CAPITAL GROUP

Management Board’s Report to the 2003 Annual Financial Statements of Prokom Software SA Capital Group (SA-RS 2003)

RULES OF PREPARATION OF THE ANNUAL FINANCIAL STATEMENTS 1.

The 2003 annual report of Prokom Software SA Capital Group (the “Report”) includes:



2.

3.

4.

Auditor’s opinion and report on the audit of the annual consolidated financial statements; Annual consolidated financial statements, consisting of: Introduction, Consolidated Balance Sheet, Consolidated Profit and Loss Account, Reconciliation of Movements in Consolidated Shareholders’ Equity, Consolidated Cash Flow Statement, Notes, and supplementary information;
Letter to the Shareholders’;
Management Board’s Report. The 2003 annual financial statements of Prokom Software SA Capital Group were prepared in accordance with the Polish Accountancy Act of September 29th 1994 (as amended); Directive of the Minister of Finance on detailed rules governing valuation, scope of disclosing and presentation methods of the financial instruments, dated December 12th 2001; Directive of the Council of Ministers on detailed requirements for issue prospectuses and abbreviated issue prospectuses, dated October 16th 2001; and Directive of the Council of Ministers on current and interim reports to be disclosed by issuers of securities, dated October 16th 2001. The financial data presented in the Report was established using such principles of valuation of assets and liabilities and principles of measuring the net financial result as were applicable on the balance-sheet date, taking into account the adjustments related to provisions, including the provision for timing differences under income tax referred to in the Polish Accountancy Act, and the revaluation write-offs on assets. Detailed description of the accounting policies used for the preparation of the 2003 consolidated annual financial statements is presented in the Introduction to the 2003 Consolidated Annual Financial Statements of Prokom Software SA (SA-RS 2003). The annual consolidated financial statements contains data comparable with the data for the corresponding periods of the previous year (and, in the case of the balance sheet − also with the periods immediately preceding the periods covered in the annual financial statements), presented in a way ensuring comparability of the data disclosed in the Report for the previous year’s periods with the data relating to the current year’s periods.

Companies consolidated or accounted by equity method, as at December 31st 2003. No.

Company

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 27.

Koma SA Zeto Sp. z o.o. Combidata Poland Sp. z o.o. Optix Polska Sp. z o.o. PUP Spin Sp. z o.o. Softbank SA Prokom Internet SA The Polished Group SA Edison SA Stopklatka Sp. z o.o. Internet Wizards Sp. z o.o. Safe Computing Sp. z o.o. www praca com Sp. z o.o. Postdata SA Incenti SA Wirtualna Polska SA ce.market.com SA Ad.net SA Bezpieczeństwo.pl Sp. z o.o. CRM SA FinFin SA Mediabank SA ZUI Novum Sp. z o.o. Saba Grupa Softbank SA Sawan Grupa Softbank SA Softbank Serwis Sp. z o.o. Zeto-Rodan Sp. z o.o. Epsilio SA NetPower SA

Seat Katowice Gdynia Sopot Gdynia Katowice Warszawa Gdynia Kraków Kraków Szczecin Warszawa Warszawa Gdynia Bydgoszcz Warszawa Gdańsk Warszawa Warszawa Bydgoszcz Warszawa Warszawa Warszawa Łomża Bydgoszcz Kraków Gdańsk Warszawa Łódź Warszawa

Links characteristic as at 31 December 2003 direct subsidiary direct subsidiary direct subsidiary direct subsidiary direct subsidiary direct subsidiary direct subsidiary indirect subsidiary indirect subsidiary indirect subsidiary indirect subsidiary indirect subsidiary indirect subsidiary direct associate direct associate indirect associate indirect associate indirect associate indirect subsidiary indirect subsidiary indirect subsidiary indirect subsidiary indirect subsidiary indirect subsidiary indirect subsidiary indirect subsidiary indirect subsidiary indirect subsidiary indirect associate

Consolidation method

Control obtain date

full full full full full full full full full full full full full equity method equity method equity method equity method equity method full full full full full full full full full full equity method

21.05.1997 31.12.1996 24.05.1997 19.06.1997 08.01.2002 24.10.2002 09.02.2000 27.10.1999 13.03.2000 16.05.2000 15.03.2000 31.01.2000 08.11.2001 21.05.1997 17.07.2001 03.09.1999 04.08.2000 25.07.2000 24.10.2002 24.10.2002 24.10.2002 24.10.2002 24.10.2002 24.10.2002 24.10.2002 24.10.2002 24.10.2002 16.05.2003 21.11.2001

1

Detailed description of exclusion from consolidation or accounting for using equity method is described in point 10.2 of the “Introduction” to the 2003 Annual Consolidated Financial Statements of Prokom Software SA (SA-RS 2003). IMPORTANT EVENTS AFFECTING THE COMPANY’S BUSINESS In 2003, Prokom Software SA Capital Group focused its activities on the following areas: 1.

Implementation of large contracts for strategic customers: − − − − −

2.

Continuation of works on the Comprehensive IT System for the Polish Social Security Office (ZUS), including further updates to the system as a reflection of changes in the Polish law; continuous administration and operation of the system; Completion of the Master Agreement for the Provisioning of the Comprehensive IT System for TUiR WARTA SA; commencement of work on expanding the functionality of this system; Support of the IT System at PZU SA; further development of the system’s technical infrastructure and its customization to PZU’s changing organization and users requirements; Further development of software and systems’ functionality at TP SA; Completion of third (and last) stage of WAN project at Poczta Polska (executed in cooperation with Postdata SA); integration of software applications used at Post’s operational units level to the IT system used in the Regional Offices (Dyrekcja Okręgu Poczty); start of the implementation of an anti-virus system for Post’s corporate networks and the system for software remote distribution and control; further development of the electronic mail system.

Diversification of the revenue sources through execution and performance of contracts with a number of new customers, representing various businesses and sectors of the economy. The revenue derived by the Group from the new contracts accounted for 2/3 of the total sales revenue.

Prokom Software SA sales revenue by sector in 2003 (excluding sale beetwen Prokom Software SA and the Companies from the Group):

Sectors Industry

Sales revenue, as at Dec 31 2003 [PLN ‘000]

Sales revenue, as at Dec 31 2003 [%]

75,279

8.79%

Chemical

25,026

2.92%

Energy

22,190

2.59%

Construction

19,108

2.23%

Steel

6,374

0.74%

Other

2,581

0.31%

Services

326,458

38.13%

IT

257,400

30.07%

57,298

6.69%

Media

3,659

0.43%

Other

8,101

0.94%

175,203

20.47%

162,744

19.01%

11,923

1.39%

Telecommunication

Finance Insurance Banks and Brokerage Houses Other Public Institutions ZUS (Social Security Office)

536

0.07%

279,140

32.61%

234,778

27.42%

Offices

29,743

3.47%

Post

13,379

1.56%

Other

1,230

0.16%

856,080

100%

Total (PLN million)

Companies from the Capital Group’s conducted business with a large number of customers, providing them with numerous software services and hardware sales/installations. Total sales for these Companies in 2003 amounted to PLN 595.2m. 2

CAPITAL GROUP

Basic datas of the Companies included in the 2003 Consolidated Financial Statements of Prokom Software SA Capital Group Company Capital stake/votes

Business activity in 2003

Net sales revenue [PLN thousand] 2003

2002

Net profit/loss [PLN thousand] 2003

2002

Average employment 2003

2002

Consulting activities in computer hardware and software, supplying computer hardware 344,678 349.313 2,208 (155.174) 846 949 and software Supervision and management of the Prokom Internet SA Capital companies in the Group of Prokom Internet Group S.A., investing activities, business analysis 18,910 10,058 (2,539) (34,303) 69 94 95.0/95.0 and investing consultancy in utilization of www.prokom.pl new technologies in business activities Hardware trading, hardware maintenance Koma SA services, implementation of internally 61,499 67.993 4,018 1.396 100 115 75.0/75.0 developed software (Koma HR) www.koma.com.pl ZETO Sp. z o.o. Data processing services, space leasing 1,543 1.625 138 133 15 16 100/100 Organization, preparation and conducting Combidata Poland traditional and electronic trainings, Sp. z o.o. 19,233 13.160 3,157 1.128 108 80 manufacturing of training software, managing 83.8/83.8 non-public IT school www.combidata.pl Design, preparation and implementation of OptiX Polska Sp. z o.o. complex information and document 60.0/66.8 67,518 67.114 2,000 838 93 94 management systems and document storage www.optix.pl systems PUP Spin Sp. z o.o. Trading and IT services, design of electronic 51.1/51.1 equipment and systems, in particular in 102,206 101.831 25,485 20.311 348 276 www.spinet.com.pl telecommunication, health and energy sector Postdata SA IT services mainly for the Polish Post 61,517 96.463 1,884 9.576 126 91 49.0/49.0 www.postdata.pl Incenti SA IT outsourcing services (Data Center) 27,131 33.083 (5,351) (4.741) 41 47 49.0/49.0 www.incenti.pl Percentages in share capital of entities subordinate indirectly, shown in the table above, are calculated as the result of multiplying percentage of the Parent Company in the share capital of the lower level parent company (significant investor) by percentage of the lower level parent company (significant investor) in the share capital of its subordinate entities. Softbank SA Capital Group 22.9/22.9 www.softbank.pl

3.

4.

Preparation and participation in the tenders for the informatization of the largest Polish institutions representing financial and insurance sector: -

Prokom Software S.A. signed an agreement with PZU SA, establishing a framework for terms, conditions and business course of action in connection with the project.

-

Softbank SA won a tender for the implementation of the central system in PKO BP bank. Prokom Software SA actively participated in the negotiations regarding price and scope of services which will be provided within that project.

Preparation for the IT projects under the offset programme, executed in connection with the purchase by the Polish government of the multi-task fighter aircraft from Lockheed Martin Corporation (LMC). As part of the programme, the Group will participate in the construction and implementation of the countrywide radio communications system for the public security services and government agencies (based on the Terrestrial Trunked Radio (TETRA) standard) and of the countrywide emergency alerting and crisis management system (Command & Control (C2)), and will work on the building and implementation of the Register of Medical Services (RUM) system.

KEY FINANCIAL AND ECONOMIC DATA BALANCE SHEET Structure of assets, shareholders’ equity and liabilities and off-balance-sheet commitments and liabilities. As at December 31st, 2003, the Group’s balance-sheet total was PLN 1,633.1m, which represents a 2.8% increase over the 2002. 1.

Assets – fixed assets accounted for 48.1% of the assets ( PLN 785.9mln); current assets accounted for 51.9% of the total assets and amounted to PLN 847.2m. Comparing to 2002, this represents an increase of 0.8% and 4.7% in the fixed assets and current assets, respectively.

3

Structure of the financial instruments held by Prokom Software SA Capital Group as at December 31st 2003 Item Marketable financial assets Advanced loans and intra-group accounts receivable Financial assets held to maturity Financial assets available for sale Total

2.

Balance-sheet value [PLN ‘000]

Share in total assets [%]

80,391 91,767 283,604 1,864 457,626

4.9 5.6 17.4 0.1 28.0

Shareholders’ equity and liabilities – shareholders’ equity accounted for 41.8% of the total shareholders’ equity and liabilities (PLN 682.0mln), while liabilities and provisions for liabilities – 49.4% (PLN 806.6mln). Minority interest accounted for 8.8%. This represents a 26.4% increase in the shareholders equity and a 10.6% decrease in the liabilities and provisions for liabilities over the 2002. The Company’s shareholders’ equity comprises of: − Share capital − Reserve funds − Loss from previous years − Net profit Book value per share was up by 24.0% and stood at PLN 49.45.

