Recent Developments in Italian Corporate Law: An Overview

1. Berlin, November 2018 Recent Developments in Italian Corporate Law Avv. Cecilia Carrara

2. index • SOURCES OF ITALIAN CORPORATE LAW • THE CORPORATE GOVERNANCE CODE • THE ITALIAN COMPANIES • LA SOCIETÀ PER AZIONI • REGIMES OF MANAGEMENT • THE EXECUTIVE BODIES OF THE S.P.A. • THE NEW «GOLDEN POWER» DISCIPLINE • A GENERAL OVERVIEW • THE TIM-VIVENDI CASE • RECENT CASE-LAW DEVELOPMENT

3. SOURCES OF ITALIAN CORPORATE LAW • Binding: • Constitution • EU-Treaty • EU-Regulationsand Directives • ItalianCivil Code (Codice Civile) Non-Binding: Interpretation of scholars and case-law Corporate Governance Code

4. THE CORPORATE GOVERNANCE CODE Applicable to listed companies; Best practice; Principle of “comply or explain”; Implementation monitored by BorsaItaliana available on the web site www.borsaitaliana.it

5. THE ITALIAN COMPANIES THE ITALIAN COMPANIES Corporations Partnerships

6. THE ITALIAN COMPANIES • Corporation • Plurality of bodies • Principle of majority • Limited shareholder rights • Limited/ no personal liability of the shareholders • Main corporate kinds: S.p.A. and S.r.l. • Partnership • No plurality of bodies foreseen • Every shareholder has unlimited management power • Consent of all shareholders required • Personal liability of the shareholders • Società per azioni (s.p.a.) • Società a responsabilità limitata (s.r.l.) • Società in accomandita per azioni (s.a.p.a) • Società semplice • Società in nome collettivo (s.n.c.) • Società in accomandita semplice (s.a.s.)

7. LA SOCIETÀ PER AZIONI MAIN FEATURES: Main format for medium to large companies Established through articles of incorporation and registration Minimum share capital is €50,000 Three different regimes of management possible

8. REGIMES OF MANAGEMENT SINCE REFORM OF THE LAW IN 2003 Shareholders may decide which regime to choose: Dualistic Regime MonisticRegime Traditional Regime

9. REGIMES OF MANAGEMENT THE TRADITIONAL REGIME Two-tierverticalboardstructure inspired by Germanlaw: Shareholders elect two boards, one with managerial functions and the second with supervisory functions (“collegiosindacale”). Used by 228 Italian Companies out of 234. Supervisory Board (collegio sindacale) Managing Board (amministratore unico or consiglio di amministrazione) Control Nomination Shareholders’ Meeting (assemblea)

10. REGIMES OF MANAGEMENT THE DUALISTIC REGIME Two-tierverticalboardstructure inspiredby GermanLaw: Shareholders elect one board with supervisory functions which in turn elects a second board with managerial functions Supervisory Board (Consiglio di sorveglianza) ManagingBoard (consiglio di gestione) Nomination Control Nomination Shareholders’ Meeting (assemblea)

11. REGIMES OF MANAGEMENT The Monistic Regime • One-tier board structure • Shareholders elect one single board which “contains” a supervisory committee ManagingBoard (consiglio di amministrazione) Nomination Control SupervisoryCommittee • (comitato per il controllo sulla gestione) Shareholders’ Meeting (assemblea)

12. THE EXECUTIVE BODIES OF THE S.P.A. MANAGING BOARD At leastonedirector “amministratore unico” or “consiglio di amministrazione” nomination depends on regime (seeabove) notrequired to be professionalspossibilityto establishinternalcommittees (e.g. “comitato esecutivo”) RIGHTS AND OBLIGATIONS Exclusive competence to manage the company Deliberation on all matters except from those reserved to the shareholders’ Meeting Representation of the company Financial statements Liability towards company and third parties

