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• Quarterly Reports
• Material Facts
• Disclosure of Information Regarding Share Capital Structure
• Information on Affiliated Persons

• Common Share
• Preference Share
• Authorised Shares

Voting Right. Voting Right Restrictions

Affiliated Person

Minority Shareholder

Controlling Share

Blocking Share

Board of Directors

• Board of Directors Election/Termination
• Independent Directors in the Board of Directors

Executive Bodies

Disclosure of Information Regarding Interested-Party Transactions

Company Assets/Equity Appraisal

Bankruptcy risks

Transfer Prices

Information Disclosure

Provision of free access for anybody to the information related to the company’s activity and corporate events.

For example, publication of information on the company's web site, publication in a newspaper indicated in the company's Charter, or other newspaper available to most shareholders, hire of a company providing information disclosure services (www.skrin.ru)

The list of information subject to mandatory public disclosure by a joint stock company, as well as subject to disclosure upon shareholders' request, is set forth in the Federal Law # 39-FZ ‘On the Securities Market’ of 22.04.96, as well as in the Federal Law Law #208-FZ" p On Joint Stock Companies? of 26.12.95.<>

(1) The Federal Law ‘On Joint Stock Companies’ sets forth the list of documents the company has to present to shareholders upon their request, namely:

• the agreement on the company’s foundation;
• Charter of the company, duly registered changes and amendments to the Charter,   Decision of Incorporation,   Certificate of State registration of the company;
• documents confirming the rights of the company for the property on its balance sheet;
• the company's internal documents;
• the company branches and Representative offices’ Regulations;
• annual reports;
• documents of bookkeeping reporting;
• documents of enterprise accounting;
• prospectus of the share issuance, quarterly reports of the issuer and other documents, containing information to be published or disclosed by other means in accordance with the Federal Law ‘On Joint Stock Companies’ or other federal laws;
• financial statements presented to respected regulatory authorities (decisions of the shareholder owning all voting shares of the company);
• minutes of GMs;
• minutes of meetings of the Board of Directors (Supervisory Board) of the company;
• minutes and reports of meetings of the   Inspection Commission (inspector);
• minutes of meetings of the company’s collective executive body (Management, Directory)
• list of affiliated persons;
• conclusions of the company’s auditor;
• conclusions of state and municipal bodies of financial control;
• voting ballots, as well as powers of attorney (copies of powers of attorney) to participate in the general shareholders’ meeting;
• reports of independent auditors;
• lists of those possessing the right to participate in the general shareholders’ meeting, to collect dividends and other lists filled by the company so that the shareholders may exercise their rights in accordance with the Federal Law ‘On Joint Stock Companies’;
• other documents provided by the Federal Law ‘On Joint Stock Companies’, the company’s Charter, its internal documents, the decisions of the general shareholders’ meetings, the Board of Directors (Supervisory Board) and the company’s Management, as well as documents provided by Russian legislation.

At that, only a shareholder(s) possessing at least 25% of the company’s voting shares shall have the access to the documents of bookkeeping reporting and minutes of the meetings of the company’s collective executive body.

(2) The Law ‘On Securities Market’ defines that an issuer of publicly placed securities has to disclose information about these securities and its financial and economic activity in two forms:

1) through a quarterly report on the company’s securities;
2) through material fact reports.

(3)Quarterly Reports

The format of the quarterly reports is defined in the Regulation ? 31 of the Federal Commission for Securities Market (FCSM) ’On Approval of the Statute on the Quarterly Statements of the Issuer of Securities’ of 11.08.1998.

The quarterly statement is comprised of 4 sections:

Section A. Information regarding the issuer;
Section B. Information regarding financial and economic activity of the issuer;
Section C. Information regarding the securities of the issuer;
Section D. Other information regarding the securities of the issuer.

The quarterly report is prepared based on the results of each complete quarter and is to be submitted to the FCSM not later than 30 days after the end of the quarter.
 

(4) Material Facts

The content of information describing a material fact is defined by the FCSM Regulation ? 32 ’On the Approval of the Statute on the Procedure for Disclosure of Information Concerning Material Facts (Events and Actions) Affecting Financial and Economic Activity of the Issuer of Securities’ of 12.08.1998

Within the period of 5 working days after the material fact occurs, material fact reports should be:

1) submitted to the FCSM;
2) published in the ’Appendix to the FCSM Newsletter’;
3) published in other printed media available to most shareholders of the issuer;

Upon a request and not later than within 7 days following such request,, a copy of the material fact report should be provided to the issuer’s shareholders and other interested persons for a fee not exceeding the costs related for producing such copy.