3.

PLN 13.8m, PLN 696.7m PLN (134.6)m PLN 106.2m.

As at December 31st 2003, off-balance-sheet commitments and liabilities of the Group equalled to PLN 86.1m: − commitments and liabilities to related undertakings PLN 18.7mln − commitments and liabilities to other undertakings PLN 67.4mln

The decrease over 2002 in the off-balance-sheet commitments and liabilities resulted mainly from the decrease in the conctractual liabilities in favour to other entities (mainly for the purchase of Wonlok SA by Softbank SA). PROFIT AND LOSS ACCOUNT 1.

Revenue

The 2003 Group’s totalled PLN 1,451.3m (up by 26.1% on 2002) and included: •

revenue on sales of products and services which was a PLN 834.1m (57.5% of total net sales revenue), including: IT support 51.2%, sales of own licences 19.2%, commissioning services 11.0%, other 18.6%. • Revenue on sales of goods for resale and materials amounted to PLN 617.2m. It represented 42.5% of the total sales revenue and included revenue on the sales of: − hardware 59.8%, − third-party software 29.0%, − other 11.2%. In comparison with the corresponding period of 2002, the revenue on sales of products and services went up by 11.1%, while the revenue on sales of goods for resale and materials went up by 54.1%. − − − −

The revenues from strategic business customers, such as: ZUS, TP SA, PZU SA, TUiR Warta SA and ppup Poczta Polska – accounted for more than 1/3 of the total Group’s sales revenue in 2003. 2.

Costs

Operating costs of the Capital Group was PLN 705.5m in 2003, and were 23.8% higher than in 2002.

Fig 1. Operating costs in 2003 and 2002 100% 90% 80% 70% 60%

other

50%

depreciation and amortisation

40%

benefits 30%

remuneration

20%

contracted services

10%

raw materials and energy

0% 1

2

4

CAPITAL GROUP

In comparison with 2002, the cost of sales went up by 37.2%, to PLN 964.8m. Cost of products sold increased by 18.4% (to PLN 409.5m), while the cost of goods for resale and materials went up by 55.4% (to PLN 555.3m). Selling costs amounted to PLN 86.7m in 2003, which is an increase of 50.2% over 2002. General and administrative expenses went up by 27.1% in comparison with the previous year (to PLN 223.5m). Remuneration, cost of contracted services and business trips represented the largest proportion of the overhead costs. 3.

Profit

In 2003, Prokom Software SA Capital Group earned an operating profit of PLN 156.8m (down by 16.1% on the previous year). Adjusting for the compensation received from Social Security Authority (ZUS) in 2002, the Group operating profit would be up by 30.2%. Another factor influencing operating profit was the first time consolidation of the results of Softbank SA Capital Group (positive by PLN 7.0m). Seen against the previous year, the gross profit increased by 13.4% (up to PLN 166.8m). One of the factors contributing to this increase was the sale of shares of Wirtualna Polska SA for PLN 52.4mln. The Group’s net profit for 2003 was PLN 106.2m, up 44.3% on the previous year. Given the prevailing market conditions, the results of theCapital Group should be viewed as highly satisfactory. The gross margin was 33.5% and was lower by 5.4 percentage points on the previous year. This situation resulted from a substantially higher share of sales of goods for resale in the sales structure. The pre-tax margin was 11.5% (down by 1.3 percentage points) and the net margin 7.3% (up by 0.9% on 2002). The increase of the net margin was due to limited losses of the Internet companies and lower corporate tax rates. Current operations of the Capital Group are financed with its own funds and external debt. As at the balance-sheet date, liabilities represented 46.0% of the balance-sheet total, which indicates that more than a half of the Group’s activities were financed with internally generated funds. CASH FLOWS At the beginning of 2003, Prokom Software SA Capital Group held cash of PLN 122.8m. As a result of business transactions executed during the year, the balance of cash fell to PLN 77.5m. The decrease is attributable to the following activities: 1.

Operating Cash Flow

The Group recorded positive net operating cash flow of PLN 176.1m, while in 2002 the figure was PLN 185.1m. The operating cash was used to finance the Group’s core business operations, such as:. − − 2.

purchase and sale of goods for resale, including computer hardware, peripherals and third-party software, services, including the delivery of comprehensive IT systems and sales of the own software licences, services connected to Internet technologies Investing Cash Flow

In 2003, the Group’s investing cash flow was mainly attributable to: − Acquisition of shares in Softbank SA, PVT a.s., Wonlok SA and Ready Sp. z o.o. − trade in fixed income securities, including Prokom Investment’s short-term paper − purchase of tangible and intangible fixed assets, − interest received on securities held, − increase and decrease in loans advanced, − dividends received. The net investing cash flow was negative at PLN (144.1m), while in 2002 the figure was PLN (111.2m). 3.

Financing Cash Flow

The Group’s financing cash flows included: service of convertible bonds, issue and redemption of short-term investment bills, increase and decrease in bank loans (including the interest on the loans), purchase and sale of Softbank SA shares (incentive scheme for the management staff of the Softbank Group) as well as charities. The net financing cash flow of the Group was negative at PLN (77.2m), while in 2002 the figure was PLN (24.3m). EMPLOYMENT In 2003 the employment in the Group averaged to 3,093, while in the previous year 2,189.

5

KEY FINANCIAL RATIOS FOR PROKOM SOFTWARE SA Item ROE1 ROA2 EBIT margin3 EBITDA margin4 Sales margin5 Pre tax profit margin6 Net profit margin7 Pay-out ratio8 Current ratio 9 Quick ratio 10 Total debt ratio11 Debt-equity ratio12

2003 17.4% 6.6% 10.8% 13.5% 33.5% 11.5% 7.3% 1.5 1.5 49.4% 118.3%

2002 14.6% 5.4% 16.2% 18.7% 38.9% 12.8% 6.4% 1.3 1.2 56.8% 167.3%

2001 -0.8% -0.4% 9.8% 13.4% 29.7% 3.9% -0.4% 2.4 2.3 57.4% 139.8%

ROE and ROA were computed based on the cumulative six-month net profit. 1 ROE Net profit / [(Shareholders’ equity at beginning of period + Shareholders’ equity at end of period) / 2] 2 ROA Net profit /[(Total assets at beginning of period + Total assets at end of period) / 2] 3 EBIT margin Operating profit / Net sales revenue 4 EBITDA margin (Operating profit + Depreciation and amortisation) / Net sales revenue 5 Sales margin Gross sales profit / Net sales revenue 6 Pre tax profit margin Pre tax profit / Net sales revenue 7 Net profit margin Net profit / Net sales revenue 8 Pay-out ratio Dividend /Net profit 9 Current ratio Current assets / Short term liabilities 10 Quick ratio Current assets – inventories / Short term liabilities 11 Total debt ratio Liabilities and provisions for liabilities / Total assets 12 Debt-equity ratio Liabilities and provisions for liabilities / Shareholders’ equity

MARKET PERFORMANCE OF THE PROKOM SOFTWARE SHARES AGAINST THE WIG 20 INDEX

180

1 800

Shares [PLN]

200

PROKOM

WIG 20 1 700 1 600 1 500

160

1 400 140 WIG 20

1 300

120 Data 100 -02 -01 03 0 2

1 200 1 100 1 000

-05 -02 03 0 2

-11 -03 03 0 2

0 20

4 4-1 3-0

-21 -05 03 0 2

-25 -06 03 0 2

-29 -07 03 0 2

0 20

2 9-0 3-0

-06 -10 03 0 2

-07 -11 03 0 2

2

2 2-1 3-1 00

SIGNIFICANT RISK FACTORS AND THREATS In the opinion of the Management Board of Prokom Software SA, the Groups’s financial standing, its production capacity and market position do not pose any threat to the Group’s further dynamic development in 2004 and beyond. However, there is a number of both internal and external factors which may affect, directly or indirectly, the scope of the Group’s activities and the pace of its development. 1. Operating Risk Risk related to the Group’s dynamic development In the previous years, the revenues were on the increase and also the Capital Group was expanded. Furthermore, the scope and complexity of the projects pursued by the Capital Group grow. As a result of new acquisitions, the number of companies in the Prokom Group increased; these have chiefly included companies offering products and services complementary to the Prokom Software SA offer. The changes have called for introduction of increasingly more complicated procedures for financial and accounting control, similar reporting systems and complex management systems. As a consequence, the scope of the Prokom Software SA Management staff’s duties has considerably widened. This, in turn, requires a better coordination of management processes within the Capital Group. 6

CAPITAL GROUP

Dependence on a limited number of customers Prokom Software SA Capital Group is a provider of the largest dedicated IT systems in Poland. To date, most of the Group’s revenue was derived from the provision of the services to a relatively low number of customers under long-term contracts. However, the Group seeks to diversify its sources of revenue by acquiring new mid-sized companies. In 2003, the Dominant Comapay’s sales revenue attributable to its five largest customers (the Social Security Authority [ZUS], Telekomunikacja Polska SA [TP SA, the national telecommunications operator], PZU SA, TUiR Warta SA [insurance companies] and PPUP Poczta Polska [the Polish Post]) accounted a bit more than 1/3 of the Group’s total revenue. Risk related to the projects in progress Among the great number of contracts executed by the Group, there are projects which are of crucial importance for the operations of the Group’s customers. Failure or inability to satisfy the customers’ high requirements concerning the performance of a given contract may expose the Group to a potentially high commercial risk, including no payment for the provided services or having to pay contractual penalties. However, it should be noted that despite an expanding scope and complexity of the executed projects, the Group continues to prove its exceptional competence in the performance of the concluded contracts. Risk related to early redemption of the convertible bonds In December 2001, Prokom Software SA issued 20,000 unsecured Series A bearer bonds convertible into Series E ordinary bearer shares, with the redemption date falling three years as of their issue (the “Bonds”). The terms of the Bonds include standard early redemption clauses. The Bondholders will be authorised to demand early repayment of the Bonds in the event of Company’s failure to make any payment under the Bonds, loss or disposal of assets of significant value, non-compliance of Prokom Software SA obligations under the Bonds with the law, delisting of Prokom Software SA shares or withdrawal of the shares from public trading, breach of any obligations under the Bonds, foreclosure of the Company’s assets, suspension of payment, issue of valid court decisions relevant to the Company, the Company’s liquidation, or Prokom Software SA failure to maintain an adequate level of the debt ratio. The terms of the Bonds also include a clause concerning the Bondholders’ right to demand early repayment of the Bonds in the event of any material changes to the income tax regulations effective in Poland. To the Management Board’s best knowledge, none of the events which may result in early redemption of the Bonds currently occurs. The Management Board has no knowledge of any premises providing grounds for the occurrence of the obligation in future either. After conversion of bonds into the shares made by the bond holders until the date of this report there were 14,682 bonds left to be converted. 2. Risk Factors Related to the Group’s Business Environment Risk related to planned investments Part of Prokom Software SA strategy is to seek opportunities to diversify its activities by investing in companies operating in new sectors, which offer services complementary to the services provided by the Group. An example of such an equity investments is the acquisition of Softbank SA under an agreement with the company’s main shareholder. This investment extends the scope of services offered by the Group to include solutions for the banking sector. However, there can be no assurance that such expansion would lead to an improvement of the Group’s performance or would not adversely affect the Group’s financial results. Furthermore, execution of new projects will require the Group to engage its Management staff for that purpose, which may have an adverse effect on its core business and financial performance. Main shareholder’s control over the Dominant Company As at the date of this Report, Mr Ryszard Krauze directly held 13.26% of the Company shares conferring the right to 13.85% of the total vote at the General Shareholders Meeting, while Prokom Investments SA (in which Mr Krauze holds, directly or indirectly, 66.81% of the share capital and votes) held 12.01% of the Company shares conferring the right to 13.42% of the total vote at the General Shareholders Meeting. Furthermore, pursuant to Par. 18 of the Company’s Articles of Association, each of the shareholders referred to above may appoint one member to a four-member Supervisory Board. In addition, pursuant to Par. 20 of the Articles of Association, Mr Krauze has the right to appoint the Chairman of the Supervisory Board. However, it should be noted that under the Polish Companies Act, upon a request of one or more shareholders holding at least 20% of the Company shares, a member of the Supervisory Board may be appointed by way of block voting, without having to obtain other shareholders’ approval. Yet Mr Krauze will still have a significant power to influence all issues requiring the Supervisory Board’s or shareholders’ approval.

