Appointment of Statutory Auditors

Appointment and requirements of 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 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 Auditor may not be Standing 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 144terdecies of the Issuer Regulations implementing the provisions of art. 148bis 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.
In implementing law provisions on the matter of privatizations and pursuant to Italian laws regarding listed companies, the entire Board of Statutory Auditors must be appointed using the voting list system, to ensure that the Board includes one Standing Auditor and one Alternate Auditor from minority lists.

On October 18, 2010, Terna’s Board of Directors approved the amendments to the Bylaws necessary to adjust it to the novelties introduced by law provisions regarding shareholders’ rights of listed companies aiming at favoring the participation of shareholders in the life of the Company (Directive 2007/36/CE and relative implementing Legislative Decree no. 27 dated January 27, 2010). Among other things, amendments involved Article 26.2 of the Bylaws regarding the appointment procedure for the Board of Statutory Auditors and the terms and modalities for depositing the lists.
Such amendments were applied for the first time on occasion of the annual Meeting held May 13, 2011, which, inter alia, also resolved the renewal of the expired company bodies.

On the basis of the novelties and according to the Bylaws, the deposit and publication of lists are ruled by the provisions for appointing the entire Board of Directors, in cases where this is compatible with the existing applicable law and the provisions of Article 26 of the Bylaws for the appointment of the Board of Statutory Auditors.
This system provides – in line with Article 4, paragraph 1bis, of Legislative Decree no. 332 of May 31, 1994 converted into Law no. 474/94 (“Privatization Law”) and modified by Legislative Decree no. 27 of January 27, 2010, by art. 148 of the Consolidated Law on Finance and by the implementing rules for the abovementioned provisions included in articles 144ter and following of the Issuer 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 art. 148 of the Consolidated Law on Finance and articles 144 ter and following of the Issuer Regulations, has established - with Resolution no.17633 dated January 26, 2011 and for the year that ended on December 31, 2010 - 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 and filing of lists must occur at least 25 days from the day established for the Meeting on first call.
Ownership of the minimum stake required to submit lists shall be determined 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 the legitimacy of presentation of the lists, entitled Shareholders must present and/or deliver the relative documentation even after the lists have been filed but within the time period set for the publication of the lists.
Pursuant to Article 144 sexies, paragraph 5, of the Issuer Regulations, in the event that on the date due for the submission of the lists for the Board of 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 list only and each candidate may be on one list only or he will be considered ineligible The lists shall list candidates according to a progressive number and will be divided into two sections, one for the candidates to the office of Standing Auditor and the other for the candidates to the office of Alternate Auditor. 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.

Pursuant to Article 148, paragraph 2 of the Consolidated Law on Finance, at least one standing member is appointed by the minority shareholders who, as required by art. 148, paragraph 2 of the Consolidated Law on Finance, are not connected, not even indirectly, with the shareholders who have submitted 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 Standing Auditor appointed by the minority list.
To ensure transparency in the procedure for the appointment of the Board of Statutory Auditors, also in line with the provisions of the Governance Code, lists are deposited, pursuant to Article 144 sexies, paragraph 3 of Issuer Regulations and also based on the provisions of Article 10.C.1 of the Governance Code, provided with:

a) information on the identity of the shareholders who have submitted the lists, indicating the total percentage of the shares held;
b) 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 “Issuer Regulations” with them.
Moreover, Shareholders who submit a “minority list” are subject to the recommendations made by CONSOB Communication No. DEM/9017893 of February 26, 2009 indicated in such declaration;
c) 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.

Such documents are deposited at the registered office of the Company, and are published in the Company’s website according to the terms established by CONSOB, at least 21 days before the day of the Shareholders’ Meeting (Article 10.C.1 of the Governance Code).

For any replacement of the Statutory Auditors, the terms of Article 26.2 of the Bylaws will be applied. In case one of the Statutory Auditors is replaced, the Alternate Statutory Auditor first on the same list takes his place. If the Chairman of the Board of Statutory Auditors is replaced, this position will be taken by the Alternate Statutory 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 abovementioned 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.