Management Board Report on the activity of the JSW S.A. for 2012

5.8. Principles of appointment and dismissal of management and supervisory team and their powers

Composition of the JSW S.A. Management Board and principles of appointment and dismissal of Management Board Members

Composition of the Management Board and the procedure of its operation is defined in the Management Board Bylaws and in the Company's Articles of Association. The Bylaws are adopted by the Management Board and approved by a Supervisory Board resolution. The Management Board Bylaws and the Company's Articles of Association are available at www.jsw.pl.

According to the Company’s Articles of Association, the Management Board consists of three to six members. On 26 April 2010, the Shareholder Meeting set the number of members in the Company's Management Board of the 7th term of office at five members.

The current seventh term of office of the JSW S.A. Management Board expires on the date of the Ordinary Shareholder Meeting approving the financial statements for the financial year 2012.

Management Board members are appointed for a joint term of 3 years. The mandate of a Management Board member appointed before the end of the term of office of the Management Board expires simultaneously with the expiry of the mandates of the remaining Management Board members.

If the average annual headcount in the Company exceeds 500 employees one Management Board member shall be elected by the Company employees, in accordance with the election bylaws adopted by the Supervisory Board. Result of the election is binding for the body empowered to appoint the Management Board, i.e. the Supervisory Board. Lack of election of a Company employee representative to the Management Board shall not hinder the Management Board from adopt binding resolutions. Upon request of at least 15% of all the Company employees, a ballot shall be held to dismiss the Management Board member elected by employees. Such dismissal, death or other important reasons that decrease the number of Management Board members by the member elected by employees shall require supplementary elections.

Detailed regulation of this matter is included in the JSW S.A. Articles of Association available on the JSW S.A. website.

Management Board Members are appointed and dismissed by the Supervisory Board. A Management Board member shall submit a resignation in writing to the Supervisory Board at the Company’s registered office.

Management Board’s powers

The Management Board shall manage the Company's matters and represent it in and out of courts of law. The following issues that exceed ordinary management shall require a Management Board resolution:

• determining the organizational bylaws defining the Company's organization,
• appointing general proxies,
• purchasing and selling real estate,
• matters in which the Management Board turns to the Shareholder Meeting and Supervisory Board.

Members of the JSW S.A. Management Board have no powers to make decisions on share issues or buyouts. According to the Articles of Association of JSW S.A., these powers are held by the Shareholder Meeting of JSW S.A.

Two Management Board members acting jointly or a Management Board member acting with a proxy are authorized to make statements of will and affix signatures on behalf of the company.

In agreements between the Company and a Management Board member, as well as in disputes with a Management Board member, the Company shall be represented by the Supervisory Board.

Composition of the JSW S.A. Supervisory Board and principles of appointment and dismissal of Supervisory Board Members

Composition of the Company's Supervisory Board and the procedures of its operation are defined in the Supervisory Board Bylaws and in the Company's Articles of Association which are available at www.jsw.pl. Supervisory Board Bylaws are adopted by the Supervisory Board.

According to the Company's Articles of Association, the Supervisory Board consists of at least nine members. On 27 February 2012, the Shareholder Meeting set the number of Supervisory Board members of the 8th term of office at twelve members. The Supervisory Board elects the Chairman, the Deputy Chairman and the Secretary of the Supervisory Board from among its members. The Supervisory Board may dismiss in a secret ballot the Chairman, the Deputy Chairman or the Secretary of the Supervisory Board.

Supervisory Board members are appointed for a joint three-year term of office. If Supervisory Board members are elected by way of separate group voting, the number of Supervisory Board members is set by the Shareholder Meeting in gremio, however in such a situation the Supervisory Board may consist of no less than five members. The mandate of a Supervisory Board member appointed before the end of the term of office of the Supervisory Board shall expire simultaneously with the expiration of the mandates of the remaining Supervisory Board members.

After the State Treasury sells any shares in the Company, the Company’s employees shall have the right to elect to the Supervisory Board: two members in a Supervisory Board composed of up to 6 members, three members in a Supervisory Board composed of between 7 and 10 members and four members in a Supervisory Board composed of 11 or more members. Result of the election is binding for the body empowered to appoint the Supervisory Board, i.e. the Shareholder Meeting. Upon a written request of at least 15% of all Company employees, a vote is held in the matter of dismissing a Supervisory Board member elected by the employees. Such a dismissal, death or any other important reason that decreases the number of Supervisory Board members elected by Employees shall require supplementary elections.

The Shareholder Meeting appoints and dismisses Supervisory Board members. A Supervisory Board member shall submit a resignation in writing to the Management Board at the Company’s address.

From the date of introduction of the Company’s shares to trade on a regulated market, in the period during which the State Treasury, including subsidiaries of the State Treasury, holds the Company’s shares carrying voting rights of at least 34% of the total number of votes in the Company plus one vote, the State Treasury shall be entitled to appoint and shall be entitled to dismiss Supervisory Board members of a number equal to half the total number of Supervisory Board members set by the Shareholder Meeting (in the event this number is fractional, it shall be rounded down to a whole number) plus 1, with the reservation that the State Treasury shall be excluded from the vote in the Shareholder Meeting on appointing or dismissing the remaining Supervisory Board members; however, the State Treasury shall retain the voting right in the event of electing Supervisory Board members by voting in separate groups and in the event of the votes referred to in Article 385 § 6 of the Commercial Companies Code as well as in the event of votes on appointing or dismissing the Supervisory Board members elected by employees and in the event the Supervisory Board is unable to act because the number of its members is smaller than that required by the Articles of Association and the shareholders present at the Shareholder Meeting, other than the State Treasury, fail to supplement the composition of the Supervisory Board in the part which is subject to election by the Shareholder Meeting. Supervisory Board members are appointed and dismissed by the State Treasury by way of a statement delivered to the Company.