7

CORE PRODUCTS, SERVICES AND GOODS 1.

Sales of Products and Services

The revenue on sales of products and services in 2003 stood at PLN 834.1m, which is up by 11.1% on 2002. Fig. 2. Structure of revenue on sales of products and services in 2003 and 2002

100% 90% 80% 70%

Other services Training services Technical support and post-warranty service System development services Network infrastructure delivery General contractor services IT support services Implementations Own licences

60% 50% 40% 30% 20% 10% 0% 2003

2002

In 2003, the structure of sales of Prokom Software SA Capital Group’s products and services did not materially differ from the previous year. A majority of revenue on sales of products and services was derived from IT support services (51.2%) and sales of own licences (19.2%), similarly to 2002, when the major share in sales of products and services was attributable to IT support services (43.1%) and sales of own licences (12.9%) as well. 2.

Sales of Goods for Resale and Materials

The revenue on sales of goods for resale was PLN 617.2m, up by 54.1% over 2002. Fig, 3. Structure of revenue on sales of goods for resale in 2003 and 2002 100% 90% 80% 70% 60% 50% 40% 30% 20%

Other Hardware Software

10% 0% 2003

2002

The structure on sale of goods for resale has not changed significantly from the previous year. Within the sales of goods for resale in 2003, the largest portion of the Group’s revenue was derived from sales of hardware (59.8%) and third-party software (29.0%), in 2002 76.61% and 20%, respectively. The increased sale of hardware was driven by execution of initial and following stages of new contracts executed by the Group. MARKETS AND SUPPLY SOURCES The Group’s markets and supply sources did not materially change in 2003. The Group sold its products and services exclusively on the Polish market. In terms of sales, the Group’s key customers in 2003 were: the Social Security Authority (ZUS), Telekomunikacja Polska SA (TP SA, the national telecommunications operator), TUiR Warta SA, Powszechny Zakład Ubezpieczeń SA (PZU SA) (insurance companies), and PPUP Poczta Polska (the Polish Post). No formal links exist between these undertakings and the Dominant Company. 8

CAPITAL GROUP

The Group is not dependent on any of its suppliers. Prokom Software SA and some of the Group companies cooperate with several leading hardware producers and vendors (IBM, HP, SUN, CISCO, 3COM, Legrand, Molex, Avaya, Alcatel), and leading software developers, such as IBM, Oracle, Microsoft, SAP, CENTURY SOFTWARE, CHECK POINT, and SCO. Cooperation with these partners is exemplary. There are grounds to believe that within Central and Eastern Europe, the Prokom Software SA Capital Group is one of the key customers for the undertakings listed above. AGREEMENTS MATERIAL FOR THE COMPANY’S BUSINESS 1.

Key Events and Agreements Related to the Group’s Operations

Prokom Software SA The most significant events related to the operating activities of Prokom Software SA in 2003 included in particular the material agreements executed as part of continued cooperation with such partners as ZUS, TP SA, PZU SA or PPUP Poczta Polska. The execution of the contract for Comprehensive IT System for the Social Security Authority, the Company’s largest assignment to date, continued to be the utmost importance for the Company’s business.


On February 4th 2003, Prokom Software SA has signed a cooperation agreement with ComputerLand SA. The aim of the agreement is to establish close cooperation between both companies in the field of offering services and completing IT projects resulting from the offset program, which is connected with the proposed transaction for purchasing multirole aircrafts between the Polish Government and Lockheed Martin Corporation. The human resources, technical and financial potential of both companies will allow offering the optimum conditions of IT services and will allow utilizing financial resources devoted to IT projects within the offset program. The mentioned cooperation agreement is a result of previously concluded, separately by both Prokom Software SA and ComputerLand SA Memoranda of Understanding with Lockheed Martin Corporation. The cooperation agreement between Prokom Software SA and ComputerLand SA is also aimed to optimal utilizing the planned financial resources for developing the IT infrastructure in Poland. In the opinion of the Management Boards of both companies the intellectual potential and capabilities of both parties will enable to effectively and safely utilize the planned transfer of new technological solutions to increase the development of the Polish economy, research and scientific potential of Poland. The agreement concluded by the leading IT companies in Poland is an example of good cooperation of competing Polish enterprises in order to achieve the effects of the offset program benefiting the Polish economy like: new jobs, transfer of new technology and longterm opportunities arising from the offset program. (communique of Prokom Software SA – RB/5/2003 dated on February 5th 2003).




On June 18th 2003, Prokom Software SA concluded a supplement agreement with Social Insurance Authority (ZUS) for the extension and modification of functioning Comprehensive IT System ZUS (KSI ZUS) as well as for the realization of services regarding the implementation of these changes in ZUS’s head office and its departments. The total net value of this contract amounts to PLN 56.2m. The contract is to be completed by the end of 2005. The scope of works results from the necessity to adjust the existing KSI ZUS software to new ZUS’s obligations resulting from the law changes as well as new needs requested by its partners. (communique of Prokom Software SA – RB/23/2003 dated on June 18th 2003).




Within last 12 months the total value of transactions between Prokom Software S.A. (and its subsidiaries) and Telekomunikacja Polska SA (and its subsidiaries) exceeded 10% of Prokom Software SA equity, reaching the amount of PLN 104.1 million. The most significant contract in this period was signed on 9 September 2002 between PUP Spin Sp. z o.o. (Prokom Software SA subsidiary) and Telekomunikacja Polska SA. As the result of 11-months contract for centralization of databases of SERAT 2, the infrastructure of Telekomunikacja Polska SA has been extended. This enabled the migration of the billing system SERAT 2 and all subscribers’ data to one Data Processing Center in Łódź. This novelty solution has been based on the technology of simultaneous data processing, which has the significant impact on the security of operations as well as on the data storage and recovery. The net value of the contract equals USD 5.98 million, which is equivalent to PLN 23.5 million. (communique of Prokom Software SA – RB/32/2003 dated on August 21st 2003).




On October 20th 2003, Prokom Software SA concluded an agreement with ZUS for rendering of administration and exploitation of Comprehensive IT System (KSI) ZUS. The object of the agreement is the continuation of services rendered by Prokom Software SA for ZUS. Due to progressing development of KSI ZUS system and extend of its functionality, the complexity of works connected with the administration and exploitation of KSI ZUS in the period included in the agreement, will be much larger than the works realized due to the previous agreement and will require to involve top Prokom Software SA experts for the whole scope of rendered services. The scope of services included in the agreement among others provides for the administration of information exchange system between ZUS and its payer (SDWI). The functionality of that system will enable to payers to verify of their data assembled in the central insured register throughout the Internet. The total net value of this contract amounts to PLN 113,5m. The contract is to be completed within 12 months. (communique of Prokom Software SA – RB/49/2003 dated on October 21st 2003).




Since September 20th 2003 the total value of transactions between the Company (and its subsidiaries) and Telekomunikacja Polska SA (and its subsidiaries) exceeded 10% of Prokom Software SA equity, reaching the amount of PLN 78.8m. The most significant contract in this period was signed on November 5th 2003 between TP SA and Optix Sp. z o.o. (Prokom Software SA subsidiary), regarding the implementation and service of TP SA Central Backup System, 9

which is based on “LEGATO” software and STK, HP, SUN and IBM hardware. The Central Backup System creates the reserve data copies of all TP SA production systems. The net value of the contract amounts to PLN 44.0m. Moreover Prokom Software SA concluded with Telekomunikacja Polska SA (TP SA) the following agreements: 1.

The General agreement concerning providing of IT services and granting the license for user software for the period until December 31st 2004, with the possibility of extension of the contract for another one year period. The agreement constitutes the grounds for continuation of therefore over ten year co-operation and will allow to modify and develop the TP SA IT system provided by Prokom.

2.

Three Management agreements relating to the General agreement, which include rendering the services in the scope of development and maintenance of TP SA IT system as well as functional supporting of its users. The duration of realization of these agreements includes the period until December 31st 2004. The total value of Management agreements amounts to PLN 29.8m. (communique of Prokom Software SA – RB/51/2003 dated on November 6th 2003) Softbank SA


On January 31st 2003 - concluded the agreement with Ster-Projekt SA regarding the purchase of the equipment for the amount of PLN 28.2 million.




On February 7th 2003 - concluded the agreement with Social Insurance Authority (ZUS) regarding the maintenance services of BEA software for the period of three years. The contract value amounted to PLN 21.8 million.




On July 22nd 2003 Softbank executed a general agreement with the Commercial Bank Dialog-Optim Ltd., registered offices in Moscow. The agreement provides for the terms of cooperation aiming at computerisation of the bank, particularly an implementation of an integrated IT system. The implementation is to include: preparation of system analysis and design; development of an internal asset management, transaction policy and information systems; development of a telecommunications network and other auxiliary systems. The computerisation will be carried out in three stages: Stage I - analysis and creation of system design; Stage II - delivery, installation and implementation of the system at the central branch and one sub-branch of that central branch; Stage III - roll-out in all branches and sub-branches (currently more than 70 outlets in the Russian Federation). The value of work in Stages I and II will amount to USD 2.5m (ca. PLN 9.8m), and the work is scheduled to be completed in the third quarter of 2004. Detailed terms of agreement performance, as well as the terms of execution of Stage III, are to be provided for in appropriate specific agreements. The system offered by Softbank under the agreement is EUROBANK On-Line.




On August 18th 2003, an agreement was concluded by Powszechna Kasa Oszczędności Bank Polski SA [PKO BP SA] (the "Bank") and Softbank, Accenture Sp. z o.o., Alnova Techonologies Corporation (the "Consortium"), providing for an implementation of the Integrated IT System ("ZSI") at the Bank. The Agreement is deemed material since its value exceeds 10% of the Softbank's equity. The subject of the Agreement includes in particular the grant of a licence and the implementation and maintenance of the ZSI. According to the Agreement, the implementation should be completed within three years from the Agreement execution date. The work in this area has been divided into 21 stages spread over time. The ZSI will be one of the most modern banking systems of a multi-channel architecture. The scope of implementation is to cover all products, branches and representative offices of the Bank. The Agreement was concluded for an unspecified period. The consideration to the Consortium for the software licence and implementation is USD 114.4m, VAT exclusive (equivalent to ca. PLN 443m). Starting from the pilot implementation completion, the consideration for maintenance will be between USD 8.3m and 11m annually, VAT exclusive (equivalent to ca. PLN 32m to 43m). Softbank's share in the Agreement is estimated at ca. USD 80m (equivalent to ca PLN 310m). The payments will be made proportionately to the extent of performed and accepted work. The total liability of the Consortium under the Agreement is limited to USD 60m (equivalent to ca. PLN 232m). In case the agreement is terminated in whole or in part by the Bank, the maximum amount of contractual penalties will be USD 15m (equivalent to ca. PLN 58m), respectively. The total amount of contractual penalties in respect of the maintenance services is capped at USD 11m (equivalent to ca. PLN 43m).




