KEY ACTIVITIES OF THE SUPERVISORY BOARD IN 2004

The Supervisory Board met four times during the year. It did not hold any extraordinary meetings. In three exceptionally pressing instances, the Supervisory Board adopted resolutions by circular correspondence. Regular topics at meetings included planning, strategy, and related progress reports; the business situation at SAP and its subsidiaries; risk management and the Company’s handling of specific risks; and approval of the annual plans for the Group, namely the budget, liquidity plan, and investment plan. Because of an improvement to the reporting system made in 2004, the Executive Board was able to provide even more information than previously to the Supervisory Board about the Company’s financial results. The Supervisory Board also dealt with transactions involving Company shareholdings, measures requiring the Supervisory Board’s approval or note under the Company’s List of Transactions Requiring Consent Within the Meaning of the German Stock Corporation Act, Section 111 (4), the law, or the Company’s Articles of Incorporation, and matters concerning the compensation of Executive Board members.

The Supervisory Board carefully considered the establishment and building up of development facilities and shared service centers in the medium to long term in countries where costs are low; strategic development projects and investments; practical improvements to the Supervisory Board’s processes; and the efficiency audit of the Supervisory Board’s work. The Company’s competitive environment after Oracle’s takeover of PeopleSoft was also discussed. Another matter that the Supervisory Board discussed was a voluntary public bid to the minority shareholders of SAP Systems Integration AG and the related consolidation of consulting activities in the SAP Group. The Executive Board also reported on a customer satisfaction survey undertaken in 2004. As it has done several times in the past, in 2004 the Executive Board also commissioned a global survey of SAP employee satisfaction. The results of this employee survey were also presented to the Supervisory Board. Two Supervisory Board meetings deliberated on the introduction of a windfall cap on Executive Board members’ stockbased compensation, and it was decided that such a cap would be implemented by amending the terms of the stock option plan.


THE WORK OF THE SUPERVISORY BOARD COMMITTEES

As in previous years, the committees, each aligned to a core Supervisory Board responsibility, underpinned and optimized the work of the Supervisory Board by taking on and executing distinct task clusters. The committee structure and the membership of the various committees remained unchanged.

The General Committee oversaw the allocation of stock options to employees other than SAP AG Executive Board members and the assignment of shares of SAP to beneficiaries of employee stock option and convertible bond plans. It held one meeting in 2004.

The Compensation Committee met on three occasions in 2004. The meetings amended the terms of the Executive Board members’ contracts of service, decided stock option allocations to Executive Board members, deliberated on reports on Executive Board members’ compensation and Executive Board succession planning, and approved loans for officers of SAP who hold procura powers.

The Finance and Investment Committee convened twice in 2004, discussing the acquisition and disposal of minority holdings (particularly the acquisition of more shares of SAP Systems Integration AG), a syndicated €1 billion line of credit granted in SAP’s favor, the performance of SAP’s venture capital investments, and the progress made in purchasing shares of SAP Systems Integration AG.

At its four meetings the Audit Committee dealt in depth with the 2003 SAP AG and Consolidated Financial Statements and auditor’s report and the 2004 preliminary audit. Other topics included the preparatory work for the Supervisory Board’s proposal to the Annual General Shareholders’ Meeting with respect to the election of an auditor, the focus areas for the audit, the negotiation of the auditor’s fee, the approval of the audit and non-audit services provided by the auditor to companies in the SAP Group, the certification required under U.S. law, and the assessment of the internal audit processes. The Audit Committee also received a report from the Company’s internal audit service and a progress report on the introduction of the International Financial Reporting Standards (IFRS) at SAP. In its capacity as auditor to SAP AG and the SAP Group, KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft (KPMG) attended all meetings of the Audit Committee.

The Technology Committee monitored current technological developments on the software market and discussed SAP’s key technologies and technological strategies. It met eight times in 2004, with the relevant members of the Executive Board, and sometimes the Chairman of the Executive Board, in attendance. White papers were prepared at the instigation of the Technology Committee on some of the most critical subjects as a starting point for more far-reaching discussion between the Technology Committee and members of the Executive Committee. The development teams also adopted these white papers as a basis for their continuing efforts. In its 2004 meetings the Technology Committee focused on evaluating software technologies, identifying products and markets going forward, and advancing software development processes. Among other aspects, the meetings discussed assessments and predictions of industry analysts and their implications for SAP. Discussion of the first two focus areas centered on Enterprise Services Architecture, various facets of the technology platform SAP NetWeaver, and how to progress them in view of the market potentials of the future. The discussion on software development processes of the future concentrated on innovation, product quality, and orientation to the requirements of the customer’s employees.

Once again, the Mediation Committee did not need to meet during the year.

The Chairpersons of the various committees regularly reported their committees’ work to the Supervisory Board meetings, allowing optimized working and a full exchange of information between the committees and the full Supervisory Board.