6. Corporate governance

In connection with the entry into force, on 1 January 2016, of the new corporate governance standards laid down in the document entitled “Code of Best Practice for WSE Listed Companies 2016” adopted by the Stock Exchange Supervisory Board’s resolution of 13 October 2015, the Company published, on 17 February 2016, a report on the application of these standards and uploaded the pertinent statement on its website. According to this report, the Company declares that the following standards contained in the document entitled “Code of Best Practice for WSE Listed Companies 2016” are not applied.

Information policy and investor communication

I.Z.1.2. composition of the company’s management board and supervisory board and professional CVs of the members of these corporate bodies along with information about supervisory board members satisfying the independence criteria, the Company does not apply the foregoing standard. The standard is not applied to information about the Company’s supervisory board members satisfying the independence criteria in connection with not applying standard no. II.Z.3.

I.Z.1.3. split of duties and responsibilities among management board members drawn up according to standard II.Z.1, the Company does not apply the foregoing standard. The standard is not applied in connection with not applying standard no. II.Z.1.

I.Z.1.6. calendar of corporate events leading to the acquisition or limitation of shareholder rights, calendar of publishing financial reports and other important events from an investor’s point of view – with sufficient lead time allowing investors to make investment decisions, The Company does not apply the foregoing standard. The standard is not applied - the Company publishes a calendar of publishing financial reports and information concerning any and all important events from an investor’s point of view according to the prevailing legal regulations.

I.Z.1.8. tables containing the company’s financial highlights for the most recent 5 years of business in a format facilitating data processing by the recipients thereof, the Company does not apply the foregoing standard. The standard is not applied as these data are available in the periodic report for a given reporting period and these reports are available on the Company’s website.

I.Z.1.9. information on the planned dividend and the dividend the company has paid during the most recent 5 financial years containing data on the record date, the dividend payment dates and the dividends paid - in total and per share, the Company does not apply the foregoing standard.
The standard is not applied as the Company publishes these data according to the prevailing regulations in current reports and this information is also set forth in periodic reports available on the Company’s website and according to the Company there is no need to publish additionally separate information on this subject.

I.Z.1.10. financial forecasts - if the company has made a decision to publish them - published over a period of at least the most recent 5 years along with information on the degree of their execution, the Company does not apply the foregoing standard. The standard is not applied as the Company has not made a decision to publish financial forecasts in the future, while these estimated results have thus far been published incidentally and are available in current reports. If the decision is changed, the Company will publish the relevant current reports according to the prevailing regulations.

I.Z.1.11. information on the rule binding in the company concerning the entity authorized to audit financial statements, or of the absence of such a rule, The Company does not apply the foregoing standard. The standard is not applied as the Company’s Supervisory Board is the entity authorized to select the statutory auditor authorized to audit the financial statements. Every year it makes this choice according to the prevailing legal regulations giving consideration to its powers, independence and integrity. This information is transmitted to investors in the form of a current report according to the prevailing regulations.

I.Z.1.15. information containing a description of the policy of diversity applied by the company in reference to the company’s corporate authorities and its key managers; this description should give consideration to such elements of the policy of diversity as gender, field of education, age, professional experience and specify the objectives of the applied policy of diversity and the method of its execution in a given reporting period; if the company has not drafted and is not pursuing a policy of diversity, it publishes the explanation for this decision on its website. The Company does not apply the foregoing standard. The standard is not applied as the Company has not devised and is not applying a policy of diversity. The fundamental criterion for filling key positions is related to competences and satisfying the requirements for a given position. Elements such as age and gender do not affect the assessment of candidates.

I.Z.1.16. information on the planned transmission of shareholder meetings - no later than 7 days prior to the date of the shareholder meeting, the Company does not apply the foregoing standard. The standard is not applied as standard IV.Z.2 is not applied.

I.Z.1.17. justification for the shareholder meeting’s draft resolutions concerning business and important decisions or ones that may evince doubts among shareholders - with sufficient lead time to allow the participants in a shareholder meeting to review them and adopt resolutions with the proper amount of comprehension, the Company does not apply the foregoing standard. The standard is not applied in connection with not applying standard no. IV.Z.9.