On September 26th 2003 - Softbank SA and SABA Grupa Softbank SA, its wholly-owned subsidiary undertaking, executed an agreement on termination of the agreement of September 28th 2001 concerning sale of software license worth PLN 17m. The parties agreed that the agreement would cease to be effective as of September 26th 2003, and the licence granted on its basis would expire on the same date. The reason for the termination was a significant change in the economic environment on the market where SABA was to conduct business using the licence, which took place during the term of the agreement. In connection with the expiry of the licence, the remuneration due to Softbank from SABA Grupa Softbank will be reduced to PLN 1.1m




On October 27th 2003 - The agreement with PKO BP SA relating to the delivery and installation of computer software and hardware and provision of related maintenance services for the total amount of PLN 54.5 million.




On October 28th 2003 - The agreement concluded with Ministry of Internal Affairs and Administration (MSWiA) for the procurement and implementation of the Central Register of Vehicles and Drivers (CEPiK) information system. The value of the contract amounts to PLN 188.9 million. According to the agreement, the implementation should be completed by December 31st 2005 and in addition, Softbank will be providing maintenance of the system until December 31st 2009.

10

CAPITAL GROUP




On October 28th 2003 - Softbank SA concluded the contract with Face Technologies (PTY) Ltd. of the Republic of South Africa, for the purchase of IT solutions, including services, training, software and licenses. The contract will be performed until December 31st 2009.




On December 4th 2003 - The sub-contracting agreement with Comp SA of Warsaw for the procurement of the Security Sub-system for the Central Register of Vehicles and Drivers (CEPiK). The contract will be executed according to the schedule of the works on the CEPiK system (see the disclosure of 28 October 2003). The net value of the contract amounts to PLN 35.7 million.




On December 10th 2003 - Softbank SA signed the annex to the agreement with PKO BP SA of December 19th 2001 for the sale of Microsoft software within the frame of the Microsoft Enterprise project. The value of the annex amounts to USD 6.4m (approximately PLN 24.1 million). The payments will be invoiced semi-annually and will be made within the period of three years.

Softbank Serwis Sp. z o.o.


On January 30th 2003 Softbank Serwis, a 100% subsidiary undertaking of Softbank SA seated in Gdańsk signed an agreement with "Natolin" European Centre Foundation seated in Warsaw. The subject of the agreement is development and implementation of the telecommunications and IT infrastructure. The contract will cover implementation of dedicated applications, supply of software and hardware and a full package of services including also maintenance and training. The net value of the contract amounts to PLN 6.1m.

Incenti SA


carried out the main stage of the project regarding the construction of the Data Processing Center for Telekomunikacja Polska SA in the field of power supply and air-condition.




concluded the partner agreement regarding the hosting and co-location services for the partners of TP SA.




concluded the agreement with TP SA regarding the training services which are offered in the ASP model (elearning services).




the agreement with TU Samopomoc SA regarding WAN administration services.




the agreement with Bank Spółdzielczy in Brodnica regarding ASP IT services.




the agreement with Drosed SA regarding provision of hosting and WAN administration services.

Optix Sp. z o.o.


concluded the project for ppup Poczta Polska – the largest undertaking in 2002/2003 executed in the Department of Logistic.




The agreement regarding sale of the license and hardware to Stahlschmidt Warszawa.




sale of the TIVOLI software to Bank Pocztowy SA.




sale of the license for software to PTK Centertel Sp. z o.o.




executed the preliminary stage of the contract regarding Central Backup System for TP SA.




developed the matrix system and implemented the HSM system at PTK Centertel SA.




provided the integrated mailing system (print and dispatch) to BZ WBK SA.




provided the Storage Area Network to PTC Sp. z o.o.

Combidata Poland Sp. z o.o.


continued the trainings in the field of Comprehensive Katastral System, financed by PHARE funds




cooperation with TP SA in the field of CRM Peoplesoft solutions as well as carried out the trainings in this matter.




carried out, along with Microsoft Polska, the project of Virtual Programming Academy,




started the trainings for ZUS administrators (Telepraca project),




preparing of an electronic training program and LMS training platform for ZUS,




preparing of an electronic course for the new version of “Płatnik” software (PP2),




preparing of an electronic course towards increasing the functionality of the CRM system in TP SA.




finished the trainings in the field of Comprehensive Katastral System, organized for Ministry of Justice, Ministry of Finance and Geodesy and Cartography Office




executed two contracts for the Ministry of Education regarding trainings in the field of Microsoft Visual Studio Net




carried out the mass trainings of the new version of “Płatnik” software (PPE)for the extensional clients




executied and finished the “Telepraca” project – an Internet based project dedicated to disabled population in three areas: telemarketer, web designer and programmer.




carried out the trainings for PPUP Poczta Polska SA IT specialists in the field of SQL Server and MS Server, which is connected with the implementation of Poczta 2000 system carried out by Postdata SA




concluded the agreement with Oracle Polska for providing of authorized trainings

11




in connection with the implementation of CRM system in TP SA, the company provided the package of electronic trainings regarding key business processes and changes of system functionality.

Edison SA


concluded the co-operation agreement with TP SA and Incenti SA, regarding the implementation of Edison network services into TP SA offer for the corporate clients. The Edison services will be offered using the market potential of the biggest national telecommunication operator, but it will be realized using Incenti SA Data Center. The agreement gives the company the opportunity to sale the trainings services for salesmen and hotline in TP SA.




Creation of a new EDI report for stock management at Geant,




Concluding of technical tests of an EDI-based document exchange program for Auchan.

TPG SA


implementation and maintenance over the BTS system in Nordea Bank Polska SA,




carried out the IT system for ce-market.com SA as well as integrated that system with the other IT systems operating in the Impexmetal SA Capital Group,




granted the license and implemented the Intranet Server system in all Prokom Software SA divisions.




Concluding of the TIB-Agora project - integration of IT systems at Agora S.A.




continued work on the development of Intranet Server system; started the production of SyncServer system, enabling synchronization of data on mobile phones throughout GPRS

Koma SA


implementation of SAP at Timken and Lubzel,




sale of own license and software implementation at Jarosław and Martin Bajer Ironworks.




sold the KOMA HR license to Comp Soft SA




implemented the ERSI software in Farmacol SA




sold the in-house network to ING BSK SA

Ce-market.com Sp. z o.o.


executed the project on integration of the sale systems at Impexmetal SA Capital Group, which are based on the cathalogue sale solution offered by ce-market.com SA.




carried out the pre-implementation analysis of SAP R/3 system at Szopienice SA

Postinfo Sp. z o.o.

2.




co-operation with PUP Spin Sp. z o.o. on development of SERAT 3 and SbiK systems.




finished the contracts with TP SA regarding the development of SOKB and the maintenance over SOKK.




continued the works carried out with Optix Polska Sp. z o.o. on technical support of FRED system at NETIA SA

Key Events and Agreements Related to the Capital Group’s Financial Activities:

Prokom Software SA


On April 17th 2003 Prokom Software SA concluded credit agreement with Raiffeisen Bank Polska SA, in Warsaw, for the amount of PLN 90m, with credit term until 29 October 2004. The credit is designed for financing of company’s current activity. Hitherto obligation of Prokom Software SA resulting from holding the credit in Raiffeisen Bank Polska SA for the amount of PLN 48m was replaced by the obligation resulting from the above agreement. The value of the agreement exceeds 10% of the shareholders’ equity which qualifies its as substantial agreement. (communique of Prokom Software SA – RB/10/2003 dated on April 18th 2003).




On 19 May 2003 Prokom Software SA concluded two credit agreements with Bank Przemyslowo – Handlowy PBK SA with the seat in Cracow. The first – for the credit line to the amount of PLN 200m, with one year, revolving credit term. The credit amount can be used within the revolving credit as well as within the credit in current account for: -

the repayment of the long-term credit granted by BPH PBK SA, amounting to PLN 95m;

-

the repayment of the credit granted by PBK SA, amounting to EUR 23m;

-

the finance of Company’s current operations.

The second – for the investment credit, to the amount of PLN 100m, with three year credit term. The credit amount can be used to finance the acquisition of companies operating on the IT market. Both agreements were concluded on the market terms. 12

CAPITAL GROUP

The value of both agreements exceeds 10% of the shareholders’ equity which qualifies its as substantial agreement. (communique of Prokom Software SA – RB/12/2003 dated on May 20th 2003).


On June 20th 2003, Prokom Software SA concluded an agreement with BRE Bank SA, based on which the Company will be able to issue the ordinary bearer bonds of the maximum nominal total value of PLN 200m. The new bond program replaced, finished in May 2003, the commercial paper program carried out by ING Bank N.V. Funds from the new bond issues will be used to support Company’s working capital requirements. The basic terms of the program are: -

Nominal value of a bond:

PLN 10,000,

-

Issue price of a bond:

nominal value -/+ discount or premium

-

Issue value:

issues in tranches constituting the multiple of the nominal value of one bond, but the maximum total value of all issued tranches may not exceed PLN 200m

-

Issue periods:

issues in tranches with maturity periods between 7 and 364 days; last tranche may be issued till 20 June 2006

-

Coupon:

market discount / premium, based on the market conditions at the issuance date

-

Redemption date:

redemption date of the individual tranche

-

Interest payment:

pursuant to the issue conditions of the individual tranche

No new obligations will result from the commencement of the program. Prokom Software SA has no intention to introduce the bonds to the public circulation. (communique of Prokom Software SA – RB/24/2003 dated on June 20th 2003).


On December 30th 2003 the Company signed an annex to the credit agreement with Bank Przemysłowo – Handlowy PBK SA, based on which the credit line of PLN 200m established in May 2003 (Company’s communiqué from May 20th 2003) was prolonged until May 18th 2006. (communique of Prokom Software SA – RB/56/2003 dated on December 31st 2003).




On December 30th 2003 the Company signed an annex to the credit agreement with Raiffeisen Bank Polska SA, based on which the current account credit line of PLN 90m established in May 2003 (Company’s communiqué from April 18th 2003) was prolonged until October 31st 2005. (communique of Prokom Software SA – RB/57/2003 dated on December 31st 2003.

Softbank SA

3.




September 11, 2003 roku – the Company signed an agrement with BPH PBK S.A. Bank for the working capital facility, with the limit of 30,0mln PLN. The financial terms were set based on the 1M, 3M, 6M WIBOR rate plus bank’s margin, if used as a revolving credit and 1M WIBOR plus bank’s margin if used as a current account. The credit must be fully paid off by June 30, 2004.




On September 25th Softbank SA and PKO BP SA concluded the annex to the credit agreement dated on September 13th 2002. The annex exeeds the amount of current account to PLN 7m.




On September 30th 2003 Softbank SA and ING Bank Śląski SA signed the credit agreement to the amount of PLN 10m.

Material Agreements Between Shareholders

The Management Board of Prokom Software SA has no knowledge of any material agreements between the Company shareholders. 4.

