Related parties

Update: text adopted on November 10, 2006

• Considering that, pursuant to Article 150, Section I, of the Uniform Financial Code, Directors are required to provide the Board of Statutory Auditors, at least once each quarter, with a report about transactions with a material impact on the Group’s operating performance, balance sheet or financial position executed by the Company or its subsidiaries, focusing specifically on transactions that entail a potential conflict of interests, the requirements of this provision having been promptly reflected in Article 14 of the Company’s Bylaws and being complied with on a regular basis at meetings of the Board of Directors;
• Considering that Articles 2391 and 2391 bis of the Italian Civil Code set forth specific provisions concerning transactions in which Directors have a personal interest and transactions with related parties and that Article 2629 bis of the Italian Civil Code established specific penalties in this regard;
• Considering that Article 71 bis of the Issuers’ Regulations requires publicly traded companies that execute, directly or through subsidiaries, transactions with related parties that, in light of their purpose, amount and method or time of implementation could have an impact on the safety of the corporate assets and on the Company’s ability to provide complete and fair disclosures involving accounting and other information, are required to furnish such disclosures in an Information Memorandum filed at their registered office and at the offices of the Consob and Borsa Italiana S.p.A. within 15 days from the transaction’s closing, publishing a notice thereof in the print media;
• Considering that Consob Communications No. 1025564 of April 6, 2001 and No. 6031329 of April 7, 2006 require the Board of Statutory Auditors to submit an overview of the supervisory activities they performed during the year, focusing in particular on transactions with related parties;

Taking into account the relevant provisions of the regulations that govern the preparation of annual and interim financial statements, the provisions set forth in International Accounting Principle 24 (“IAS 24”) and the additional regulations governing such issues published by the Consob with Communication No. DEM/6064293 of July 28, 2006;

• Taking into account Article 9 of the Code of Conduct for Listed Companies, which sets for the applicable self-governance principles and procedures;

resolved to adopt the following:

REGULATIONS

Article 1 General Principles

Transactions with related parties, as identified below, shall be executed consistent with the following principles:

• Transparency;
• Substantive fairness;
• Procedural fairness.

Article 2 Scope of Implementation

The text of IAS 24, with the provisional wording currently in effect, shall constitute the reference regulatory framework for the implementation of these Regulations.

The following list being provided exclusively by way of example and, therefore, making reference to IAS 24, a party is related to an entity if:

1. directly, or indirectly through one or more intermediaries, the party:
   1. controls, is controlled by, or is under common control with, the entity (this includes parents, subsidiaries and associates);
   2. has an interest in the entity that gives it significant influence over the entity; or
   3. has joint control over the entity;
2. the party is an associate (as defined in IAS 28 Investments in Associates) of the entity;
3. the party is a joint venture in which the entity is a venturer (see IAS 31 Interests in Joint Ventures);
4. the party is an officer with strategic responsibilities towards the entity or its parent;
5. the party is a close member of the family of any individual referred to in (a) or (d);
6. the party is an entity that is controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or
7. the party is a post-employment benefit plan for the benefit of employees of the entity, or of any entity that is a related party of the entity.

A related party transaction is a transfer of resources, services or obligations between related parties, regardless of whether a price is charged.

Close members of the family of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity. They may include:

1. the individual's domestic partner and children;
2. children of the individual's domestic partner; and
3. dependants of the individual or the individual's domestic partner.

In the context of IAS 24, the following are not necessarily related parties:

1. two entities simply because they have a director or another officer with strategic responsibilities in common, notwithstanding (d) and (f) in the definition of “related party.”
2. two venturers simply because they share joint control over a joint venture;
3. 1. providers of finance
   2. trade unions;
   3. public utilities, and
   4. government departments and agencies,
      simply by virtue of their normal business dealings with an entity (even though they may affect the freedom of action of an entity or participate in its decision-making process); and
4. an individual customer, supplier, franchisor, distributor or general agent with whom an entity transacts a significant volume of business, merely by virtue of the resulting economic dependence.

The Company’s annual and semiannual reports shall contain the disclosures required by IAS 24, as well as those concerning the impact that transactions or positions with related parties (as defined in IAS 24) have on the balance sheet, financial position, operating performance and cash flow of the Company and/or the Group (Consob Communication No. DEM/6064293 of July 28, 2006).