I.Z.1.20. a record of the shareholder meeting in audio or video format, The Company does not apply the foregoing standard. The standard is not applied since the Company does not currently plan broadcasts of Shareholder Meetings in real time, nor does it anticipate recording Shareholder Meetings in audio or video format or publishing a record thereof on its website. According to the Company, on account of the current shareholder structure, as well as the provisions of the Articles of Association contemplating the possibility of holding Shareholder Meetings in the Company’s registered offices and in any other community in Poland, they provide sufficient safeguards for the interests of all shareholders. Documenting and the course of the Shareholders Meetings held to date ensure the Company’s transparency, while the standards in force in the Company for participating in Shareholder Meetings facilitate proper and effective exercise of the rights attached to shares. Moreover, the application of the foregoing standards would also entail the necessity for the Company to incur additional expenses. The content of the resolutions adopted by the Shareholder Meeting is promptly transmitted in the form of current reports.

Management Board and Supervisory Board

II.Z.1. The internal split of responsibilities for the company’s various business areas between the management board members should be articulated in an unequivocal and transparent manner and the diagram with this split should be available on the company’s website. The Company does not apply the foregoing standard.
The standard is not applied since, on account of the nature of the Company’s business and magnitude, the entire Management Board is responsible for all the Company’s business areas and for performing the duties stemming from legal regulations and the Articles of Association.

II.Z.3. At least two supervisory board members meet the independence criteria referred to in standard II.Z.4. The Company does not apply the foregoing standard. The standard is not applied as the decision to elect Supervisory Board members is one of the powers of the Shareholder Meeting. Shareholders, being guided by the skills of various candidates and trust in them, designate the Supervisory Board composition and considering this, there are no grounds for restriction of the shareholders’ freedom in selecting Supervisory Board members. The Company does not apply this standard on account of the doubt concerning the very term “independence” of a supervisory board member, the doubt following from the fact that the “independence” (from the company and/or its shareholders) of a person who is to act and is acting in a given capacity in the Supervisory Board, is - according to the Company - subject to material factual limitation in the process of putting forward candidates, electing and retaining them in its composition and the possibility of recalling someone from the supervisory Board composition.

II.Z.4. Annex II to European Commission Recommendation 2005/162/EC of 15 February 2005 on the role of non-executive or supervisory directors of public companies and on the committees of the (supervisory) board is applicable to the independence criteria for supervisory board members.

Regardless of the provisions of item 1b) of the document referred to in the preceding sentence, a person who is an employee of the company, a subsidiary or an affiliate, as well as a person related to these entities by a contract of a similar nature cannot be deemed to meet the independence criteria. A relationship with a shareholder precluding the independence of a supervisory board member as construed by this standard is also construed to mean an actual and significant relationship with a shareholder holding at least 5% of the total number of votes in the company. The Company does not apply the foregoing standard. The standard is not applied on account of not applying standard no. II.Z.3.

II.Z.5. Supervisory Board members convey to the other Supervisory Board members and the Company’s Management Board a declaration of satisfying the independence criteria specified in standard II.Z.4. The Company does not apply the foregoing standard. The standard is not applied on account of not applying standard no. II.Z.3

II.Z.6. The Supervisory Board assesses whether there are ties or circumstances that may affect the satisfaction of independence criteria by a given supervisory board member. The assessment of satisfying the independence criteria by supervisory board members is presented by the supervisory board according to standard II.Z.10.2. The Company does not apply the foregoing standard. The standard is not applied on account of not applying standard no. II.Z.3

II.Z.7. The provisions of Annex I to the European Commission Recommendation referred to in standard II.Z.4 are applicable to the tasks and functioning of the committees operating in the supervisory board. If the Supervisory Board discharges the audit committee function, then the foregoing standards are applied accordingly. The Company does not apply the foregoing standard. The standard is not applied as no committees operate in the Supervisory Board. The Supervisory Board discharges the audit committee function and this standard is not applied on account of not applying standard no. II.Z.3.

II.Z.8. The audit committee chairman satisfies the independence criteria specified in standard II.Z.4. The Company does not apply the foregoing standard. The standard is not applied on account of not applying standard no. II.Z.3. The Supervisory Board discharges the audit committee function in the Company and its Chairman is concurrently the Audit Committee Chairman.

II.Z.10.1. In addition to the statutory activities, once a year the Supervisory Board prepares and presents to the Ordinary General Meeting of Shareholders the assessment of the company’s position giving consideration to the assessment of the systems for internal control, risk management, compliance and internal audit functions; this assessment covers all the material control mechanisms, including especially the ones pertaining to financial reporting and operating activity.

The standard will be applied by making the assessment on this subject a part of the Supervisory Board’s annual report in the part pertaining to the performance of the Audit Committee’s function.

