium shares and the Company s merger through transfer of all the Company s assets to another Company, winding-up of the Company (including windingup through transfer of Company s seat abroad), liquidation of the Company, its restructuring and the decrease in the share capital by redemption of some shares without the capital being simultaneously increased are passed with a majority of 90% of votes cast. The resolutions to remove or not to consider an item placed on the agenda require the majority of 75 % of votes cast provided that the Shareholders present at the General Meeting who requested this issue be placed on the agenda agreed to the issue being removed from the agenda or not considered at all. One share in PKN confers the right to one vote at the Company s General Shareholders Meeting. The voting right of the Company s Shareholders is restricted to the extent that at the General Shareholders Meeting none of them (but for those specified in the Company s Articles of Association) can exercise more than 10% of the total votes existing in the Company as at the date the General Shareholders Meeting is held. The shareholders can participate in the General Meeting and exercise their voting rights in person or through their representatives. 6.4 Participation in PKN General Shareholders Meetings To attend the General Shareholders Meeting a registered depository certificate has to be filed at the Company
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