Insurance and Cooperation Agreements

In 2003, the Group concluded no material insurance or cooperation agreements which would have a material bearing on the Company’s operations or financial results. CHANGES IN ORGANISATIONAL OR EQUITY LINKS AND MAJOR INVESTMENTS 1.

Changes in Equity Links (no material changes in organisational links occurred)


On January 2nd 2003, as the result of conversion of 3,200 convertible bonds issued by Softbank SA, the court registered an increase in the share capital of the Company. Currently, the share capital of Softbank SA stands at PLN 20,613,992 and is represented by 20,613,992 ordinary shares with a par value of PLN 1 per share. The total number of issued shares entitle to 20,613,992 votes. (communique of Softbank SA dated on January 6th 2003).




On February 5th, 2003 the Company and Mr. Maurycy Kuhn and Mr. Jarosław Augustyniak on one side (Sellers) and a domestic entity on the other side (Purchaser) signed an agreement for disposal of the whole stake hold by Sellers in FinFin SA, a subsidiary of the Company, for USD 250,000 out of which amount USD 225,000 will be paid to Softbank SA. 13

(communique of Softbank SA dated on February 2nd 2003).


On February 20, 2003 the Company on one side and two entities being private individuals on the other side (Purchasers) signed an agreement for disposal of the whole stake hold by the Company in Instytut Analiz Społecznych i Ekonomicznych SA, a 100% subsidiary of the Company, for PLN 100,000. (communique of Softbank SA dated on February 21st 2003).




on February 21st 2003 Prokom Software SA had purchased 90 shares with nominal value of PLN 500 each share in Ready Sp. z o.o. with registered office in Olsztyn, Poland, for the total price of PLN 2.7m.The purchased 90 shares constitute 75.0% in the share capital and votes on Ready’s General Meeting, which defines shares purchased as being substantial value assets. Ready Sp. z o.o. is a provider of the financial systems as well as systems connected with inventory and fixed assets. Ready’s solutions are used for many years, among others in “ppup Poczta Polska SA” at the regional and car transportation companies level. (communique of Prokom Software SA – RB/7/2003 dated on February 24th 2003).




On April 10th 2003 Prokom Software S.A. purchased 1,442,979 shares of Softbank S.A., which constitute 6.99% in the share capital and votes at the General Shareholders’ Meeting. Due to that transaction Prokom Software SA increased its stake in Softbank S.A. up to 4,787,377 shares, which constitute 23.22% in the share capital and votes at the General Shareholders’ Meeting. (communique of Softbank SA dated on April 10th 2003).




On April 17th 2003, Softbank SA on one part and Piotr Kotelnicki and Centrum Rozwiązań Menedżerskich SA (CRM SA) on the other part signed an agreement for the sale of all shares in Centrum Rozwišzań Menedżerskich SA held by Softbank SA, that is 500,000 registered shares with a par value of PLN 1 per share, conferring the rights to 51.02% of the total vote at the General Shareholders Meeting. The total price of the transaction was PLN 850,000. (communique of Softbank SA dated on April 18th 2003).




On April 18th the District Court in Katowice registered an increase in the share capital of PUP Spin Sp. z o.o. from the amount of PLN 1,965 to PLN 67,500. The increase of PUP Spin Sp. z o.o.’s share capital for the amount of PLN 65,535 results from increase the nominal value of each 131 shares from PLN 15 to PLN 500 for each share as well as by issue of 4 new shares at the nominal value of PLN 500 for each share. According to the agreement dated on 8 January 2002 (company’s report RB/1/2002 dated on 9 January 2002) Prokom Software SA took over 4 new issued shares of PUP Spin Sp. z o.o. at the nominal value of PLN 500 for each share. As a result of that Prokom Software SA holds 69 shares of PUP Spin Sp. z o.o., which constitute 51.11% of the share capital and entitle to 51.11% votes at the General Meeting of PUP Spin Sp. z o.o. The share capital of PUP Spin Sp. z o.o. amounts to PLN 67,500 and splits to 135 shares at the nominal value of PLN 500 for each share. (communique of Prokom Software SA – RB/11/2003 dated on April 30th 2003).




On June 13th 2003, Prokom Software SA and ComputerLand SA signed the foundation act of the company with name RUM IT SA with the seat in Warsaw. The share capital of the RUM IT SA amounts of PLN 500,000 and is divided into 5,000 ordinary nominative shares at the value of PLN 100 per share. For the amount of PLN 250,000 Prokom Software SA acquired 2,500 A series shares, which constitute 50% of the share capital and entitles to 50% of votes at the General Shareholders Meeting. The main area of activity of RUM IT SA is the development and implementation of a Polish registry of medical services system. This project is being completed within the framework of the offset program which is connected to the purchase of multirole aircrafts by the Polish Government for the Polish army. (communique of Prokom Software SA – RB/20/2003 dated on June 16th 2003).




On June 13th 2003, Prokom Software SA and ComputerLand SA signed the foundation act of the company with name C2 System Polska SA with the seat in Warsaw. The share capital of the C2 System Polska SA amounts of PLN 500,000 and is divided into 5,000 ordinary nominative shares at the value of PLN 100 per share. For the amount of PLN 2,500 Prokom Software SA acquired 250,000 A series shares, which constitutes 50% of the share capital and entitles to 50% of votes at the General Shareholders Meeting. The main area of activity of C2 System Polska SA is the development and implementation of a nationwide command & control (C2) system In Poland. This project is being completed within the framework of the offset program which is connected to the purchase of multirole aircrafts by the Polish Government for the Polish army. (communique of Prokom Software SA – RB/21/2003 dated on June 16th 2003).




On June 20th 2003, Prokom Software SA, ComputerLand SA, Telekomunikacja Energetyczna Tel-Energo SA and Motorola Inc. signed the foundation act of the company with name TETRA System Polska SA with the seat in Warsaw. The share capital of the TETRA System Polska SA amounts of PLN 1,000,000 and is divided into 1,000,000 ordinary nominative shares at the value of PLN 1 per share. For the amount of PLN 300,000 Prokom Software SA acquired 300,000 A series shares, which constitutes 30% of the share capital and entitles to 30% of votes at the General Shareholders Meeting. The main area of activity of TETRA System Polska SA is the development and implementation of a nationwide digital radio communications system for public safety services and governmental agencies in Poland based on the Terrestrial Trunked Radio (TETRA) standard. This project is being completed within the framework of the offset program which is connected to the purchase of multirole aircrafts by the Polish Government for the Polish army. (communique of Prokom Software SA – RB/25/2003 dated on June 20th 2003).




On July 3rd 2003 Softbank SA finalised the acquisition of 892,500 bearer shares of Wonlok SA, registered offices in Łódź, representing in aggregate 100% of the share capital of the company, and conferring the rights to 100% of 14

CAPITAL GROUP

votes at the General Shareholders Meeting. The total transaction price, i.e. PLN 27.6m. Wonlok SA is an IT company operating in the banking sector, including cooperative banking. The balance-sheet total of Wonlok SA as at December 31st 2002 was PLN 10.4m, and its 2002 sales revenue amounted to PLN 20m. (communique of Softbank SA dated on July 7th 2003).


On August 6th 2003 the court registered an increase in the share capital of AWiM Mediabank SA, Softbank's subsidiary undertaking. Currently, the share capital of AWiM Mediabank SA stands at PLN 3,815,000. Softbank holds 38,150 shares, representing 100% of the share capital of AWiM Mediabank SA, and is entitled to 76 300 votes at the General Shareholders Meeting, representing 100% of the total vote. (communique of Softbank SA dated on August 19th 2003).




On August 28th 2003 Koma SA (dependent) had purchased 39 shares from the prior shareholders and 200 shares from the increased share capital of the MCCnet Sp. z o.o. with the seat in Cracow. In connexion to that fact Koma SA holds together 239 shares of MCCnet Sp. z o.o., at the nominal value of PLN 500 per each share, which were obtained for the total amount of PLN 199,500. The purchased shares institute 57% of the share capital and votes at the General Meeting of MCCnet Sp. z o.o., which allows to treat them as the substantial assets. Moreover, due to the concluded agreement Koma SA obtained the option to increase its share in MCCnet Sp. z o.o. to 76%. The specialization and experience of MCCnet will allow Koma SA to take the leading role in the Group as a provider of the mobile services for B2B, B2C as well as provides the new possibilities to participate in the projects connected with the development of Wi-Fi net and IVR software. Among others MCCnet worked out the transmission protocols which improve and increase the quality and reliability of GPRS data sending. One of the Company’s key client is PTK Centertel. (communique of Prokom Software SA – RB/35/2003 dated on September 4th 2003).




On August 29th 2003 the court registered an increase in the share capital of AWiM Mediabank SA, Softbank's subsidiary undertaking. Currently, the share capital of AWiM Mediabank SA stands at PLN 6,715,000. Softbank holds 67,150 shares, representing 100% of the share capital of AWiM Mediabank SA, and is entitled to 134 300 votes at the General Shareholders Meeting, representing 100% of the total vote. (communique of Softbank SA dated on September 12th 2003).




On 18 September 2003,, in accordance with the agreement concluded on 22 May 2003 (report RB/13/2003), Prokom Software SA received delivery from the Czech Consolidation Agency of 196,010 shares with nominal value of CZK 1000 per share in PVT a.s. with its seat in Prague, Czech Republic for a total purchase price of CZK 401,428,480 (approximately PLN 55m). The shares constitute 25.90% in the share capital and votes at the General Meeting of PVT a.s. The purchase price was financed by cash in the amount of CZK 120.428.544 (approximately PLN 16.2m)and a temporary loan drawn by Prokom Software SA in the amount of CZK 280.999.936 (approximately PLN 38.8m). The temporary loan will be replaced within approximately six months by a new loan provided by a Czech bank to the holding company established by Prokom Software SA in the Czech Republic. The new loan has been irrevocably committed and is fully non-recourse to Prokom Software SA. As a result of this transaction and based upon an agreement with its financial partners, Prokom Software SA will obtain full control over the core IT business of PVT a.s. (communique of Prokom Software SA – RB/42/2003 dated on September 18th 2003)




Prokom Software SA received delivery from the Tacoma Consulting a.s. with its seat in Prague, Czech Republic, of 20 shares with nominal value of CZK 100,000 per share in ST Consulting a.s. with its seat in Prague, Czech Republic for a total purchase price of CZK 2,250,000 (approximately PLN 300 thousand). The shares constitute 100% in the share capital and votes at the General Meeting of ST Consulting a.s. ST Consulting a.s. presently performing as a PVT Prokom a.s. will take over the full control over PVT a.s. IT activity, in which Prokom Software SA presently holds 25% of the share capital and votes at the general meeting. (communique of Prokom Software SA – RB/43/2003 dated on September 23rd 2003)




On September 29th 2003 Wolnok SA (new name: Epsilio SA) (the Buyer), and SABA Grupa Softbank SA (the Seller) concluded an agreement on the sale of enterprise (the Agreement). Under the Agreement, the Buyer acquires the enterprise operating under the name of SABA Grupa Softbank, registered offices in Bydgoszcz, Poland, representing a group of tangible and intangible fixed assets, including all elements comprising an enterprise within the meaning of Art. 55[1] of the Polish Civil Code, excluding the company name and an interest in the land perpetual usufruct right. The selling price of the enterprise - PLN 100,000 - was determined based on a valuation prepared by an independent expert. The Buyer will purchase the enterprise for cash from its own resources. The acquisition is effective as of October 1st 2003. The sold assets were used by the Seller in its business activity consisting in the provision of IT services, including in particular IT services for the cooperative banking sector. As an IT company whose customers also include cooperative banks, Wonlok (Epsilio - currently in the process of registration), purchased the enterprise with the intention to continue provision of the services to this sector. (communique of Softbank SA dated on October 1st 2003).