II.Z.10.2. Supervisory Board’s activity report encompassing at least information on the following subject matter:

• composition of the supervisory board and its committees,
• satisfaction of independence criteria by supervisory board members,
• number of meetings of the supervisory board and its committees in the reporting period,
• self-assessment of the supervisory board’s work;

The Company does not apply the foregoing standard. The standard is not applied in respect to the part concerning the satisfaction by supervisory board members of independence criteria on account of not applying standard no. II.Z.3 and in respect to the part concerning the self-assessment of the supervisory board’s work on account of the fact that the Shareholder Meeting assesses the Supervisory Board’s work by giving (or not) a discharge on the performance of duties to its various members.

II.Z.10.4. assessment of the reasonableness of the policy pursued by the company referred to in recommendation I.R.2, or information on the absence of such a policy. The Company does not apply the foregoing standard. The standard is not applied on account of this policy referred to in recommendation I.R.2 not being implemented, while the decisions on this subject are made by the Management Board at the individual requests of applicants.

Internal systems and functions

III.Z.1. The company’s management board is responsible for implementing and maintaining effective systems of internal control, risk management, compliance and internal audit functions. The Company does not apply the foregoing standard. The standard is not applied on account of the fact that the Management Board is responsible for controlling the Company’s operating activity, including the controlling of its internal business processes along with risk management processes. Within the scope of legal regulations, the Supervisory Board also carries out auditing and control functions. However, there are no specialized units in the Company to manage internal control, risk management and compliance processes. These functions are discharged on an ongoing basis in every area of the company’s business.

III.Z.2. Without prejudice to standard III.Z.3, the persons responsible for risk management, internal audit and compliance report directly to the CEO or some other management board member, and also have the ability to report directly to the supervisory board or audit committee. The Company does not apply the foregoing standard. The standard is not applied since, as has been indicated in the justification for not applying standard no. III.Z.1, the Company does not have separate units dealing with risk management, internal audit and compliance activities. According to the Company, the current organizational structure in which the directors of the various divisions report to the Company’s Management Board provides a sufficient basis for the correct flow of information and supervision over the business of the various areas. The Company does not have procedures forbidding the sending of reports directly to the Supervisory Board.

III.Z.3. The standards of independence specified in generally recognized international standards for the professional practice of internal audit are applicable to the person managing the internal audit function and other persons responsible for the performance of its tasks. The Company does not apply the foregoing standard. The standard is not applied as the Company does not have a separate internal audit unit and there is not a separate position held by a person managing this unit.

III.Z.4. At least once a year, the person responsible for internal audit (if such a function is formed separately in the company) and the management board present their own assessment to the supervisory board of the operating effectiveness of the systems and functions referred to in standard III.Z.1 along with the pertinent report. The Company does not apply the foregoing standard. The standard is not applied as the Company does not have a separate internal audit unit and there is not a separate position held by a person managing this unit; the Supervisory Board discharges the audit committee function.

III.Z.5. The Supervisory Board monitors the effectiveness of the systems and functions referred to in standard III.Z.1 based among others on reports delivered to it from time to time by the persons responsible for these functions and the company’s management board; it also conducts an annual assessment of the operating effectiveness of these systems and functions according to standard II.Z.10.1. If an audit committee operates in the company, it monitors the effectiveness of the systems and functions referred to in standard III.Z.1; however, this does not release the supervisory board from conducting its annual assessment of the operating effectiveness of these systems and functions. The Company does not apply the foregoing standard. The standard is not applied as standard no. III.Z.1 is not applied in the Company and there are no specialized units to manage internal control, risk management and compliance processes.

III.Z.6. If the company has not organizationally separated an internal audit function, then the audit committee (or the supervisory board, if it discharges the audit committee function) makes the annual assessment of whether there is a need to define it separately. The Company does not apply the foregoing standard.

The standard is not applied since the Company’s Management Board makes the decision on the organizational structure and separating specific units. Both the Management Board and the Supervisory Board monitor the Company’s operation on an ongoing basis, simultaneously assessing whether there is a need to define separate dedicated internal audit units.

Shareholder meeting and shareholder relations

IV.Z.2. If this is justified on account of the company’s shareholder structure, the company provides a generally available broadcast of shareholder meetings in real time. The Company does not apply the foregoing standard. The standard is not applied since, according to the Company, the current shareholder structure does not justify the application of the foregoing standard.

IV.Z.3. The presence of representatives of the media should be allowed at shareholder meetings.
The Company does not apply the foregoing standard. The standard is not applied. Authorized persons and providing support to the Shareholder Meeting participate in the Company’s Shareholder Meetings. In the Company’s opinion, the prevailing legal regulations sufficiently regulate performance of the reporting duties imposed on public companies as regards openness and transparency of matters being reviewed at the Shareholder Meeting. If representatives of the media pose questions to the Company, the Company provides the pertinent replies within the confines permitted by the prevailing legal regulations.

