Assessment of the situation of the Company by Supervisory Board

The company STALEXPORT S.A. makes public
The Assessment of the situation of the Company by the Supervisory Board (acc. to the applied rule no. 18 of the Best Practices)

The Supervisory Board of STALEXPORT SA acting in line with the adopted Best Practices conducted a brief assessment of the situation of the Company. Such assessment had been based on the knowledge of the Supervisory Board Members as of the date of its issuance.

1. The company STALEXPORT SA is undergoing the execution of the arrangement proceedings agreement singed with its? creditors back in 2002. Further on the Company is obliged to fulfil the conditions arising from the restructuring agreements signed with off-arrangement creditors. The total amount of liabilities at the date of signing the arrangement agreement and off-arrangement agreements amounted to 856 M Zloty. Till date accordingly to the adopted provisions, 240 M Zloty has been written off while 461 M Zloty repaid out of which 190 M Zloty through debt-to-equity swap. This leads to 270 M Zloty being repaid in cash, incl. 81 M Zloty in 2005 alone (principal and interest).

2. Recalling the above the Supervisory Bard wishes to emphasize the following aspects relating directly to the assessment of the situation of STALEXPORT SA:

• Such a heavy financial burden does not remain without effect on the current financial liquidity of the Company and as a result the commercial activity reported a loss of 145 M Zloty.
• For repayment till mid 2008 remains 137 M Zloty of principal and in years 2008-2014 some 77 M Zloty of restructured debt and a difficult to determine at his moment amount arising from the guarantee issued to the State Treasury in the name of the company WRJ (the maximum possible amount is 87 M Zloty)
• The repayment of the above liabilities constitutes a raison d`?tre for the Company and all actions are subordinated towards this task.
• Protecting the assets of the shareholders and possible increase of the Company?s quotations on the WSE shall be the result of achieving the task in parallel to positive results of current activities and future undertakings.

3. A detailed analysis of STALEXPORT SA situation in 2005 and the first months of 2006 is provided in Management Board report for the year 2005. The Supervisory Board shares the presented opinions of the Management Board regarding the macroeconomic environment, direct market environment of the Company and analysis and assessments of its financial situation. Nevertheless it is worth mentioning a few events in the period covered which in the opinion of the Supervisory Board had a significant effect on the Company?s actual assessment and will continue to have such in the near future.
- The Motorway business of the company had been secured. Thanks to the transfer of the motorway concession to the subsidiary company SAM SA (in July 2004) preconditions have been set to negotiate further annexes to the Concession Agreement (in Oct. 2005) which in return enabled achieving the ?financial close? in the form of a long-term credit facility (in Dec. 2005) for financing the necessary, envisioned in the Concession Agreement, investments. Further on the whole process ended in obtaining the "financial close" , allowed the revaluation of the motorway assets (net increase by 125 M Zloty). A lack of the bank credit facility would lead ? in practice - to the termination of the concession for SAM SA and evaluation of the motorway assets close to ?zero? value. Successful defence of the value of motorway assets - apart from obvious benefits towards shareholders and creditors ? has the positive effect of opening the prospects for attracting strategic investors in the Company which - if successful - will definitively reverse the creditors? doubts about repayment of all the restructured liabilities. Such talks are held according to the Management Board.
Signing the agreement with the banks regarding restructuring liabilities arising from guarantees issued in the name of the company WRJ. Talks held throughout 2005 with the consortium of banks have brought expected results lately (May 2006). The agreement reached fixed the value of liabilities (after the decision of the Court of Arbitration) at 33.5 M Zloty and repayment through a debt-to-equity swap in exchange for the Company`s shares. Lack of the above agreement some-what paralysed STALEXPORT SA actions on the capital market and in talks with potential investors. A positive outcome of the "WRJ issue" shall definitely improve the credibility of the Company. The Supervisory Board would like to emphasise that the "WRJ issue" had a decisive impact on the negative results of STALEXPORT SA in 2005.
In 2005 the repayment of debts significantly limited the current liquidity of the Company which was the major factor for a 36% slide in turnover compared to year 2004. Actions undertaken in 2005 aimed at improving the financial liquidity provided some positive results in 2005/2006. First of all the sale of the Warsaw branch facilities for 62 M Zloty, on the basis of which the Branch Office in Warsaw runs the business. Secondly signing the agreement with SAM SA which settled the clearance of bilateral receivables and liabilities arising from the transfer of the concession. As its result SAM SA within 3 years will pay back to STALEXPORT SA ca. 60 M Zloty (till date 18 M Zloty had already been repaid)

4. The Supervisory Board positively judges the above actions of the company. They have enabled the "clean-up" of the Company balance sheet adding to its transparency. The value of off-balance liabilities has been reduced to just 5 M Zloty from 288 M Zloty for the year 2004. For the first time since the start of the restructuring process the value of net equity was positive. It`s worth mentioning that in year 2002 net equity was at a negative 367 M Zloty.

5. Evaluating the perspectives of the Company and having in mind the amount of remaining debt the Supervisory Board is of an opinion that intensive measures need to be taken to secure funds necessary for the Company`s activities. Such purpose should be assisted by actions aimed at:

• increasing the effectiveness of current activities, including further cost savings,
• obtaining funds from the capital market, primarily through acquiring a strategic investor,
• financing trade transactions through various credit instruments,
• sale of remaining non-core assets

Lack of undertaking the above actions could cause perturbations in the repayment of liabilities, which could lead to a threat of bankruptcy of the Company and endanger the achievements of the undergoing restructuring process.