13. THE EXECUTIVE BODIES OF THE S.P.A. SUPERVISORY BOARD Monistic Model Traditional Model Dualistic Model Consiglio di sorveglianza Comitato interno Collegio sindacale • for open companies atleast 3 • atleastoneshall be registeredaccountant • honorabilityand competenceprovided under articles of corporation • at least 3 • at least one shall be registered accountant • others do not mandatorily need to be professionals • 3 or 5 + 2 substitutes • atleastoneshall be registeredaccountant • othersshall be registeredprofessionals RIGHTS AND OBLIGATIONS: control of the management right to intervene in board and shareholder meetings right to information

14. THE EXECUTIVE BODIES OF THE S.P.A. THE SHAREHOLDERS MEETING All shareholders Forming the common will of the company in the matters reserved for the shareholders’ meeting Nomination of the managing board/ supervisory board (depends on regime, see above)

15. THE NEW «GOLDEN POWER» DISCIPLINE APPLICABLE LAW Law Decree 21/2012 convertedinto Law 56/2012 Introduction of special powers in favor of the Government in order to protect the ownership structure of companies operating in strategic sectors and in sectors of national interest (i.e. Defense, Security, Energy, Transportation, Communication sectors) Law Decree 148/2017 Convertedinto Law 172/2017 • Extension of the scope of the Law Decree 21/2012, including High-Tech sectors DPCM 108/2014 DPR 85/2014 Implementing regulations, to be updated every three years, in order to identify the relevant asset

16. THE NEW «GOLDEN POWER» DISCIPLINE FROM THE «GOLDEN SHARE» TO THE «GOLDEN POWER» Golden Power Golden Share Special powers in favor of the Government in order to protect the ownership structure of companies operating in strategic sectors; Application to all public or private companies, operating in strategic sectors; Exercise of the special powers through imposition of requirements or bans of executing material transactions; Conditions, procedures, modalities for the exercise of such special powers are provided by the Law Decree 21/2012 in order to limit the Government’s discretion. The State holds special rights in privatized companies operating in strategic sectors or in the case of «national champions» in order to retain some control in these companies; Application just to companies subject directly or indirectly to the State’s control; Exercise of the special rights through special clauses in the companies’ Bylaws; Broad discretion of the Government to determine the procedures for the exercise of such special rights and their extent. The ECJ and the European Commission found the Golden Share discipline restrictive of the free movement of capital

17. THE NEW «GOLDEN POWER» DISCIPLINE WHICH ARE THE STRATEGIC SECTORS? RELEVANT ASSET (DPCM 108/2104): Analysis, research, design, development, production, integration and support to the lifecycle of systems and technologicalequipment (e.g., command and control system, radar). National Defense and Security RELEVANT ASSET (DPR 85/2014): Large energy networks and installations of national interest and relevant agreements (e.g., infrastructure for electricity and gas supply from other countries, some ports and airports, installations for the supply of broadband services). • Energy, Transportation and Communications RELEVANT ASSET: The relevant implementing regulation still has to be adopted. High-Tech sectors

18. THE NEW «GOLDEN POWER» DISCIPLINE ENERGY, TRANSPORTATION, COMMUNICATIONS AND HIGH-TECH SECTORS Material transactions The acquisition, by an entity outside the EU, of the control over a company operating in such sectors; Any resolution, deed or transaction related to a company operating in such sectors, which modify the ownership, the control, the availability or the purpose of the company’s asset, regardless whether an entity inside or outside the EU is involved (e.g. merger, spin-off, winding up of the company). Special powers Imposition of specific requirements or conditions; Objection to the acquisition; Exercise of veto right in relation to extraordinary transactions, but only if the risks cannot be eliminated by undertaking commitments.

19. THE NEW «GOLDEN POWER» DISCIPLINE NATIONAL DEFENSE AND SECURITY SECTORS • Special powers Material transactions The acquisition, by an entity inside or outside the EU, of equity interest in a company operating in such sectors; Any resolution, deed or transaction related to a company operating in such sectors, which modify the ownership, the control, the availability or the purpose of the company’s asset, regardless whether an entity inside or outside the EU is involved (e.g. merger, spin-off, winding up of the company). Imposition of specific requirements or conditions; Exercise of veto right in relation to extraordinary transactions, unless the protection of the national defense/security interests may be ensured by imposing requirements or conditions; Objection to the acquisition, but only if the acquirer will own, directly or indirectly, the necessary shares with voting right to affect the national defense and security interest.