IV.Z.16. The record date and the dividend payment date should be set so to ensure that the period between them is no longer than 15 business days. Setting a longer period between these dates requires justification. The Company does not apply the foregoing standard. The standard is not applied - Shareholder Meeting sets the record date and the dividend payment date according to its own discretion within the confines defined by the prevailing regulations.

IV.Z.18. A shareholder meeting resolution on division of the par value of shares should not set a new par value of the shares below PLN 0.50, which could result in a very low unit market value of such shares, which could, as a consequence, result in a threat to the correctness and credibility of the company’s valuation on the stock exchange. The Company does not apply the foregoing standard. The standard is not applied. Setting the par value of shares is one of the powers of the Shareholder Meeting within the confines defined by the prevailing regulations.

Conflicts of interest and transactions with related parties

V.Z.5. Before a company executes a significant agreement with a shareholder holding at least 5% of the total number of votes in the company or a related entity, its management board shall request the supervisory board’s consent for such a transaction. Prior to giving consent the Supervisory Board assesses the impact such a transaction will have on the company’s interest. Typical transactions executed on an arm’s length basis in the operating business of a company with entities belonging to a company’s group are not subject to the foregoing obligation.

If shareholder meeting makes the decision on a company entering into a material agreement with a related entity, prior to making that decision, the company provides all shareholders with access to information needed to assess such a transaction’s impact on the company’s interest. The Company does not apply the foregoing standard. According to the provisions of the Company’s Articles of Association the Supervisory Board assesses transactions in respect of the Company’s interests, applying the materiality criterion, regardless of the entity that is a party to the transaction.

V.Z.6. In its internal regulations the Company defines the criteria and circumstances in which a conflict of interests may occur in the company, and the rules of conduct when facing a conflict of interest or the possibility of one occurring. The company’s internal regulations give consideration among others to the methods of preventing, identifying and solving conflicts of interest as well as the rules for precluding management board or supervisory board member from participating in the examination of a case entailing or threatening a conflict of interest.

The Company does not apply the foregoing standard. The Company independently creates a conflict resolution policy.

Remunerations

VI.Z.1. Incentive programs should be designed in such a manner as to enable the company, among others, to correlate the level of remuneration of the members of its management board and its key managers with the company’s actual, long-term financial standing and long-term growth in shareholder value as well as stability of the company’s operations. The Company does not apply the foregoing standard. The Company creates incentive programs independently, basing on freely chosen criteria.

VI.Z.2. In order to correlate the remuneration of management board members and key managers with the company’s long-term business and financial objectives, the period between the granting, as part of the incentive program, of options or other instruments associated with the company’ shares and their exercisability should not be shorter than 2 years. The Company creates incentive programs independently, basing on freely chosen criteria.

VI.Z.4. In its activity report, the company should present an account of its remuneration policy containing at least:

1) general information on the remuneration system adopted in the company,

2) information on the terms and conditions as well as the amount of remuneration of each management board member, broken down into fixed and variable components of remuneration, indicating key parameters that affect the variable components of remuneration and the rules for making severance payments and other payments due by virtue of termination of the employment relationship, the mandate agreement relationship or other legal relationship of a similar nature – separately for the company and for each member of its group,

3) information on any non-financial components of remuneration granted to each management board member and key manager,

4) indication of significant changes that took place last year in the remuneration policy or information about the absence of such changes,

5) assessment of the implementation of the remuneration policy from the perspective of the achievement of its objectives, in particular the long-term growth in shareholder value and stability of the company’s operations.

The Company does not apply the foregoing standard. The standard is not applied. In its annual financial statements, the Company presents information on the remuneration paid to its Management Board members in accordance with the applicable provisions of law.

The Company’s articles of association do not provide for any restrictions on the exercise of voting rights and do not contain any provisions according to which, with the Company’s cooperation, capital rights attached to securities would be detached from the holding of the securities. In the case of the Company, restrictions on the exercise of voting rights may arise only from the generally applicable provisions of law.

Pursuant to Article 8.2 of the Company’s Articles of Association, shares may be disposed of or pledged without any limitations, subject to Article 336 Section 1 of the Commercial Companies Code as regards shares issued in exchange for non-cash contributions.

The Company’s Articles of Association are amended by resolutions of the Shareholder Meeting, in accordance with the provisions of the Commercial Companies Code. Pursuant to Article 19.5 of the Company’s Articles of Association, resolutions amending the Articles of Association in a manner resulting in increasing benefits to shareholders or limiting rights granted personally to individual shareholders require consent of all the shareholders concerned

The establishment of the consolidated version of the Company’s Articles of Association belongs to the powers of the Supervisory Board.