On October 17, 2003 the court registered an increase in the share capital of AWiM Mediabank SA, Softbank's subsidiary undertaking. Currently, the share capital of AWiM Mediabank SA stands at PLN 7,915,000. Softbank holds 7,915 shares, representing 100% of the share capital of AWiM Mediabank SA, and is entitled to 158,300 votes at the General Shareholders Meeting, representing 100% of the total vote. (communique of Softbank SA dated on October 29th 2003).




On October 28th 2003 the Court registered an increase in the share capital of Softbank. After the registration Softbank SA share capital amounts to PLN 20,950,512 and splits to 20,950,512 ordinary shares at the nominal 15

value PLN 1 each. The capital increase is connected with the registration of 400.600 O-series shares for the Management Board Members of Softbank SA (incentive scheme). After the above mentioned registration the incentive scheme was closed. (communique of Softbank SA dated on November 7th 2003).


On November 14th 2003 the District Court in Katowice, Poland registered a decrease in the share capital of Koma SA (subsidiary of Prokom Software SA). As the result of the extinction of 69,000 shares held by Solteq Oyj, seated in Tampere, Finland, the stake of Prokom Software SA has increased from 56.26% to 75.00% of the share capital and votes at the General Shareholders’ Meeting of Koma SA. After the registration of the extinction, the share capital of Koma SA amounts to PLN 1,035,530 and is split into 207,106 registered shares of nominal value of PLN 5 each, jointly giving rights to 207,106 votes at the General Shareholders’ Meeting. (communique of Prokom Software SA – RB/8/2004 dated on February 18th 2004)




On December 23rd 2003, Prokom Internet SA sold to TP Internet SA 964,343 shares of Wirtualna Polska SA, which constitute 21.57% of the share capital and votes at the General Meeting. The transaction was completed with the unit price of USD 15 per share, an equivalent of PLN 56.12. The call option, which was described in the “Wirtualna Polska SA share agreement” dated October 26th, 2001 (communiqué RB/56/2001), expires upon the transfer of the ownership of shares. After the transaction, the Capital Group of Prokom Software SA does not hold any shares of Wirtualna Polska SA. (communique of Prokom Software SA – RB/54/2003 dated on December 24th 2003)




On December 23rd 2003 Prokom Internet SA sold all shares in WWW praca com Sp. z o.o. All 51 shares were purchased by Demos SA seated in Gdynia for the unit price PLN 1 per share. The value of sold shares registered in the books of Prokom Internet SA on the transaction day was PLN 1.96m. The purchaser committed itself, in the period of two years from the transaction date, to sell back on Prokom Internet SA call of 26% shares WWW praca com Sp. z o.o. for the unit price of PLN 1. The shares sold constitute 51% of WWW praca com Sp. z o.o.’s equity which defines them as being substantial value assets. (communique of Prokom Software SA – RB/5/2004 dated on February 5th 2004)

2.

The structure of the Prokom Software SA Capital Group

3.

Key Investments on the Domestic and Foreign Markets

Shares of Listed Companies On December 31st 2003, the value of Prokom Software SA short-term investments in shares of listed companies was PLN 95.6m. This amount was attributable to investments in the shares of Ster-Projekt SA (PLN 36.1m), PVT a.s. (PLN 58.8m) and Kompap SA (PLN 0.7m). Debt Notes 16

CAPITAL GROUP

On December 31st 2003, the Company’s exposure to the debt notes issued by Prokom Investments SA was PLN 283.6m. Tresury notes As at the balance-sheet date, the Group held tresury notes of the value of PLN 1.3m. Corporate notes As at the balance-sheet date, the Group held corporate notes of the value of PLN 16.1m. Mutual Funds As at the balance-sheet date, the Group held participation units of the value of PLN 15.3m. Intangible Fixed Assets In 2003, the value of Prokom Software SA investments in intangible fixed assets was PLN 28.9m. Real Estate The value of buildings and structures acquired by the Company in 2003 was PLN 1.7m.

4.

Financing Investments Methods

Prokom Software’s capital expenditure in 2003 was financed partly with internally generated funds and partly external funding sources. TRANSACTIONS WITH RELATED PARTIES WITH THE VALUE EXCEEDING EUR 500,000 On March 3rd 2003, Prokom Software SA and Prokom Investments SA finally settled a joint venture agreement. As a result, Prokom Software SA came to own a residential compound in Gdynia Orłowo and received a pro rata share in profits from the sale of the other premises. The total value of the settlement was PLN 38.9m (communique of Prokom Software SA – RB/8/2003 dated on March 3rd 2003). Apart from the above, in 2003 there were no other non-recurring or one-off transactions with the value exceeding a PLN equivalent of EUR 500,000, which would be concluded at arm’s length within the Group and the terms and nature of which would result from the Company’s or subsidiary undertakings’ regular operations. CONTRACTED BANK LOANS AND LOAN AGREEMENTS BY MATURITY, PROVIDED SURETIES AND GUARANTEES Loans and credits outstanding with maturities of over one year Credit/loan amount(available)

Trade name Raiffeisen Bank Polska SA BPH PBK S.A. BPH PBK S.A. J&T Banka a.s. Keene & Sons Limited Prokom Investments SA Ryszard Krauze BRE Bank SA

[PLN thousand] 90,000 100,000 200,000 34,752 5,937 34 88 300

Credit/loan amount(to repay)

currency PLN PLN PLN 240,000,000 CZK 40,999,936 CZK PLN PLN PLN

[PLN thousand] 21,545 56,364 69,472 35,212 6,184 34 88 300

Repay date

currency PLN PLN PLN 243,448,110 CZK 41,769,836 CZK PLN PLN PLN

31.10.2005 18.05.2006 18.05.2006 11.09.2005 11.09.2005 on demand on demand 31.12.2005

The detailed description of above mentioned credits and loans were described in the note 22D of the financial report.

Loans and creditds outstanding with maturities of up to one year Credit/loan amount(available)

Trade name BRE Bank S.A. BZ WBK S.A. BZ WBK S.A. BZ WBK S.A. BPH PBK S.A. BPH PBK S.A. BPH PBK S.A. Rodan Investment Sp. z o.o. Polska Agencja Rozwoju Przedsiębiorczości Bank Millennium SA BRE Bank S.A.

Credit/loan amount(to repay)

Repay date

[PLN thousand] 15,000 11,000 2,000 2,000 2,300 37 56 1,550

currency PLN PLN PLN PLN PLN PLN PLN PLN

[PLN thousand] 0 10,764 1,576 0 2,000 9 6 1,167

currency PLN PLN PLN PLN PLN PLN PLN PLN

29.03.2004 15.02.2004 29.01.2004 02.01.2004 12.09.2004 03.06.2004 06.02.2004 31.12.2003

700

PLN

142

PLN

30.09.2004

1,800 300

PLN PLN

0 300

PLN PLN

11.09.2004 11.09.2004

The detailed description of above mentioned credits and loans were described in the note 23C of the financial report.

Short term liabilities by issued debt securities Debt securities (title) Corporate bonds

Nominal value[ PLN thousand] 2,110

Redemption date 15.01.2004

17

Corporate bonds Corporate bonds Corporate bonds Corporate bonds Corporate bonds Corporate bonds Convertible bonds Note Note Note Note

30,000 4,450 16,210 5,000 12,000 21,560 161,690 60 120 120 120

07.04.2004 14.01.2004 30.01.2004 19.11.2004 10.03.2004 15.12.2004 07.12.2004 on demand 01-04-2004 01-04-2004 01-04-2004

The detailed description of above mentioned debt securities were described in the note 23D of the financial report.

Off-balance sheet items Contingent liabilities in favor of subordinate companies, including: - in favor of consolidated or accounted for using the equity method subordinate companies Guarantee to pay bank loan given to a subsidiary Mediabank S.A. Guarantee to pay rental charges of a subsidiary Sawan Grupa Softbank S.A. Guarantee to note issued by OptiX Polska Sp. z o.o. for the bank loan provision Guarantee to pay bank loan given to an associate ce-market.com S.A. Guarantee to pay lease obligations of a subsidiary FinFin S.A. Guarantee to pay lease obligations of a subsidiary Bezpieczeństwo.pl. Sp. z o.o. Guarantee to pay loan given to a subsidiary Bezpieczeństwo.pl. Sp. z o.o. - in favor of not consolidated or accounted for using the equity method subordinate companies Guarantee to pay promissory note of a subsidiary Multitrade S.A. Contingent liabilities in favor of other companies Bank guarantees given to the Group in respect of proper contractual performance Guarantee to pay bank loan given to the third parties Guarantee to pay bank guarantees given to the a legal entity Contractual liability resulting from license agreement with Computer Associates Sp. z o.o. Contractual liability for the purchase of Wonlok S.A. Liabilities resulting from operating lease Other Total contingent liabilities

31.12.2003 31.12.2002 18,724 8,276 18,724 7,151 1,200 2,200 6,760 10,764 3,430 965 356 200 1,125 1,125 67,410 98,241 55,822 50,786 8,000 9,462 1,646 1,543 6,376 26,508 1,614 3,558 328 8 86,134 106,517

The decrease of the off-balance sheet items was mainly caused by the decrease of contingent liabilities in favor of other companies (mainly for the purchase of Wonlok SA).

ADVANCED LOANS BY MATURITY, AND PROVIDED SURETIES AND GUARANTEES, INCLUDING TO MEMBERS OF THE COMPANY’S GROUP 1.

Long-term loans advanced: − Loans advanced to the Dominant Company’s employees − Loans advanced to unrelated undertakings Total long-term loans advanced

[in ,000] PLN 2,092 PLN 83,457 PLN 85,549

The above amounts are inclusive of interest due as at December 31st 2003. 2.

Short-term loans advanced: − Loans advanced to the Dominant Company’s employees − Loans advanced to unrelated undertakings Total short-term loans advanced

PLN 1,107 PLN 1,727 PLN 2,834

The amounts of the above loans include interest due as at December 31st 2003 and take account of the provisions for doubtful loans. USE OF PROCEEDS FROM ISSUES OF SECURITIES In 2003, the Company launched the Short-Term Ordinary Bearer Bond Issue Programme with the total par value of up to PLN 200m, with BRE Bank SA acting as the offeror (communiqué of Prokom Software SA – RB/24/2003 dated on June 20th 2003). As at December 31st 2003, the debt outstanding under the Programme was PLN 91.3m.

