Appointment of the Statutory Auditors

Appointment and requirements of Statutory Auditors

The terms for appointing the members of the Board of Directors are ruled by Article 26 of the Bylaws.

In compliance with the provisions of the Company's Bylaws, the Board of Statutory Auditors is comprised of three Standing Auditors and two Alternate Statutory Auditors, who are appointed by the Shareholders’ Meeting for a period of three years and may be re-appointed at the end of their term.

All members of the Board of Statutory Auditors must meet the integrity and professionalism requirements as per the special legislation for Statutory Auditors of listed companies (Article 148, paragraph 4 of the Consolidated Law on Finance) now under Ministry for Justice Decree no. 162 of March 30, 2000, as integrated by appropriate Bylaws provisions (Article 26.1 of Bylaws).

Each Statutory Auditor may not be Statutory Auditor of five or more companies that have issued securities and can hold other assignments of administration and control in share capital companies according to Book V, Title V, Chapters V, VI and VII of the Civil Code within the limits established by the Article 144-terdecies of the Issuers Regulations implementing the provisions of Article 148-bis of the Consolidated Law on Finance.

All the members of the Board of Statutory Auditors must also possess provided requirements of independence under Article 148, paragraph 3 of the Consolidated Law on Finance.

The appointment of the entire Board of Statutory Auditors takes place, in application of the provisions on privatisation and in compliance with the provisions of Italian legislation on companies with listed shares, according to the "list voting" mechanism governed by Article 26.2 of the Bylaws, aimed at guaranteeing the presence in the auditing body of a statutory auditor and an alternate statutory auditor appointed by the minority shareholders, also regulating - according to the provisions of Article 144-sexies, paragraph 9 of the Issuers Regulation - the criteria for the identification of the candidate to be elected if lists are equal, by referral to the provisions on the appointment of the Board of Directors.

On the basis of this referral and in accordance with the provisions of Articles 4, paragraph 1-bis, of the Privatisation Law and modified by Legislative Decree no. 27 of January 27, 2010, by Article 148 of the Consolidated Law on Finance and by the implementing rules for the above mentioned provisions included in Articles 144-ter and following of the Issuers Regulations, that the lists of candidates can be presented by shareholders that, alone or jointly with other shareholders, hold at least 1% of the share capital or a lower amount as envisaged by the law - of shares with voting rights in the meeting. For this purpose CONSOB, implementing the provisions of Article 148 of the Consolidated Law on Finance and Articles 144-septies of the Issuers Regulations, has established - with Resolution no.18452 dated January 30, 2013 and for the year that ended on December 31, 2012 - the participation stake required for submitting candidate lists to be appointed in Terna's administration and control bodies at 1% of the share capital, taking into account the Company's capitalization, floating capital and owned assets and without prejudice to the lower stake included in the Bylaws.

The presentation, filing and publication of the lists, by specific referral of the Bylaws, are regulated in a similar fashion as arranged for the appointment of the entire Board of Directors, where compatible with the legislation and regulations applicable and with that specifically established by Article 26 of the Bylaws for the appointment of the Board of Statutory Auditors.

More specifically, the presentation and filing of the lists must take place - in accordance with Article 148, paragraph 2 and 147-ter, paragraph 1-bis of the Consolidated Law on Finance, at least 25 days prior to the date scheduled for the Shareholders’ Meeting called to resolve on the appointment of the members of the Board of Statutory Auditors.

Ownership of the minimum stake required to submit lists shall be determined - in accordance with the provisions of Article 147-ter, paragraph 1-bis of the Consolidated Law on Finance - by taking into account the shares that are registered in the name of the Shareholder(s) on the day in which the lists are filed with the Company. In order to prove ownership of the number of shares necessary for presenting the lists, shareholders with rights must present and/or deliver the related certification or communication issued in accordance with Articles 144-sexies, paragraph 4-quater of the Issuers Regulation and 23 of the "Regulation enacting the regulation of the centralised management services, liquidation, guarantee systems and related management companies" (adopted by the Bank of Italy and Consob on February 22, 2008 and subsequently amended by deed of the Bank of Italy/Consob of December 24, 2010), also subsequently to filing the list, as long as, within the terms envisaged for the publication of the lists (i.e. at least 21 days prior to the date scheduled for the Shareholders’ Meeting called to resolve on the appointment of the administrative body).

Pursuant to Article 144-sexies, paragraph 5, of the Issuers Regulations, in the event that on the date due for the submission of the lists for the Board of Statutory Auditors only one list has been filed, that is only lists submitted by members who are connected to each other pursuant to applicable law provisions, lists may be submitted up to the third day following said date; In this case, the thresholds set forth above shall be reduced by half.

Each Shareholder may present or assist in the presentation of one single list and each candidate may be on one list only or he will be considered ineligible. The lists must include the candidates according to a progressive number (Article 26.2 of the Bylaws) and are divided into two sections, one for the candidates for statutory auditors, and the other for the candidates to alternate statutory auditors. The first one of the candidates of each section of the lists must be registered in the register of statutory auditors and must have exercised the activity of legal control of the accounts for a period of at least three years.

