The Internal Related-party Procedure adopted by the Board of Directors pursuant to the provisions of the regulations governing Related-party transactions approved by the Consob in March 2010 went into effect on January 1, 2011. This Procedure was published on the Company website (www.edison.it - “Governance - Related Parties”).
The Internal Related-party Procedure governs, in accordance with the requirements of the Consob regulation, the decision-making process and the disclosure rules for Related-party transactions. Consistent with the requirements of the Consob regulation, the Board of Directors has sole jurisdiction over the approval of related-party transactions executed by Edison directly or through its subsidiaries that qualify as Highly Material Transactions.
In the Internal Related-party Procedure, the parameters recommended by the Consob are applied to qualify Highly Material Transactions. Transactions classified as Highly Material include transactions for amounts that exceed a threshold equal to 5% (i) of the Company’s consolidated shareholders’ equity (i.e., transactions valued at more than 400 million euros) or (ii) of total consolidated assets (i.e., transactions involving an asset or a liability valued at more than 800 million euros). Transactions that, while they exceed the abovementioned thresholds, are of a regular nature, in that they are executed on standard market terms (Regular Transactions) or carried out with subsidiaries or affiliated companies in which no material interests are involved (Intercompany Transactions) do not qualify as Highly Material Transactions.
On the other hand, according to the Internal Related-party Procedure, which takes into account the governance rules that the Company has been following for some time, the parties that qualify as Related Parties for Procedure implementation purposes are:
(i) in addition to the parties identified as such by the Consob based on the version of IAS 24 in effect since March 2010;
(ii) the following companies: A2A, Dolomiti Energia, EDF, Iren, Sel and their subsidiaries, pursuant to Article 2359 of the Italian Civil Code.
The Board of Directors may deliberate with regard to the implementation of a Highly Material Transaction only based on a prior favorable factual opinion by the Committee of Independent Directors. Information about the composition of this Committee and the subject of the opinion is provided in the “Executive Directors” and “Independent Committees” section of this Report. The abovementioned opinion is binding and a negative opinion prevents the transaction from being executed because the option allowed by the Consob regulation of submitting the matter to the Shareholders Meeting, after amending the Bylaws, was not incorporated into the Internal Related-party Procedure.
According to the Procedure, when a Highly Material Transaction involves one of the subject matters over which the Shareholders’ Meeting has decision-making jurisdiction, the Board of Directors has exclusive jurisdiction over the drafting of the motion that will be submitted to the Shareholders’ Meeting.
In addition, pursuant to the rules of the Internal Related-party Procedure, when transactions involving an amount lower than the threshold applied to qualify Highly Material Transactions and which do not qualify as Regular of Intercompany Transactions (Less Material Transactions) are submitted to the Board of Directors (or other party belonging to the Company with decision-making authority), the Board of Directors or the other abovementioned party may deliberate only with the prior mandatory (but not binding) opinion of the Committee of Independent Directors. In other words, a Less Material Transaction can be implemented even in the event of a negative opinion but, in such cases, an information memorandum that explains the transaction and includes as an annex the Committee’s opinion must be published within the deadline required by the Consob regulation.
When, based on the process defined in the Internal Related-party Procedure, one or more members of the Committee qualify as related parties with regard to a transaction, the opinion is rendered by one of the Alternative, Equivalent Oversight Entities, activated in this order:
(i) The remaining Independent Directors who are members of the Committee of Independent Directors, provided that at least two of them are Independent Director who are not related parties;
(ii) The independent directors who are neither related parties nor members of the Committee of Independent Directors, provided that at least two, but not more than three, are available;
(iii) An Independent Expert appointed by the Chairman of the Board of Directors, acting in concert with the Chief Executive Officer. If they cannot agree, the Independent Expert will be appointed by the Board of Statutory Auditors by majority vote.
In this regard, please keep in mind that, pursuant to the Consob regulation, when an Independent Expert must be used instead of Directors to establish an Alternative Oversight Entity, the opinion it renders, while mandatory, is not binding.
In order to allow the Board of Directors to adopt its decisions, the Procedure specifies the timing and scope of the flows of information that must be supplied to the Directors with regard to the characteristics of a Transaction, particularly in the case of Highly Material and Less Material Transactions.
The content of the minutes of meetings setting forth resolutions by the Board of Directors (i) concerning the approval of a Highly Material or Less Material Transaction must include an adequate explanation of the Company’s interest in executing the transaction and why the transaction’s terms and conditions were beneficial and substantively fair and, (ii) in the case of a Regular Transaction or an Intercompany Transaction (if still submitted to the Board of Directors for approval), must include evidence that the transaction qualifies as a Regular Transaction and of the absence of significant related-party interests.
Lastly, the Procedure requires that the Directors and Statutory Auditors be provided, on a quarterly basis as a minimum, with information about the implementation of related-party transactions and that, as it has been an established Company practice, the annual report and the interim reports on operations include a special section for related-party transactions.
Another document worth mentioning with regard to related-party transactions is a resolution approved at a meeting held on April 2, 2008, by which the Board of Directors reaffirmed the choice made by the Board in July 2005 reserving for its sole jurisdiction all decisions concerning:
a) contracts to sell or buy natural gas, electric power, other raw materials and securities representing green certificates or CO2 emissions rights involving an amount greater than 30 million euros per transaction or series of related transactions, or
b) any other contract, instrument or transaction of any amount or type (including those covered by the powers granted to the Chief Executive Officer) that involve, directly or indirectly Significant Parties, which are: (i) TdE; (ii) shareholders of TdE; (iii) shareholders of shareholders of TdE; (iv) one or more related parties (as defined by the IAS); (v) other companies or entities that control, are controlled by or are under the joint control of the abovementioned parties; and (vi) other companies or entities in which the abovementioned parties hold an equity interest. All of the above does not apply to Edison subsidiaries and standard financial transactions with credit institutions who are Delmi shareholders.
This reservation of jurisdiction remains in effect, event after the adoption of the Internal Related-party Procedure, with regard to the other transactions and the other Significant Parties, as identified above, that are not mentioned in the procedure of December 2010.
Moreover, the Protocol to Manage Related Party Transactions, which is an integral part of the Organizational Model adopted pursuant to Legislative Decree 231/200, is being revised to make it consistent with the new rules adopted by the Company in this area. In 2008, this Protocol was amended to incorporate the previous procedure concerning related-party transactions.
The abovementioned Protocol sets forth rules of conduct, still in effect, that govern the position of Directors who may have an interest, albeit potential or indirect, in a transaction with a related party submitted to the Board of Directors. Specifically, when a transaction requires the prior approval of the Board of Directors, the Director affected by the transaction is required to inform the Board of Directors about his interest in the transaction, explaining the nature, terms, origin and scope of said interest. If a transaction does not require the prior approval of the Board of Directors and falls within the scope of the power awarded to the Director affected by it, including when the transaction is being executed by means of a special power of attorney issued by the same Director, the Director in question is required to refrain from executing the transaction and cause his representatives to do the same, choosing instead to submit the transaction to the Board of Directors for prior approval. In all cases, the applicable resolution of the Board of Directors must contain an adequate explanation of the reasons for the transaction and of the benefits that the transaction would have for the Company.
Due to the composition of the Board of Directors and the fact that the Directors who are not independent belong to companies that are part of Edison’s chain of control and operate, for the most part, in the same businesses as the Company, the Board of Directors has established a practice whereby, when a meeting is called to order, it reviews the posts held by Directors in their respective companies and the criteria by which they were appointed to those posts.
Transactions with Related Parties (including Significant Parties) executed in 2010 are reviewed in the “Other Information” section of the separate and consolidated financial statements.