EXPLANATION OF DIFFERENCES BETWEEN THE ACTUAL FINANCIAL RESULTS AND THE FORECASTS PUBLISHED EARLIER Prokom Software SA did not publish any forecasts of the 2003 result. ASSESSMENT OF THE FINANCIAL MANAGEMENT 18

CAPITAL GROUP

In 2003, as in the previous periods, the operations of Prokom Group were financed with its own funds and from external sources. The Group used free cash to purchase commercial paper and also placed in bank deposits. Own funds, external sources of financing as well as regular inflows of amounts due from its business partners allowed the Group to pay its current going liabilities in a timely manner. As in the previous periods, the Dominant Company executed hedging transactions protecting it against the foreign exchange risk (NDF). As at December 31st 2003, the value of financial liabilities contracted by the Group was PLN 473.8m. In the opinion of the Management Board, the value of the financial liabilities of Prokom Software SA should remain at the current level. Any potential increase in the financial liabilities may result from increased equity investments. Ability to Pay Liabilities As at Dehcember 31st 2003, the Company’s total liabilities represented 43.4% of the balance-sheet total and 79.5% of the shareholders’ equity. It means that the Company’s shareholders’ equity fully covers its liabilities. In addition, the current assets fully cover the value of the Company’s short-term liabilities. Therefore, the Management Board sees no threat to the Company being able to pay its liabilities in a timely manner. ASSESSMENT OF THE FEASIBILITY OF THE PLANNED INVESTMENT PROJECTS AND THE COMPANY’S ABILITY TO CHANGE THE STRUCTURE OF THEIR FINANCING The 2004 investment budget and the 2003 investment budget performance. [PLNm] Investment Non-financial fixed assets Acquisition of companies R&D Total

1.

2004 budget 43 80 33 156

2003 budget performance 52 109 28 189

2003 budget 40 150 35 225

Assessment of the 2003 Budget Performance

For the purchase of fixed assets, the Group spent PLN 52m out of the planned PLN 40m. The transgression of expenditure planned by PLN 12m was caused by the higher purchase of licences in the 4th quarter 2003.The expenditure incurred in the reporting period for the acquisition of companies amounted to PLN 109m. Mainly it concerns the purchase of 1,442,979 shares in Softbank SA (for PLN 18.8m), a 75% stake in Ready Sp. z o.o. (for PLN 2.7m), a 25% stake in PVT a.s. (for PLN 58.8m) and Wonlok SA (for PLN 27.6m). The high discrepancy between the expenditure actually incurred for acquisitions and the projected value is attributable to the current verification of investing plans. The R&D expenditure, of PLN 28m, comprises the costs of the current research projects, work on the upgrade of existing software, and the cost of maintaining a group of software experts and consultants. These investments were financed with the own funds and from external sources. 2.

Assessment of the Feasibility of the 2004 Investment Plans and the Company’s Ability to Change the Structure of Their Financing

The Management Board does not anticipate any difficulties in the performance of the investment budget planned for 2004. Compared with 2003, the structure of investment financing should not change materially. The majority of the investments will be financed with the Group’s own funds. ASSESSMENT OF FACTORS AND NON-RECURRING EVENTS AFFECTING THE COMPANY’S PERFORMANCE 1.

In the 2003 annual financial statements Prokom Software SA recognised revenue from long-term contracts based on the progress of work measured by costs incurred. Consequently, the work in progress disclosed earlier in the balance sheet, together with the future sales revenue attributable to it, were disclosed in the profit and loss account for the entire year. The Company did not apply this policy to past financial statements due to the lack of reliable and measurable means to determine the amount of adjustments to be made to the past accounting periods (in accordance with IAS 8).

2.

On December 23rd 2003, Prokom Internet SA sold to TP Internet S.A. for 52,4mln PLN 21.57% shares of Wirtualna Polska S.A., which resulted in expiration of the call option on these shares. As a result of this transaction, the deffered tax (amounting to PLN 13m) in Prokom Internet SA was no longer recoverable and therefore was written off. Simultaneously, Prokom Software SA created the deferred tax asset (amounting to PLN 20m) as a direct effect of the write-of of 105mln PLN of Prokom Internet SA promissory notes.

3.

Consolidation of the results of Softbank SA Capital Group, which were no consolidated before. 19

FACTORS AFFECTING THE COMPANY’S DEVELOPMENT AND DEVELOPMENT PROSPECTS Prokom Software SA development depends chiefly on the consistent implementation of its long-term business strategy, which consists in the offering of products, goods and comprehensive IT services primarily to large companies and public institutions. The Company also sees much potential for development following from further consolidation of its Group. Plans and Forecasts Concerning Factors with a Bearing on Future Results The development strategy of Prokom Software SA is aimed at: − − − −

− − −

Acquisition of new customers among large and medium-sized businesses and public institutions; Development of cooperation with the existing customers; Dynamic entry on the market of IT solutions for the banking sector, an important element of which is the on-going process of assuming by Prokom Software SA of the role of the strategic investor in Softbank SA, specialising in the provision of IT systems to the banking sector; Execution of IT projects under the offset programme connected with the purchase of the multirole aircraft by the Government of the Republic of Poland from Lockheed Martin Corporation (LMC); under the programme, the Company will co-participate in the development and implementation of the nationwide radio communication system, based on the Terrestrial Trunked Radio (TETRA) standard, for the public security services and governmental agencies as well as the nationwide emergency alert and crisis management system, Command & Control (C2), and will be involved in the development and implementation of the system for the Medical Services Register (RUM); Development of the consultancy and implementation groups within the Company’s structure, cooperation with leading software suppliers, such as IBM, Oracle, Microsoft, Peregrine, SAP and others; Provision of comprehensive services in the area of construction, installation and maintenance of network and system infrastructure to corporate customers; Further consolidation of the IT industry.

Implementation of the planned development strategy will depend on two principal groups of factors: 1.

External factors: a)

2.

Economic growth;

b)

Government’s economic policy, including in particular:

c)

− tax policy, − customs policy, especially with respect to customs duties on goods imported by the Company, − amount of funds available for computerisation of public institutions, − privatisation policy; Currency exchange rates, affecting in particular the prices of goods imported by the Company;

d)

Progress of Poland’s integration with the European Union;

e)

Level of competition (presence of large western players active in the sector);

f)

Consolidation of enterprises in practically all sectors of the economy.

Internal factors: a)

Level of knowledge and investments in the development of new technologies, mainly in the area of computer sciences and telecommunications;

b)

Further enhancement of the internal organisational structure to guarantee the smooth business process within the Prokom Software SA Group;

c)

Level of expertise of the managing and other staff, appropriate employment structure to guarantee that the requirements imposed by the dynamically developing market are met;

d)

Company’s financial condition.

It must be stressed that Prokom Software SA Capital Group has a long-standing experience in the development of complex, dedicated IT systems, vast intellectual and technical potential and considerable financial resources. These are factors which are unlikely to go unnoticed by potential future business partners. In the opinion of the Dominant Company’s Management Board, in 2004, besides the execution of the planned projects, the Group stands a fair chance of acquiring new, important contracts which will further improve its performance.

CHANGES IN SIGNIFICANT COMPANY AND GROUP MANAGEMENT POLICIES In 2003 the Dominant Company’s Management Board started and is going to continue in 2004 the reorganization of business activity of the Companies from the Group.

20

CAPITAL GROUP

One of the elements of this strategy is to sell the Internet assets not connected with the Group’s software business. That process was started by the sell transaction of shares in Wirtualna Polska SA and WWW praca com Sp z o.o. The negotiations on sale of other Internet assets are in progress. The second one is the reorganization of the rest of the Group assets throughout merge, sale or liquidation; i.e. merge of Wonlok SA and SABA Grupa Softbank SA (currently Epsilio SA), planned merge of Combidata Poland Sp z o.o.with Multitrade SA or PUP Spin Sp z o.o. with Telmax SA (company listed on the WSE), Centrum Rozwiązań Menedżerskich SA with Instytut Analiz Społecznych I Ekonomicznych SA, as well as completed in 2004 purchase of TPG SA by Prokom Software SA with the intension to develop that company to Prokom Software SA branch in Cracow.

CHANGES IN COMPOSITION OF MANAGEMENT AND SUPERVISORY BOARDS


On April 8th 2003 the Supervisory Board appointed Mr. Dariusz Górka, holding the position of CFO of Prokom Software SA to be a Member of the Management Board. (communique of Prokom Software SA – RB/9/2003 dated on April 8th 2003)


On May 31st 2003 Mr. Mirosław Szturmowicz, resigned from the position of the Member of the Management Board of Prokom Software SA, and on 2 June 2003 was appointed to be the Company’s proxy. (communique of Prokom Software SA – RB/14/2003 dated on June 2nd 2003)


On June 4th 2003 the Supervisory Board appointed Mr. Jarosław Chudziak to be a Vice-President of the Management Board. Mr chudziak create and manage the Strategic Projects Implementation Department. (communique of Prokom Software SA – RB/17/2003 dated on June 5th 2003)


On June 30th 2003 the General Shareholders’ Meeting took on the resolution changing the statutes of Prokom Software S.A., increase the number of the Management Board Members from 12 to 15. (communique of Prokom Software SA – RB/27/2003 dated on June 30th 2003)


The Management Board of Prokom Software SA withdrew the right of proxy which was conferred to Mr Mirosław Szturmowicz on June 2nd 2003. (communique of Prokom Software SA – RB/31/2003 dated on August 14th 2003)

On December 31st 2003, the composition of the Management Board of Prokom Software SA was as follows: Name Ryszard Krauze Jarosław Chudziak Tadeusz Dyrga Piotr Mondalski Krzysztof Wilski Jacek Duch Dariusz Górka Krzysztof Kardaś Tadeusz Kij Marek Mondalski Beata Stelmach Maciej Wantke

Function President of the Management Board Vice-President of the Management Board Vice-President of the Management Board Vice-President of the Management Board Vice-President of the Management Board Member of the Management Board Member of the Management Board Member of the Management Board Member of the Management Board Member of the Management Board Member of the Management Board Member of the Management Board

Information on the Management Board Members Appointed in 2003 Dariusz Górka, 39, graduated from the Warsaw University of Technology with a degree in Precision Mechanics. In 1996, he obtained an MBA degree from the New York University. Mr Górka studied finance and management at the Stanford University, California. Since 1996 he has been a member of the American Institute of Management Accountants; he obtained the Certified in Financial Management designation and the Certified Management Accountant designation, in 1998 and 2000, respectively. Between 1989–1997 he lived in the USA, working as a financial analyst for Merrill Lynch & Co. (1991–1993) and later as the International Finance Manager for Johnson & Johnson. Back in Poland in 1998, he became the CFO of Bresnan Communications Poland, and after the company’s acquisition by Elektrim (in 1999) managed the finances of Elektrim Telekomunikacja’s fixed-line business. Prior to joining Prokom Software SA, from 2001 he worked for the United Technologies Corporation, where he was responsible for the finances of Pratt & Whitney in Poland. Jarosław Chudziak, 40, graduated from the Warsaw University of Technology with a degree in Electronics and Information Technology (1988). In 1990 he obtained a PhD in the Computer Science from the same University. Winner of the 1994 Nauka Polska scholarship. Mr Chudziak completed the MBA programme offered as part of the joint initiative of the Warsaw University and the University of Illinois at Urbana-Champagne (1997) as well as specialist management trainings conducted by the London Business School, the Harvard Business School and INSEAD. Since 1990 he has been a lecturer at the Institute of Computer Science of the Faculty of Electronics and Information Technology of the Warsaw University of Technology, working in the Information Systems Department. Mr Chudziak has more than 15 years of experience in business and IT consulting. In 1987–1994 he worked as an independent consultant for various companies from the IT sector (e.g. Digital Corp.). In 1994-2002 he worked at the Management Consulting Services department of PricewaterhouseCoopers (formerly Price Waterhouse). Since July 2002 he has been a Partner and a Member of the Management Board at PWC Consulting. For the last three years he led the information technology teams at the said companies and was responsible for the execution of 21

strategic business and technological projects. During his almost nine years’ career at PWC (PW) Mr Chudziak participated in the execution of over 60 advisory and implementation projects for both Polish and international customers. Since November 1st 2002 he has also worked as an advisor to the President of the Management Board of Telekomunikacja Polska SA. On December 31st 2003 the composition of the Supervisory Board of Prokom Software SA was as follows: Name Irena Krauze Leszek Starosta Andrzej Karnabal Marek Modecki

Function Chairman of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board

REMUNERATION OF MANAGEMENT AND SUPERVISORY PERSONNEL 1.