On 28 September 2016 the Company learned, according to the Information corresponding to the current excerpt from the Register of Undertakings from the Central Information System of the National Court Register, of the registration on 28 September 2016 of the amendment to the Company’s Articles of Association ratified by the Extraordinary Shareholder Meeting of Synthos S.A. on 19 September 2016 under resolution no. 4/2016, which it reported in Current Report no. 39/2016 of 28 September 2016. The Issuer reported the resolutions adopted by the Extraordinary Shareholder Meeting of Synthos S.A. on 19 September 2016 in Current Report no. 37/2016 of 19 September 2016. The scope of amendments made to the Articles of Association of Synthos S.A. involved the addition of section 3 in article 23.

The current wording of the Company’s Articles of Association is available on the Company’s website.

The rights and manner of operation of the Shareholder Meeting are governed by the provisions of the Commercial Companies Code and the Articles of Association, and are as follows:

The Shareholder Meeting is convened by the Company’s Management Board. An Ordinary Shareholder Meeting should be convened by the Management Board within 6 months of the end of the financial year.

The Supervisory Board may convene an Ordinary Shareholder Meeting if the Management Board fails to convene it by the prescribed deadline. An Extraordinary Shareholder Meeting may be convened by the Supervisory Board or shareholders representing at least half of the share capital or at least half of the total number of votes if they consider such convocation advisable. The convening entity presents, in the notice of convocation of the Shareholder Meeting, its agenda and draft resolutions for the distinct items of the proposed agenda.

A shareholder or shareholders representing at least one-twentieth of the share capital may request that an Extraordinary Shareholder Meeting be convened and that specific items be placed in the Meeting agenda. Such a request for convening an Extraordinary Shareholder Meeting should be submitted to the Management Board in writing or in electronic form. To request that an Extraordinary Shareholder Meeting be convened, the shareholders submitting the request should attach a justification and draft resolutions for the distinct items of the proposed agenda.

A shareholder or shareholders representing at least one-twentieth of the share capital may request that specific items be placed in the agenda of the nearest Shareholder Meeting. Such a request should be submitted to the Management Board no later than 21 days before the set date of the Meeting. The request should contain a justification and a draft resolution pertaining to the proposed item on the agenda. The request may be submitted in electronic form. The Management Board announces changes in the agenda made at the request of shareholders.

The Shareholder Meeting is held in the Company’s registered office or in any other location in the territory of the Republic of Poland indicated in the notice of the Shareholder Meeting.

The Shareholder Meeting may adopt resolutions notwithstanding the number of shareholders in attendance or the shares represented unless the applicable regulations provide otherwise.

Resolutions of the Shareholder Meeting are adopted by an ordinary majority of votes cast unless the Company’s Articles of Association or the applicable regulations provide otherwise.

The following matters require the adoption of a resolution by the Shareholder Meeting:

1. review and approval of the Management Board’s report on the Company’s activity and the financial statements for the previous financial year,
2. distribution of profit or cover of loss,
3. granting a discharge to members of the Company’s corporate bodies on the performance of their duties,
4. the Company’s execution of a loan or surety agreement or another similar agreement with a member of the Management Board, a member of the Supervisory Board, a commercial proxy or a liquidator or in favor of any such person,
5. the Company’s acquisition or disposal of an enterprise or an organized part thereof and establishment of a limited right in rem thereon,
6. decisions on claims to repair damages inflicted during the establishment of a company or in the exercise of its management or supervision,
7. the issue of convertible bonds or bonds with a pre-emptive right.

Resolutions amending the Company’s Articles of Association in a manner resulting in increasing benefits to shareholders or limiting rights granted personally to individual shareholders require consent of all the shareholders concerned.

The balloting at a Shareholder Meeting is open. Secret balloting is ordered during elections and when considering motions to recall members of the Company’s corporate bodies or liquidators, or to hold them accountable and in personnel-related matters. Secret balloting shall be ordered at the request of even one of the shareholders present or represented at the Shareholder Meeting.

Resolutions on changing the Company’s line of business are adopted in open registered balloting.

The Chairperson or Deputy Chairperson of the Supervisory Board opens the Shareholder Meeting and then the Meeting Chairperson is elected from among the persons authorized to vote. If the Chairperson or Deputy Chairperson of the Supervisory Board is absent, the President of the Management Board or another person appointed by the Management Board opens the Shareholder Meeting.

In accordance with the Company’s Articles of Association, the Shareholder Meeting may adopt its bylaws. However, the Shareholder Meeting has not exercised this right and has not adopted its bylaws.