(5) Completeness of Information Disclosure - disclosure of all information required by correspondent legislative acts.

In practice issuers disclose less information than required. This may be related to both a mistake of a company's officer who did not fill in all necessary fields and an unwillingness of the management to disclose some data.

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(6) Disclosure of Information Regarding Share Capital Structure

In accordance with Regulation ? 31, the company has to disclose the information regarding its shareholders in the following cases:

- in quarterly reports the company must disclose information about its shareholders owning more than 5% of the Charter capital of the company, as well as about shareholders’ owners whose interest exceeds 25% of the charter capital;
- in material fact reports the issuer must disclose information about acquisition by a certain person of an interest in its charter capital exceeding 5% and/or 5% of the issuer's shares, as well as about changes of such interest by amounts aliquot to 5%.

Normally, part of shareholders transfers their shares to the depository for nominal holding. The shareholders’ registry reflects information about nominee owners, and not about such shareholders. According to existing rules, nominees have to disclose information to the Registrar about their clients only for the purposes of recording the list of shareholders entitled to participate in GMs.

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(7) Information on Affiliated Persons

All open joint-stock companies are required to publish annually, within no more than 30 days after the end of the reporting period, the list of affiliated persons with indication of amount and category (type) of securities owned as of the end of the reporting year, in mass media, available to all shareholders of the company.

The record procedure regarding affiliated persons is defined in the FCSM Regulation ? 7 ’On the Record Procedure Regarding Affiliated Persons and Disclosure of Information regarding Affiliated Persons of Joint-stock Companies’ of 30.09.1999.

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2. Shares of the Company

Shares can be common and preferred.

The total nominal value of preferred shares cannot exceed 25% of the Charter capital of the company.

(1) Common Share - gives the owner a right to participate in GMs and vote all on issues within its competence, a right for dividends, and, in case of liquidation of the company - a right to claim a share of its assets.

(2) Preference Share - normally, does not give the voting right, but guarantees a fixed dividend and a priority right with regards to other shareholders to claim the value of shares in case of liquidation.

(3) Authorised Shares – the nominal value, category (class) of the shares provided in the company’s Charter that the company has the right to issue in addition to the already distributed shares and the rights granted by the shares.

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3. Voting Right. Voting Right Restrictions.

As a general rule, the formula is "one share - one vote".

(1) Voting by Proxy and Absentee Ballots

The right to participate in the GM can be executed by the shareholder either personally, or through an authorised representative.

In a joint-stock company with the number of shareholders owning voting shares exceeding one thousand, the company is required to send out to its shareholders absentee voting ballots, so that a shareholder may participate in the meeting by physical attendance or by mailing the ballot to the company, without physically attending the meeting.

(2) Voting Share - a common or preference share giving its owner the right to vote on the issues put to vote at the GM.

(3) At the company’s general shareholders’ meeting Shareholders - owners of preference shares of a specific class acquire the right to vote on issues concerning the introduction of changes and amendments to the Charter of the company which limit the rights of shareholders – owners of preference shares of the same class, including the cases of defining and increasing the amounts of the company’s dividends and (or) defining and increasing the liquidation value paid for preference shares of previous issues as well as granting the priority of dividends’ payment and (or) liquidating value of the shares to shareholders – owners of preference shares of another class.

Shareholders – owners of preference shares participate in the general shareholders’ meeting and have the right to vote on the issues concerning the company’s restructuring and its liquidation

Shareholders - owners of preference shares of specific types, the size of dividends on which is determined in the Charter, are entitled to participate in the GM and have the voting right as to all issues within the GM competence starting from the next GM after the GM where the decision about payment of dividends on such preference shares was not made, or the decision was made about incomplete payment of dividends. After the first full payment of dividends on such shares occurs, the right of the above shareholders to participate in GMs discontinues.
 
(4) Special Right ("Golden" Share) – can be introduced with respect to companies which were formed in the process of privatization. If the decision is yaken to exercise the special right granted to the State to participate in governing the open joint stock company undergoing privatization, representatives of the State are entitled to participate in GMs and have the right of veto on the decisions of the GM regarding:

- changes and amendments to the company’s Charter or approval of new edition of the company's Charter;
- reorganization of the company;
- liquidation of the company, appointment of the Liquidation Commission and approval of intermediary and final liquidation balance sheets;
- changes in the company's Charter capital;
- conclusions of large and interested-party transactions, as specified in Chapters X and XI of the Federal Law ‘On Joint Stock Companies’ .