In this regard, lists considering both sections, have three or more candidates must include, both the first two of the section of the list relating to statutory auditors and with regard to the first two on the list relating to alternate statutory auditors, candidates of different genders, in order to enable a Board of Statutory Auditors to be formed in compliance with current legislation on the balance of gender in the administrative and auditing bodies of companies with listed shares pursuant to Italian Law no. 120 of July 12, 2011 and Articles 147-ter, paragraph 1-ter and 148, paragraph 1-bis of the Consolidated Law on Finance. These statutory provisions aimed at guaranteeing compliance with current legislation on gender balance - introduced by the resolution of the Shareholders’ Meeting passed on May 16, 2012 - aimed at guaranteeing compliance with current legislation on gender balance, shall apply, in accordance with the provisions of Article 31.1 of the Bylaws, to the first three renewals of the Board of Statutory Auditors subsequent to the coming into force and acquisition of efficacy of the provisions of Article 1 of Italian Law no. 120 of July 12, 2011, published in the Official Journal no. 174 of July 28, 2011 and in force as from August 12, 2011 without prejudice to any extensions envisaged by the law. Therefore, they shall first apply when renewing the company bodies expiring with the approval of the 2013 financial statements. At the same time, in accordance with the provisions of Article 31.2 of the Bylaws, the new provisions of the Bylaws apply, which - for the same purpose and for the first three renewals, save any additional extensions provided for by the law - have extended the members of the Board of Statutory Auditors, which will number three standing auditors and three alternates. Up until that time, the Board of Statutory Auditors shall number three standing auditors and two alternates.

The presentation and filing of the lists must take place - in accordance with Article 148, paragraph 2 and 144-sexies, paragraph 4 of the Issuers Regulation, at least 25 days prior to the date scheduled for the Shareholders’ Meeting called to resolve on the appointment of the members of the Board of Statutory Auditors.

In order to ensure a transparent procedure for the appointment of the Board of Statutory Auditors, the lists are filed complete, in accordance with Article 144-sexies, paragraph 4 of the Issuers Regulation:

  1. information on the identity of the shareholders who have submitted the lists, indicating the total percentage of the shares held;
  2. a declaration by shareholders other than those who hold, also as a group, a controlling interest or relative majority, indicating the absence of relationships as set forth in Article 144-quinquies of the Issuers Regulations with them. In this regard, Consob, with Communication no. DEM/9017893 of February 26, 2009 (concerning the "Appointment of the members of the administrative and auditing bodies") recommends that shareholders presenting a "minority list" provide the information required with regard to the election of the auditing bodies in this declaration;
  3. an accurate description of the personal and professional characteristics of the candidates, accompanied – pursuant to Article 2400, last paragraph of the Civil Code – by a list of administration and control positions held within other companies as well as a statement by the candidates certifying possession of the requirements set by the law (including possession of independence requirements pursuant to Article 148, paragraph 3 of the Consolidated Law on Finance) and their acceptance of the candidacy.

The lists - complete with the information envisaged by Article 144-octies, paragraph 1, Issuers Regulation and CONSOB communication no. DEM/9017893 of February 26, 2009 - are therefore made available to the public - in accordance with Article 148, paragraph 2 of the Consolidated Law on Finance - at the company's offices, on the company's website and according to the ways established by Consob at least 21 days prior to the date of the specified Shareholders’ Meeting.

Pursuant to Article 148, paragraph 2 of the Consolidated Law on Finance, at least one effective member is appointed by the minority shareholders who are not connected, not even indirectly, with the shareholders who have introduced or voted the list winning for a number of votes.

In compliance with the Italian legislation for listed companies, the Bylaws (Article 26.2) attribute the chairmanship of the Board of Statutory Auditors to the Statutory Auditor appointed by the minority list.

For any replacement of the Statutory Auditors, the terms of Article 26.2 of the Bylaws will be applied. If one of the Statutory Auditors is replaced, without prejudice to the possession of the legal requirements, the first of the alternate statutory auditors taken from the same list shall take his place. If the take-over carried out in this way, does not enable the reconstruction of a Board of Statutory Auditors compliant with current legislation on gender balance, the second of the alternate statutory auditors on the same list shall be appointed. If, subsequently, it should be necessary to replace the other statutory auditor taken from the same list that has obtained the greatest number of votes, in any case the additional alternate statutory auditor taken from the same list shall be appointed. If the Chairman of the Board of Statutory Auditors is replaced, this position will be taken by the Alternate Auditor taken from the same list.

For the appointment of the Statutory Auditors occurring outside the provisions for renewing the entire Board of Statutory Auditors, the Shareholders’ Meeting resolves based on the majority envisaged by the Law and without respecting the above mentioned procedure, but nonetheless so as to ensure a composition of the Board of Statutory Auditors in compliance with the requirements of integrity and professionalism established by the Law, and compliance with current legislation on gender balance.