At least one member of a Supervisory Board consisting of up to 12 members or at least two members of a Supervisory Board consisting of 13 or more members should satisfy the requirements of independence for a Supervisory Board member within the meaning of the Commission Recommendation of 15 February 2005 on the role of non-executive or supervisory directors of listed companies and on the committees of the (supervisory) board (2005/162/EC), in consideration of additional requirements arising out of the Code of Best Practice for Warsaw Stock Exchange Listed Companies.

A candidate for an independent member of the Supervisory Board shall submit to the Company, before his or her appointment to the Supervisory Board, a written representation on satisfying the prerequisites for independence. If a situation arises causing failure to satisfy the prerequisites for independence, the relevant Supervisory Board member shall promptly inform the Company about this fact. Information about the then current number of independent Supervisory Board members shall be made public by the Company.

In a situation when no Supervisory Board member meets the independence requirement, the Company’s Management Board is obligated to convene a Shareholder Meeting immediately and place an item concerning changes in the composition of the Supervisory Board in the agenda of that Shareholder Meeting. Until the moment of making changes to the Supervisory Board composition, aiming at adjusting the number of independent members of the Supervisory Board to the requirements prescribed in the articles of association, the Supervisory Board shall act in the previous composition.

Supervisory Board’s powers

Powers of the Supervisory Board are set forth in the Company's Articles of Association. The Supervisory Board exercises permanent supervision over the Company’s activity. The powers of the Supervisory Board include in particular:

7. evaluate of the financial statements for their consistence both with the ledgers and documents and with the factual status,

1. approving the Management Board Bylaws and issuing an opinion on the Organizational Bylaws defining the organization of the Company’s enterprise,
2. appointing and dismissing the Company’s Management Board members, without prejudice to §11 section 5 and §34 item 2 of the Company’s Articles of Association,
3. suspending, for important reasons and in a secret ballot, any specific or all Management Board members in their duties,
4. delegating any Supervisory Board member or members to temporarily perform the duties of those Management Board members who are unable discharge their functions,
5. signing, terminating and amending agreements with Management Board members, establishing the rules for hiring and remunerating them and setting their remuneration, without prejudice to §33 item 4 and §34 item 1 of the Company’s Articles of Association,
6. selecting an entity authorized to audit financial statements to audit the Company’s financial statements,
7. evaluate of the financial statements for their consistence both with the ledgers and documents and with the factual status,
8. evaluating reports on the Company’s activity and the Management Board’s motions on the distribution of profit or the coverage of loss,
9. submitting written reports on the results of the activities referred to in items 7 and 8 above to the Shareholder Meeting,
10. submitting annual brief assessments of the Company’s standing in consideration of evaluation of the internal control system and the risk management system as well as annual reports on the activities of the Supervisory Board to the Shareholder Meeting, without prejudice to §35 of the Company’s Articles of Association,
11. giving an opinion on the matters submitted to the Shareholder Meeting,
12. approving the Company’s operating strategy, without prejudice to §33 item 2 of the Company’s Articles of Association,
13. opining the Company's annual plans.

In addition, the Supervisory Board's powers shall include giving consent to the Management Board for:

1. establishment of another company, subscription for, purchase or sale of shares in other companies, without prejudice to §34 item 3 of the Company's Articles of Association, with the reservation that the Supervisory Board’s request referred to in this item 1 is not required for the following:
   • taking up and acquiring shares in another company in the amount lower than 1/10 of the share capital of such company,
   • sale of shares in another company in which the Company holds less than a 1/10 share in the share capital,
   • taking up or acquiring shares in another company in return for the Company's receivables as part of composition or settlement proceedings,
   • selling shares acquired or taken up by the Company in return for the Company's receivables as part of composition or settlement proceedings,
   • subscription for, purchase or sale of shares in another company whose shares are listed on a regulated market,
     unless the value of such shares exceeds 1/20 of the Company’s share capital,
2. establishment of foreign branches,
3. purchase or sale or fixed assets the value of which exceeds 1/20 of the Company’s share capital,
4. contracting of contingent liabilities, including the granting by the Company of financial guarantees and sureties the value of which exceeds 1/20 of the Company’s share capital,
5. disbursement of interim dividends,
6. issuance of promissory notes the value of which exceeds 1/20 of the Company’s share capital,
7. purchase or sale of a real property or a right of perpetual usufruct or of a share in a real property or in a right of perpetual usufruct the value of which exceeds 1/20 of the Company’s share capital,
8. granting of consent for the Company to enter with a related entity into a material agreement within the meaning of the regulations on current and periodic information transmitted by issuers of securities admitted to trading on a regulated market, excluding typical agreements executed by the Company on an arm’s length basis within the framework of its operating activity, without prejudice to §35 of the Company's Articles of Association;
9. the voting instructions for the Shareholder Meetings of companies in which the Company holds at least 50% of all shares, in the following matters:
   • sale or lease of the company’s enterprise or an organized part thereof or establishment of a limited right in rem thereon,
   • dissolution or liquidation of the company,
   • introduction of amendments to the company’s articles of association or articles of partnership,
   • merger, split-up or transformation of the company,
   • increase or decrease of the company’s share capital.

At the request of the Management Board, the Supervisory Board shall permit a Management Board member to hold positions in the corporate authorities of companies in which the Company has an ownership interest and to collect remuneration for such work.