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

5.11. Composition of management and supervisory bodies, changes in composition and description of operation of the bodies and their committees

Management Board

The number of members in the JSW S.A. Management Board of the 7th term of office (which lasts 3 years and ends on the date of the Ordinary Shareholder Meeting approving the financial statements for the financial year 2012) was set forth in the Shareholder Meeting Resolution of 26 April 2010 at five members.

The current 3-year term of office for all the Management Board members began on 28 June 2010. Mandates of all the Management Board members expire no later than on the date of the Shareholder Meeting approving the financial statements for the 2012 financial year.

Changes in the composition of JSW S.A.’s Management Board in 2012:

• On 10 January 2012, Mr. Marek Wadowski tendered his resignation from the position of the Vice-President for Financial Matters, effective as of 16 January 2012, for important personal reasons.
• On 6 February 2012 the JSW S.A. Supervisory Board adopted a resolution to commence an executive search proceeding for the position of a member of the JSW S.A. Management Board responsible for finance and to act in the capacity of the Chief Financial Officer. On 1 March 2012, the Company's Supervisory Board, in result of the contest carried out, adopted a resolution to appoint Mr. Robert Kozłowski as of 1 April 2012 to the position of the Vice-President of the JSW S.A. Management Board for Financial Matters of the 7th term of office

As at 31 December 2012 and as at the date of this report, the composition of the JSW S.A. Management Board and the allocation of powers between JSW S.A. Management Board members was as follows:

• Jarosław Zagórowski – President of the Management Board;
  Manages the work of the Management Board and supervises the overall operation of JSW S.A. Manages the matters of the Company and in particular exercises direct oversight over the operation of the following Management Board Office Divisions: Organization and Management, HR Management, Strategic Development, Organization and Investor Relations, Legal (from 1 February 2013) and the Internal Control Team; Internal Audit Team, Management Board Representative for Innovative Implementations, Management Board Representative for Operational Integration of Coking Plants in JSW Capital Group, Management Board Representative for Cooperation with Local Government Authorities, Management Board Representative for Risk Management, Management Board Representative for the Integrated Management System and the Spokesman. Moreover, he oversees the activity of the Management Board Representative for the Protection of Classified Information and Defense-Related Matters.
• Grzegorz Czornik – Vice-President of the Management Board for Sales;
  Manages the matters of the Company and in particular exercises direct oversight over the operation of the following Management Board Office Divisions: Coal Sales, Coke and Hydrocarbon Sales Strategy, Coal Preparation and Quality.
• Robert Kozłowski – Vice-President of the Management Board for Financial Matters;
  Manages the Company's matters and in particular exercises direct oversight over the operation of the following Management Board Office Divisions: Controlling, Finance, Chief Accountant and the Management Board Representative on IT Development of JSW S.A.
• Andrzej Tor – Vice-President of the Management Board for Technical Matters;
  Manages the Company's matters and in particular exercises direct oversight over the operation of the following Management Board Office Divisions: Production, Investment Projects and Mine Development and oversees the activity of the Occupational Health and Safety Team.
• Artur Wojtków – Vice-President of the Management Board for Employment and Social Policy;
  Manages the Company's matters and in particular exercises direct oversight over the operation of the Employment, Payroll and Social Policy Office.

Moreover, the Management Board of JSW S.A. oversees the operations of the Company's Purchasing Office and the Company's Mines.

The Company's Management Board operates pursuant to the Commercial Company Code Act of 15 September 2000 and other generally applicable provisions of law, the Company's Articles of Association and provisions of the Company's Management Board Bylaws. When fulfilling their duties, Management Board members are guided by the principles included in the code of Best Practice for Warsaw Stock Exchange Listed Companies, Management Board Bylaws and the Company's Articles of Association available at the www.jsw.pl website. Moreover, other information about the operations of the Management Board are presented in Items 1.2 and 5.8 of this report.

The Management Board runs the Company’s affairs and represents the Company. The Management Board makes decisions on all the matters which are not reserved for other corporate bodies. 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. The matters that exceed ordinary management require a Management Board resolution. Management Board resolutions are adopted by an absolute majority of votes, where at least three Management Board members attend the meeting. Management Board resolutions are minuted.

The President of the Management Board manages the work of the Management Board and supervises the overall operation of the Company and names the Vice-President to perform these duties in his absence. The President of the Management Board convenes Management Board meetings and presides over them. Management Board meetings are convened by the President of the Management Board on his own initiative or upon request of one of the remaining Management Board members at any time, also upon request of the Supervisory Board Chairperson. In absence of the President of the Management Board, meetings are convened by the Vice-President named by the President.