20. THE NEW «GOLDEN POWER» DISCIPLINE ENERGY, TRANSPORTATION, COMMUNICATIONS AND HIGH-TECH SECTORS • The Government shall exercise the special powers in case of an “exceptional situation, not ruled by the national and the European sectoral legislation” threatening a serious damage for the relevant public interests (and, with reference to the acquisition of equity interests, also for the public order). In particular, it shall be taken into account if: • As a consequence of the material transaction, the security of uninterrupted supply, the maintenance and the efficiency of networks and installations is still ensured ; • There are objective reasons to believe that there are connections between the acquirer and States which Have established relationship with criminal organizations Do not comply with international law rules Do not recognize the principle of democracy

21. THE NEW «GOLDEN POWER» DISCIPLINE NATIONAL DEFENSE AND SECURITY SECTORS The Government shall exercise the special powers in case of threat of serious damage to national defense and security. In particular, it shall be verified if: The economic, financial, technical and organizational capacity of the acquirer shall ensure the regular performance of the activities and the duly fulfillment of the commitments entered into with the PA; There are objective reasons to believe that there are connections between the acquirer and States which Have established relationship with criminal organizations Do not comply with international law rules Do not recognize the principle of democracy

22. THE NEW «GOLDEN POWER» DISCIPLINE • For the purpose of exercising the right of veto in relation to extraordinary transactions, the Government shall verify if: • As a consequence of the material transaction, the following shall still be ensured: • The integrity of the national defense and security system; • The security of the information relating to military defense; • The safeguarding of international interests of the State; • The protection of the national territory; • The safety of strategic infrastructures and national border. • It has been verified the strategic relevance of the transferred goods and companies.

23. THE NEW «GOLDEN POWER» DISCIPLINE THE PROCEDURE FOR THE EXERCISE OF THE GOLDEN POWER • Depending on the transaction, the acquirer or the company operating in the strategic sector shall notify to the Presidenza del ConsigliodeiMinistrithe transaction, attaching the relevant documentation; • The notice shall take place before the performance of the relevant transaction or - with reference to the acquisition - not later than 10 days following such transaction. 1. Notice • IF: • The transaction concerns the acquisition of shares of a company admitted to trading on a regulated market; and • The company concerned operates in the national defense and security sector; • THEN: • The transaction shall be notified only if the acquirer, following the acquisition, holds more than a 3, 5, 10, 15, 20 and 25% interest in the company; and, in any case, • The notice is not necessary if the 25% threshold has been already exceeded and, therefore, the acquirer already has a dominant position in the companyownership.

24. THE NEW «GOLDEN POWER» DISCIPLINE THE PROCEDURE FOR THE EXERCISE OF THE GOLDEN POWER • The Government shall analyze the information and the documentation provided and assess whether or not there is a serious threat affecting public interests; • The powershall be exercisedwithin 15 days from the transaction’ s notice 2. Exercise of the power Decree of the Presidenza del Consiglio dei Ministri • Should the power not be exercised “Silence = consent”

25. THE NEW «GOLDEN POWER» DISCIPLINE PENALTIES In case of resolutions, deeds or transactions adopted or carried out by a company managing or owning strategic asset: Their effectiveness is suspended until the notice or, in any case, until the expiry of the time-limit for the exercise of the special power If the obliged entity does not fulfil the obligation to notify or does not comply with the requirements and the conditions imposed, then: • The relevant resolution, deed or transaction is void • The Government may impose the re-establishment of the status quo ante at the obliged entity’s expenses • Financial penalties up to twice the transaction’s value and, however, not lower than 1% of the overall turnover shall apply