The Board of Directors may rely on the support of independent experts in assessing all the characteristics of a transaction.

Article 3 Disclosure Obligations of Directors and Statutory Auditors

Directors and Statutory Auditors who have an interest in a transaction, even when such interest is potential or indirect, must promptly provide the Board of Directors with an exhaustive disclosure of their interest and the circumstances that gave rise to it.

Article 4 Transactions that Require the Prior Approval of the Board of Directors

Transactions with related parties, including those executed through subsidiaries, that, in light of their purpose, amount and method or time of implementation could have an impact on the safety of the corporate assets and on the Company’s ability to provide complete and fair disclosures involving accounting and other information concerning the Company must be approved in advance by the Board of Directors. This requirement also applies to the preparation and publication of the Information Memorandum and the other documents required pursuant to Article 71 bis of the Issuers’ Regulations.
 
The most significant transactions that fall within this context also require the approval of the Audit Committee.

Article 5 Other Transactions and Related Disclosure Obligations

Provided the provisions of IAS 24 are complied with, transactions with related parties different from those referred to in Article 4 above do not require the prior approval of the Board of Directors but must be the subject of a special disclosure in the information that the Board of Directors provides to the Board of Statutory Auditors pursuant to Article 14 of the Company’s Bylaws.

Specifically:
 

1. all atypical or unusual transactions with related parties that, in light of their significance, amount involved, type of counterpart, subject of the transaction (including transactions executed in the normal course of business), method used to determine the transaction price and timing of execution, could give rise to doubts concerning the fairness and completeness of the information disclosed in the financial statements, the existence of a conflict of interests in safeguarding the corporate assets and protecting minority shareholders must be disclosed;
2. all transactions with related parties different from intra-Group transactions not listed in Item a) above that involve an amount greater than 500,000.00 euros must be disclosed;
3. intra-Group transactions not listed in Item a) above that involve an amount greater than 30,000,000.00 euros must be disclosed.

Transactions that individually do not exceed the quantitative thresholds referred to in Items b) and c) above but are part of the same strategic or implementation process and, when taken together, exceed those thresholds, must always be disclosed.

Article 6 Manner for Providing the Disclosures Referred to in Article 5

The disclosure referred to in Article 5 must be provided in writing and shall contain the following information:

a list of all transactions with related parties that meet the requirements of Article 5 above and are ultimately completed within the reference calendar quarter;

1. the names of the parties involved, specifying how they are related to the Company and listing each transaction’s characteristics, terms and method of execution;
2. any comments regarding the fairness and financial benefits of the transaction, specifically explaining why executing the transaction is in the Company’s interest.

The abovementioned disclosures may be provided at meetings of the Board of Directors, in which case it shall be annexed to the minutes of the meeting. The Board of Directors shall acknowledge having been provided with the required disclosures by means of a mention in the minutes of its meetings.

Article 7 Administrative Procedure

Within the 20th day of each reference calendar quarter, the manager of the Company’s Accounting Department shall prepare a report listing transactions with related parties completed during the previous period that are reportable pursuant to Article 5 above and, within the 15 days that follow, shall schedule a meeting with the Internal Control Officer for the purpose of reviewing the transactions in question. This meeting, which shall always take place before the interim financial statements are reviewed by the relevant corporate governance body, must also be attended by the Board of Statutory Auditors.
 

For the purpose of complying with the requirements listed above, the Company’s Directors, Statutory Auditors and Internal Control Officer, and the members of the Aufsichtsrat (Supervisory Board) and Vorstand (Managing Board) of KM – Europa Metal A.G. shall promptly communicate to the Company’s Deputy Chairman and Chief Executive Officer (with a copy to the manager of the Accounting Department) any transactions that are reportable pursuant to Article 5 above, which they may have executed, directly or indirectly, within the context of situations such as those listed in Article 2 above.

The members of the Vorstand of KM – Europa Metal A.G., each for the area under his or her jurisdiction, shall see to it that information about intra-Group transactions and transactions with related parties executed by companies of the group headed by KM – Europa Metal A.G. that are reportable pursuant to Article 5 above are reported to the Company’s Deputy Chairman and Chief Executive Officer (with a copy to the manager of the Accounting Department).

The manager of the Accounting Department shall, in turn, define in detail the procedures and manners applicable to the disclosures referred to above and shall provide all necessary clarifications and support.