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 of the 8th term of office consisted of the following persons:

• Józef Myrczek – Chairman,
• Antoni Malinowski – Deputy Chairman,
• Eugeniusz Baron – Secretary,
• Miłosz Karpiński – Member,
• Stanisław Kluza – Member,
• Robert Kudelski – Member,
• Tomasz Kusio – Member,
• Alojzy Nowak – Member,
• Andrzej Palarczyk – Member,
• Łukasz Rozdeiczer-Kryszkowski – Member,
• Adam Rybaniec – Member,
• Adam Wałach – Member.

Changes in the composition of the Supervisory Board in 2012

1. 7th term of office until 31 May 2012:
   • On 27 March 2012, pursuant to § 15 sec. 12 and 13 of the Company's Articles of Association, the Minister of Economy dismissed Mr. Zbigniew Kamieński from the Company's Supervisory Board of the 8th term.
   • On 27 March 2012, pursuant to § 15 sec. 12 and 13 of the Company's Articles of Association, the Minister of Economy appointed Mr. Stanisław Kluza to the Company's Supervisory Board of the 8th term.
2. 8th term of office from 31 May 2012:
   • On 31 May 2012, pursuant to § 15 sec. 12 and 13 of the Company's Articles of Association, the Minister of Economy appointed the following persons to the Supervisory Board of the 8th term:
     • Miłosz Karpiński,
     • Stanisław Kluza,
     • Tomasz Kusio,
     • Antoni Malinowski,
     • Józef Myrczek,
     • Alojzy Nowak,
     • Adam Rybaniec.
   • On 31 May 2012, the Company's Shareholder Meeting appointed the following Supervisory Board members elected by JSW S.A. employees to the Supervisory Board of the 8th term of office.
     • Eugeniusz Baron,
     • Andrzej Palarczyk,
     • Adam Wałach,
     • Robert Kudelski.
   • On 31 May 2012, the Company's Shareholder Meeting appointed Mr. Łukasz Rozdeiczer-Kryszkowski to the Supervisory Board of the 8th term of office.
   • On 10 July 2012, Mr. Miłosz Kamiński tendered a resignation from his position as a member in the Company's Supervisory Board, as he took up further professional challenges that prevented him from discharging that function.
   • Additionally, on 19 February 2013, pursuant to § 15 sec. 12 and 13 of the Company's Articles of Association, the Minister of Economy appointed Mr. Andrzej Karbownik to the Company's Supervisory Board of the 8th term.

As at 31 December 2012, the composition of the Supervisory Board of the 8th term of office was as follows:

• Józef Myrczek – Chairman.
  Working in Supervisory Board Committees: the Nomination and Compensation Committee.
• Antoni Malinowski – Deputy Chairman.
  Working in Supervisory Board Committees: the Audit Committee.
• Eugeniusz Baron – Secretary.
  Working in Supervisory Board Committees: the Corporate Governance Committee.
• Stanisław Kluza – Member.
  Working in Supervisory Board Committees: the Corporate Governance Committee.
• Robert Kudelski – Member.
• Tomasz Kusio – Member.
  Working in Supervisory Board Committees: the Audit Committee.
• Alojzy Nowak – Member.
  Working in Supervisory Board Committees: the Audit Committee and the Nomination and Compensation Committee.
• Andrzej Palarczyk – Member.
• Łukasz Rozdeiczer-Kryszkowski – Member.
  Working in Supervisory Board Committees: the Corporate Governance Committee.
• Adam Rybaniec – Member.
  Working in Supervisory Board Committees: the Nomination and Compensation Committee.
• Adam Wałach – Member.

As at the date of this report, the composition of the Supervisory Board of the 8th term of office was as follows:

• Józef Myrczek – Chairman.
  Working in Supervisory Board Committees: the Nomination and Compensation Committee.
• Antoni Malinowski – Deputy Chairman.
  Working in Supervisory Board Committees: the Audit Committee.
• Eugeniusz Baron – Secretary.
  Working in Supervisory Board Committees: the Audit Committee and the Nomination and Compensation Committee.
• Stanisław Kluza – Member.
  Working in Supervisory Board Committees: the Audit Committee and the Corporate Governance Committee.
• Robert Kudelski – Member.
• Tomasz Kusio – Member.
  Working in Supervisory Board Committees: the Audit Committee.
• Alojzy Nowak – Member.
  Working in Supervisory Board Committees: the Audit Committee and the Nomination and Compensation Committee.
• Andrzej Palarczyk – Member.
• Łukasz Rozdeiczer-Kryszkowski – Member.
  Working in Supervisory Board Committees: the Audit Committee and the Nomination and Compensation Committee.
• Adam Rybaniec – Member.
  Working in Supervisory Board Committees: the Nomination and Compensation Committee.
• Adam Wałach – Member.
• Andrzej Karbownik – Member.