26. THE NEW «GOLDEN POWER» DISCIPLINE PENALTIES In case of acquisition of equity interests Its effectiveness may be subject to the undertaking of commitments Until the notice or, in any case, until the expiry of the time-limit for the exercise of the special powers, as well as if the obliged entity does not fulfil the obligation to notify or does not comply with the requirements and the conditions imposed: • The voting rights are suspended and the resolutions, deeds and transactions adopted or carried out with its decisive vote are void • Financial penalties of up to twice the transaction’s value and, however, not lower than 1% of the overall turnover shall apply (as set forth in Law Decree 148/2017 with exclusive reference to the national defense and security sector) • In case of objection to the acquisition, the acquirer shall transfer the shares within one year and, in the event of non-compliance, the competent Court may order the sale of the shares.

27. A GENERAL OVERVIEW Only in 9 cases out of 60 notified transactions, the Government decided to exercise the special powers and, in most cases, in relation to the national defense and security sector: • Acquisition of AVIO’s going concern by General Electric Aviation through its subsidiary NuovoPignone Holding S.p.A.; • Acquisition by Mubadala Development Company PJSK of the majority stake in Piaggio Aero Industries S.p.A.; • Contribution of IDS IngegneriadeiSistemiS.p.A.’s going concern georadar in favor of a newco, wholly owned by Hexagon Geosystems Services S.p.A.; • Acquisition of GE AvioS.r.l.’s division for the production of military items by General Electric Company; • Listing of ENAV’s shares in order to sale the minority stake owned by the Ministerodell’economia e finanze; • Acquisition by Vivendi SA of an equity interest in Tim S.p.A.; • Acquisition by Altran Italia S.p.A., a subsidiary company of the French group Altran, of the entire corporate capital of Next AstS.r.l.; • Acquisition by PAC Investment SA of Piaggio Aero Industries S.p.A.’s going concern EVO; • Granting of a license for the development of aerospace material by Ge AvioS.r.l. in favor of ArianeGroup GmbH.

28. A GENERAL OVERVIEW The special powers were always exercised by imposing requirements and conditions. The compliance with the requirements and the conditions is monitored by a specific committee at the Presidenza del ConsigliodeiMinistri which shall inform the Government in case of non-compliance in order to apply penalties. Only on one occasion the Government objected to an acquisition and, specifically, to the acquisition by Altran Italia S.p.A., a subsidiary company of the French group Altran, of the entire corporate capital of Next AstS.r.l., a company involved in the development of ballisticmissile’s management software.

29. THE TIM-VIVENDI CASE NATIONAL DEFENSE AND SECURITY SECTOR- COMMUNICATION SECTOR • On November 2, 2017 the Government decided to exercise the Golden Power in relation to the acquisition by Vivendi SA of an equity interest in Tim S.p.A. Indeed, following such acquisition, Vivendi would have had a 23,68% equity interest (relative majority) in Tim and, therefore, would have obtained de facto the control of the company. • The Government imposed specific requirements and conditions both on Vivendi, asentity requested to notify the transaction, and on Tim, Telecom Italia Sparkle and TelsyElettronica e Telecomunicazioni, as companies managing strategic assets.

30. THE TIM-VIVENDI CASE REQUIREMENTS AND CONDITIONS IMPOSED • Stable maintenance on the national territory of the management and security functions relating to networks, services and supplies which support strategic activities; • Undertaking of commitments in order to ensure the continuity of activities related to strategic activities; • Establishment of specific business units in charge of security, having economic-financial and functional independence; • Appointment of a director in charge of the activities relating to security issues with the prior consent of the Government; • Adoption of development, investment and maintenance plans concerning networks and installations, in order to ensure their functioning and integrity and the continuity of the universal services’ supply; • Adoption of appropriate technical and organizational measures to manage risks; • Prior notice to the Government in case of: • modification or reorganization of the company asset; • transfer of asset; • resolution of the Board of Directors which affects the security, the availability or the functioning of networks and installations.