The remuneration of management personnel in 2003: −

PLN 12,153 thousands in total remuneration and bonues paid out or payable for serving on the Management Board of Prokom Software SA, and − PLN 151 thousands in remuneration and bonuses received by members of the Management Board of Prokom Software SA for serving in the governing bodies of subsidiary and associated undertakings. The above mentioned amounts represent the total cost incurred under this item by the Company as at December 31st 2003. 2.

The remuneration of supervisory personnel in 2003: −

PLN 349 thousands in total remuneration and bonuses paid out or payable for serving on the Supervisory Board of Prokom Software SA. The above mentioned amounts represent the total cost incurred under this item by the Company as at December 31st 2003. PREPAYMENTS, LOANS, BORROWINGS, GUARANTEES, SURIETIES, AND OTHER AGREEMENTS UNDER WHICH PERFORMANES ARE TO BE RENDERED TO THE COMPANY, ITS SUBSIDIARY OR ASSOCIATED UNDERTAKINGS, ADVANCED TO MANAGEMENT AND SUPERVISORY PERSONNEL OR THEIR RELATIVES As on December 31st 2003, a member of the Dominant Company’s Management Board held a liability to the Company under a PLN 530 thousands loan. To the best knowledge of the Company’s Management Board, as at December 31st 2003, beyond the above mentioned liability, there were no other prepayments, loans, borrowings, guarantees, sureties or other agreements under which performances are to be rendered to the Dominant Company, its subsidiary or associated undertakings, advanced by Prokom Software SA in the Prokom Software SA enterprise and in subsidiary or associated enterprises, to the Prokom Software SA management and supervisory personnel, to their relatives, or other persons with whom they have personal ties. SHARES IN PROKOM SOFTWARE SA AND MEMBER UNDERTAKINGS HELD BY MANAGEMENT AND SUPERVISORY PERSONNEL As at December 31st 2003. Prokom Software SA Member undertakings No. of shares Par value No. of shares Par value Management personnel *) 2,105,905 PLN 2,105,905 Prokom Internet SA 110 PLN 440 Supervisory personnel *) The disclosed shareholdings of supervisory personnel take into account 1,888,514 Company shares owned directly by Mr Ryszard Krauze.

SHAREHOLDERS WITH AT LEAST 5% OF THE TOTAL VOTE AT THE GM The following shareholders held, either directly or through subsidiary undertakings, the rights to at least 5% of the total vote at the General Shareholders Meeting of Prokom Software SA: Shareholders’ structure as at December 31st 2003 Shareholder Prokom Investments SA Ryszard Krauze*) Bank of New York**) PZU SA CU OFE BPH CU WBK***)

Number of shares 2,360,573 1,888,514 1,546,149 752,036 582,320

% in share capital 17,12% 13,69% 11,21% 5,45% 4,22%

Number of votes at GSM 2,656,253 2,073,314 1,546,149 752,036 582,320

% of votes at GSM 18,28% 14,27% 10,64% 5,17% 4,01%

*) on December 31st 2003 Mr, Ryszard Krauze owned directly and indirectly 66,8% of the share capital and votes at the GSM of Prokom Investments SA which results in direct and indirect share of 30,8% in Prokom Software SA share capital and 32,6% of votes at its GSM,

22

CAPITAL GROUP

**) The GDR 's depository ***) on 30 May 2003 CU OFE BPH PBK held 582,320 shares and the bonds convertible to E – series shares of Prokom Software SA, In case of convercion of all issued bonds to shares CU OFE BPH PBK would hold 786,938 shares constituting 5,62% of the share capital and entitling to 5,34% of votes at the General Shareholders’ Meeting

AGREEMENTS UNDER WHICH THE PROPORTIONATE SHAREHOLDINGS SHAREHOLDERS AND BONDHOLDERS MAY BE CHANGED IN THE FUTURE

OF

EXISTING




Option Agreement Agreement of September 30th 1999, with later annexes thereto, concluded between the management staff of The Polished Group SA and Prokom Software SA, under which the management staff of The Polished Group SA has the right to acquire in total up to 197,862 shares at a price equal to the share par value of PLN 1,00 (as at the publication date of this Report, persons entitled to the shares under the Option Agreement had acquired 159,788 shares of Prokom Software SA);




Depository Agreements Agreement of December 5th 1997, concluded between the Company and Bank of New York (registered offices at 101 Barclay Street, New York, NY 10286, USA), under which Bank of New York is to issue Global Depository Receipts (GDRs) on the basis of the Company shares outside of the territory of the Republic of Poland, and




Agreements concerning the issue of 20,000 Series A bearer bonds convertible to a maximum of 1,340,000 Series E ordinary bearer shares, The Dominant Company has no knowledge of any other agreements in addition to the ones mentioned above, under which the proportionate shareholdings of existing shareholders and bondholders may be subject to change in the future, MOST IMPORTANT R&D ACHIVEMENTS The most important R&D achievements in 2003. Prokom Software SA


Testing the functionality and efficiency of cluster solutions in the Linux system environment;




Gauging the potential of using Oracle Parallel Server technology in the PROKOM applications environment;




Development of a prototype of a central enterprise data storage system using IBM TSM technology;




Using tools such as CASE by ORACLE (Designer) for various database engines (DB2 and Informix);




Developing viable possibilities for the creation of an environment for dispersed processing using PROKOM-4GL;




Testing cluster solutions in the WebSphere Application Server environment;




Establishment of a competence centre for Catalyst methodology in line with international standards, including ISO 9000, SEI CMM, and PMI;




Analysis of portal enabling solutions: Plumtree, Broadvision, Weblogic portal, Webspehere Portal Enable, evaluating their productivity of building corporate portals and their integration capabilities with outstanding application components;




Feasibility study of operating BPM and Workflow Engines in a corporate environment, The basis was a proof-ofconcept, integrating BPM and Workflow engines via middleare layer into a heterogeneous corporate application architecture;




Market research and product evaluation of BAM (Business activity Monitoring) offerings including IBM Websphere, WebMethods/Informatica, TIBCO, Filenet;




Feasibility study, operating IBM portal solution (Websphere Portal Enable) in a linux environment, running as Z/OS (Mainframe) subsystem;




Functional and performance study of linux cluster architectures;




Design and prototyping of centralized backup solution using IBM TSM technology - follow-up of former feasibility study;




Oracle 10g product study, operating in a grid environment;




Analysis of GRIDR network based solutions;




Prototyping and evaluting mobile terminal synchronization solution, using SyncML protocol;




Proof-of-concept for integrated access authorization, integrating LDAP, RADIUS and RACAF solutions and using JUNIPER technology;




Building Catalyst Competence Center applying international PMG standards: ISO 9000, SEI CMM, PMI,

Softbank SA
Extension of functionality of Cool:Sel, a CASE tool based on CA Advantage:Plex and Select Business Solution products to design and develop the software source code for different platforms (incl. As400, Mainframe, Windows)

23




Modification of Universal Support Module according to Basel II requirements and regulations. USM is a specialising data mart for defined via GUI user reports)

Sawan Grupa Softbank SA
Development of tools supporting statutory reports data models used by diffrent banking datawarehouse solutions


Development of software for automated data transfer in distributed database environment based on FTP protocol and advanced security mechanism (WKOR)




Development of integrated metadata management system for integration of metadata from data dictioneries of warehouse solutions




Development of integrated automatic report generator (based on Oracle technology) from relational databases (RDBS) and multidimmensional databases.




Development of automated data translation tools allowing to define and control checking data processes (a part of ETL procedures for datawarehouse upload)

Epsilio S.A. Softbank Group SA
New release of EPM/QMS application supporting business processes modeling and QA implementations (for ISO standards implementation and certification)


Development of BPiP - Programs/Projects Office supporting PRINCE 2 methodology.




Implementaion of core banking transactional system under Linux operating system.

Softbank Serwis Sp. z o.o.
Implementaion of SOAP, WSDL standards in C#, embeded V.T. and Visual Studio .NET technology to integrate mobile application supporting distance acces to business applications. Koma SA


Development of KOMA-eHR System. This version is based on MICROSOFT.NET technology. Three layer application architecture. Application server based on IIS – Microsoft. System works with 4 most common data bases: - ORACLE, SQL, DB/2, INFORMIX. “Hard” HR and Payroll are included in system’s functionalities together with other implemented elements supporting HR management (recruitment, periodical employees’ valuation, trainings, competence, payroll simulations).

OptiX Polska Sp. z o.o.


Developing a Solution Template for Panagon eProcess platform enabling easy and rapid creation of business process/content management systems. Key features of this solutions are: flexibility associated with relatively short implementation time (time to market).




Implementation of solutions extending the functionality of FileNet P8 platform – bidirectional integration of workflow module (Business Process Manager) through a JMS interface with queuing systems. Described extender is dedicated for processing large amounts of messages and enables tight integration of P8 platform and EAI solutions.




Integration of Personal Work Manager module (part of FileNet’s P8 Business Process Manager) with Siebel Web Engine. Described integration enables utilization of Siebel software modules as a P8 Step Processors.




Business Strategies and Processes




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Developing competences in the consulting area – analyzing, modeling and streamlining of business processes, including definition of Key Performance Indicators.

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Developing competences in the area of strategic consulting – focusing on analysis and redefinition of CRM/Customer Relationship Management business strategies.

Customer Relationship Management solutions – developing technology competences in the area of CRM solutions offered by Siebel Systems, Inc. o

Building, maintaining and developing of a production platform Siebel eBusiness Enterprise Solution

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Building and analyzing functionalities of following test platforms: Siebel Data Warehouse, Analytics and Siebel Universal Customer Master

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OptiX participated as a subcontractor of Prokom Software in implementation of CRM solution for Telekomunikacja Polska S.A.




Business Process Management solutions – developing technology competences associated with Business Process Management solutions offered by IDS Scheer (e. g. : ARIS Toolset, ARIS WebPublisher, ARIS Easy Design, ARIS QMS, ARIS Performance)




Knowledge Management solutions – developing technology competences associated with solutions supporting organizational processes of knowledge management (OptiX’ CRM Department – internal test implementation of Microsoft SharePoint, a platform for content and knowledge management)




Fraud Management – developing technology competences associated with FRED (Fraud Management solution implemented for testing purposes in Netia S.A.)




Developing technology competences associated with SAN and NAS solutions (implementation and development of data protection solution for PTK Centertel). 24

CAPITAL GROUP




Integration of Legato NetWorker with very large Oracle databases working in EMC Symmetrix - BCV environment and utilizing Veritas solutions (Central Backup System for Telekomunikacja Polska S.A. - beginning of an implementation).




Development of software tools supporting designing of backup and archiving systems – focusing mainly on timeoriented system’s simulations.




Development of tools for remote control and analysis of customer’s backup systems (associated with service projects, mainly focusing on meeting defined SLA’s conditions).




Integration of SnapImage technology in NAS environments. Testing if LAAM technology is applicable to protection of critical IT systems in LAN and WAN environments.

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