As at the date of this report, in the JSW S.A. Supervisory Board of the 8th term of office, five Supervisory Board members meet the criteria of independence from the Company and from entities materially connected to the Company. 

In 2012, the JSW S.A. Supervisory Board of the 7th term of office was active, which held 6 meetings, adopted 66 resolutions and the Supervisory Board of the 7th term of office, which held 5 meetings and adopted 25 resolutions.

The Company's Supervisory Board operates pursuant to the Commercial Company Code Act of 15 September 2000 and other generally applicable provisions of law, the Company's Articles of Association and provisions of the Supervisory Board Bylaws. The Supervisory Board Bylaws and the Company's Articles of Association are available at the www.jsw.pl website. Other information about the operations of the Supervisory Board are presented in Items 1.2 and 5.8 of this report.

The Supervisory Board conducts constant oversight over the Company’s operations in all areas of its activity. The Supervisory Board performs its duties as a collective body, however it may delegate its members to carry out specific supervisory and controlling activities individually. Supervisory Board members exercise their rights and perform their duties in person.

Supervisory Board meetings shall be convened and chaired by the Supervisory Board Chairman, and if the Chairman is unable to convene a meeting, it shall be convened by the Deputy Chairman or by the person named by the Chairman. The first meeting of a newly elected Supervisory Board shall be convened and opened by the President of the Management Board. The Supervisory Board may elect to and dismiss from among themselves, in a secret ballot, a Supervisory Board member delegated to continuous individual supervision. The Supervisory Board holds its meetings no less frequently than once per two months. The Supervisory Board Chairman shall be obligated to convene a Supervisory Board meeting at the written request of a Supervisory Board member or at the written request of the Company’s Management Board. The meeting should be held within two weeks after the submission of the request. In order for Supervisory Board resolutions to be valid, all the Supervisory Board members must be invited to the meeting. The Supervisory Board adopts resolutions by an absolute majority of votes present at the meeting, in the presence of at least half the number of the Supervisory Board members. An absolute majority of votes means more than one half of the votes cast. In the event of a tie vote the Supervisory Board Chairman’s vote shall prevail. Supervisory Board members may participate in adopting Supervisory Board resolutions by casting their vote in writing through another Supervisory Board member. Voting in writing cannot apply to matters introduced to the agenda at a Supervisory Board meeting. Supervisory Board members may adopt resolutions by following a written procedure or via remote means of direct communication. A resolution shall be valid if all Supervisory Board members have been notified of the content of the draft resolution and no Supervisory Board member has requested that the resolution be adopted at the next meeting of the Supervisory Board.

The adoption of resolutions by voting in writing through another Supervisory Board member or using the means of direct remote communication shall not apply to the election of the Chairman, the Deputy Chairman or the Secretary of the Supervisory Board, the dismissal of the Chairman, the Deputy Chairman or the Secretary of the Supervisory Board, the appointment or dismissal of Management Board members or the suspension, for important reasons, of any specific or all Management Board members in their duties.

Votes shall be cast in an open ballot. Secret ballots are ordered in personnel matters or upon request of at least one of the persons eligible to vote. Resolutions adopted by the Supervisory Board are minuted.

Supervisory Board Committees

The following committees operate within the framework of the JSW S.A. Supervisory Board

• Audit Committee,
• Nomination and Compensation Committee,
• Corporate Governance Committee.

Audit Committee

The Audit Committee was appointed by the Supervisory Board on 10 August 2011. The main purpose of the Audit Committee is to support the Supervisory Board in exercising financial supervision and to provide the Board with reliable information and opinions that allow it to efficiently make correct decisions in the area of financial reporting, internal control and risk management.

The rules of its operation and the tasks of the Audit Committee have been determined by the Bylaws of the Audit Committee in the JSW S.A. Supervisory Board as adopted by the Supervisory Board.

The main tasks of the Audit Committee include in particular the following:

• monitoring the financial reporting process,
• monitoring the effective operation of internal control, internal audit and risk management systems,
• monitoring the performance of financial audit activities,
• monitoring the independence of the auditor and the entity authorized to audit financial statements,
• recommending an entity authorized to audit financial statements and to conduct financial audit activities in the Company to the Supervisory Board.

The Audit Committee is authorized to audit financial statements and to conduct financial audit activities, in particular with respect to any significant irregularities of the Company's internal control system relating to the financial reporting process.

In 2012, the Audit Committee was composed of:

• Miłosz Karpiński – Chairman (till 10 July 2012)
• Tomasz Kusio – Chairman (from 29 August 2012),
• Antoni Malinowski – Deputy Chairman (from 29 August 2012),
• Mariusz Warych – Member (till 10 January 2012),
• Alojzy Nowak – Member (from 10 January 2012).