31. THE TIM-VIVENDI CASE INTRA-GROUP TRANSACTIONS • Deeds and transactionsadopted or carried out within the samegroup are notsubject to the Golden Power’srules – buttheyshallbe in any case notified– in case the resolutions of the Shareholders’ Meeting and of the Board of Directors don’tinvolve the transfer of the corporate seat, the change of the corporate purpose, the winding-up of the company, the amendment of specificBylawsclauses or the creation of propertyright(s). • Ifthere are specificelementsleading to the suspicion of a risk of seriousdamage for the nationalinterests, the Golden Powermay be exercised. JURISDICTION Any dispute relating to the exercise of the Golden Powerisreferred to the exclusivejurisdiction of the administrative Court and, specifically, to the TAR Lazio, whichshallapply a fast-track procedure.

32. RECENT CASE-LAW DEVELOPMENT VALIDITY OF THE FIXED-PRICE PUT OPTION AND BAN ON ONE-SIDED CLAUSES (PATTO LEONINO) According to Italian civil law, all the shareholders have to bear the financial risks associated with the company’s business. Accordingly, Art. 2265 of the Italian Civil Code prohibits the so-called one-sided clause whereby a shareholder may be entirely excluded from sharing profits or losses arising out of the company’s business. In the past, the Italian Corte di Cassazionestated that a fixed-price put option falls under the prohibition of Art. 2265 above (and, therefore, it shall be deemed void) in case, as a consequence thereof, the shareholder is excluded from sharing profits or losses arising out of the company’s business “steadily and completely” (i.e., for the entire duration of the company). (Corte di Cassazione 8927/1994).

33. RECENT CASE-LAW DEVELOPMENT There have been several cases, dealt with by Italian case law, in which a fixed-price put option was deemed void or valid, according to the principle set out by the Corte di Cassazione: • Tribunale di Milano 12213/2013: a fixed-price put option is valid if (i) it can be exercised within a fixed timeframe and (ii) the consideration is equal to half the market value of the stake concerned at the time of the agreement’s execution. • Corte d’Appello di Milano 636/2016: a fixed-price put option is void if (i) it can be exercised at any time during the life of the company and (ii) the consideration is equal to the initial contribution made in favor of the company, plus interest.

34. RECENT CASE-LAW DEVELOPMENT The Corte di Cassazione, in itslatestjudgement, reaffirmes the principlewherebya shareholders agreement is valid and lawful if it establishes that one shareholder is entitled to exercise the right to sell his equity interest in the company (i) within a given timeframe and (ii) for a fixed-price, even equal to the initial consideration (Corte di Cassazione 17498/2018). According to the Corte di Cassazione, such agreement does not fall under the prohibition of Art. 2265 of the Italian Civil Code, being its purpose not to exclude the shareholder from bearing the business risks, but rather to finance the company’s business and, consequently, to grant the shareholder with the right to obtain the reimbursement of the financing, without winding-up the company.

35. RECENT CASE-LAW DEVELOPMENT DEFERRED REIMBURSEMENT OF THE SHAREHOLDER’S FINANCING IN THE EVENT OF INSOLVENCY OF A S.P.A. Art. 2467 of the Italian Civil Code provides that, in the event of insolvency of a S.r.l., the quota-holder’s financing in favor of the company shall be reimbursed upon the satisfaction of all the common creditors’ claims, in order to minimize the “business risk” for the creditors. Corte di Cassazione 16291/2018: Article 2467 of the Italian Civil Code shall apply also to the joint stock companies whose organizational structure is similar to the one of a S.r.l. (i.e., family-owned S.p.A. or S.p.A. with a limited number of shareholders). Indeed, in such circumstances, the shareholders usually have been provided with enough information to be able to acknowledge the excessive indebtedness of the company. Moreover, according to the recent Italian case law, there is a non-rebuttable presumption that the shareholder, who is also director of the company, is aware of the financial situation of the company.

36. THANK YOU! Cecilia Carrara ccarrara@legance.it

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