As at the date of this report, the Audit Committee was comprised of:

• Tomasz Kusio – Chairman,
• Antoni Malinowski – Deputy Chairman,
• Stanisław Kluza – Member,
• Alojzy Nowak – Member.

Changes in the composition of the Audit Committee in 2012 and until the date of this report:

• In connection with the resignation tendered by Mr. Mariusz Warych from the position of the Audit Committee member, on 10 January 2012, the Supervisory Board appointed Mr. Alojzy Nowak to the committee,
• In connection with the resignation tendered by Mr. Miłosz Karpiński from the position of a Supervisory Board member and also an Audit Committee member, on 29 August 2012, the Supervisory Board appointed Mr. Antoni Malinowski to the committee,
• In connection with the Supervisory Board's decision to increase the number of Audit Committee members, on 11 January 2013, the Supervisory Board appointed Mr. Stanisław Kluza to the committee,

Nomination and Compensation Committee

The Nomination and Compensation Committee was formed by the Supervisory Board on 24 October 2012. The Nomination and Compensation Committee is an advisory and opinion-giving body in respect of the Supervisory Board and has been formed for the purpose of presenting opinions and proposals to the Supervisory Board on how to shape the governance structure of the Company, including issues related to organizational solutions, the compensation system, the level of compensation and the selection of managers with the qualifications needed to build the success of the Company's Capital Group.

The rules of its operation and the tasks of the Nomination and Compensation Committee have been determined by the Bylaws of the Nomination and Compensation Committee in the JSW S.A. Supervisory Board as adopted by the Supervisory Board.

The scope of the Committee's operation covers giving opinions and conducting analyses to support the Supervisory Board in the performance of its duties defined by the Articles of Association in respect of the overall compensation policy for Management Board members and upper level management at the Company and to articulate recommendations on appointing Management Board members.

The following tasks in particular fall among the powers and duties of the Nomination and Compensation Committee:

• recruiting and hiring Management Board members by drafting and preparing draft versions of documents and processes to be submitted to the Supervisory Board for approval,
• preparing draft versions of contracts and other model documents in connection with employing Management Board members and overseeing the performance of the contractual obligations taken by the parties,
• overseeing the implementation of the Management Board's compensation system, in particular preparing settlement documents concerning variable and bonus elements of compensation for the purpose of submitting recommendations to the Supervisory Board,
• monitoring and periodically analyzing the compensation system for the management of the Company and if necessary articulating recommendations for the Supervisory Board,
• overseeing the proper implementation of perks for the Management Board stemming from their employment contracts such as: insurance, cars, apartments and others.

In 2012, the Nomination and Compensation Committee was comprised of:

• Józef Myrczek – Chairman,
• Alojzy Nowak – Member,
• Adam Rybaniec – Member.

As at the date of this report, the Nomination and Compensation Committee was comprised of:

• Józef Myrczek – Chairman,
• Eugeniusz Baron – Member,
• Alojzy Nowak – Member,
• Łukasz Rozdeiczer-Kryszkowski – Member,
• Adam Rybaniec – Member.

Changes in the composition in 2012 and until the date of this report:

• In connection with the Supervisory Board's decision to increase the number of members of the Nomination and Compensation Committee, on 11 January 2013, the Supervisory Board appointed Mr. Eugeniusz Baron and Mr. Łukasz Rozdeiczer-Kryszkowski to the committee.

Corporate Governance Committee

The Corporate Governance Committee was established by the Supervisory Board 29 August 2012. The Corporate Governance Committee is an advisory and opinion-giving body for the Supervisory Board and has been established to enhance the effectiveness of the supervisory activities performed by the Supervisory Board in respect of applying corporate governance principles in the Company's Capital Group and compliance between these principles and the principles laid down by the Warsaw Stock Exchange in the Best Practices of Companies Listed on the WSE.

The operational principles and tasks of the Corporate Governance Committee were defined by the Supervisory Board in the Bylaws of the Corporate Governance Committee of the Supervisory Board of Jastrzębska Spółka Węglowa S.A.

The scope of the Committee's operation covers opinion-giving and analytical activities to support the Supervisory Board in the performance of its control and supervisory duties defined by the articles of association in conjunction with the corporate governance principles applied by the Capital Group.

The Committee's powers and obligations include the following in particular:

• evaluating the implementation of the corporate governance principles in the Capital Group,
• submitting recommendations to the Supervisory Board on implementing corporate governance principles in the Capital Group,
• giving opinions on normative documents pertaining to the corporate governance principles implemented in the Capital Group,
• evaluating reports pertaining to the observance of corporate governance principles prepared for WSE.

In 2012, the Corporate Governance Committee was comprised of:

• Stanisław Kluza – Chairman,
• Eugeniusz Baron – Member,
• Łukasz Rozdeiczer-Kryszkowski – Member.

There were no changes in the composition of the Committee until the date of this report.