(5) Restrictions of the Number of Votes per one Shareholder - the company's Charter may establish restrictions on the number of shares owned by one shareholder, their total nominal value and the maximum number of votes given to one shareholder.

(6) Established Minimum for the Quorum of a GM - the GM is legitimate (has the quorum), if shareholders holding in aggregate more than one half of distributed voting shares of the company participated in the meeting.

(7) Number of Votes for Approval of Decisions by the GM - the decisions of the GM on issues put to vote are approved by the majority of shareholders –owners of the company’s voting shares participating in the meeting, unless the Federal Law ‘On Joint Stock Companies’ provides overwise.

(8) Qualified Majority for Approval of Especially Important Decisions - the decisions on a number of issues, such as changes and amendments to the Charter, reorganization, liquidation of the company, large transactions and several others, is made by the GM by the majority of 3/4 of votes of shareholders - owners of voting shares participating in the GM.

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4. Affiliated Person

- a legal entity and/or an individual recognized an affiliated person in accordance with the Federal Law ? 948-1 ’On Competition and Restriction of Monopolistie Activities on Commodity Markets’ of 22.03.1991:

- affiliated persons - individuals or legal entities able to influence activities of legal entities;
- affiliated persons of a company are: members of the Board of Directors (Supervisory Board) or of the collective executive body of the company.

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5. Minority Shareholder

Minority shareholder – shareholder not affiliated to ‘insider’ shareholders and not financially connected with the company whose shares do not influence the decisions made by the GM and as a consequence, whose interests may be ignored by the Management of the controlling shareholder.

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6. Controlling Share

- 50% + 1 voting share.

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7. Blocking Share

- 25% + 1 voting share.

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8. Board of Directors.

Establishment of the Board of Directors (Supervisory Board) is mandatory for companies with the total number of shareholders - owners of voting share exceeding 50.

(1) Board of Directors Election/Termination

The members of the Board of Directors are elected at the annual GM untill the next annual general shareholders’ meeting. Members of the Board of Directors of a company with the total number of shareholders - owners of voting shares exceeding one thousand are elected by cumulative vote.

GM is entitled to prematurely terminate the authority of any member (all members) of the Board of Directors. In case of the election of the Board of Directors by cumulative vote the decision of the GM regarding the premature termination of authorities should be made with regards to all members of the Board of Directors.

(2) Independent Directors in the Board of Directors. The Law does not contain direct requirements for mandatory participation in the Board of Directors of so-called independent directors. In accordance with the Federal Law ‘On Joint-Stock Companies’, an independent director is a member of the Board of Directors who is not and was not during a year preceding the adoption of a resolution:

• a person carrying out the functions of the single-member executive body, including   the functions of its manager, a member of the collective executive body, a person holding a position in the governing bodies of the managing company;
• a person whose spouse, parents, children, brothers and sisters, adoptive parents and adopted children are holding positions in above-mentioned company’s management bodies, of the managing company, or being the Manager of the company;
• the company’s affiliate, excluding the member of the Board of Directors (the company’s Supervisory Board).

For the purposes of the methodology an independent director shall mean a person satisfying certain conditions (as well as his spouse, parents, children, brothers and sisters). An independent director:

- shall not represent a shareholder – owner of more than 2% of voting shares of the company;
- shall not have any contractual relations with the company other than participation in the work of the Board of Directors and/or holding the share not more than 0.5% of voting shares;
- shall no be employed by the company or its affiliated persons during the 5 years prior to election as a member of the Board of Directors and during the appointment;
- shall not provide legal, consulting and/or other services to the company;
- shall not be a representative of the State authorities.

(3) The Law defines that members of the collective executive body of the company may not form more than one quarter of the Board of Directors.

(4) Special Requirements Applicable to Persons Being Elected to the Board of Directors of the company may be set forth in the company's Charter or a by an international document approved by the GM.

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9. Executive Bodies

The company's executive bodies (General Director/President and Management Board) supervise the company’s activity and ensure execution of decisions of the GM and the Board of Directors (Supervisory Board) of the company.

Formation of executive body and premature termination of their powers is made by the decision of the GM unless the Charter of the company refers this issue to the competence of the Board of Directors (Supervisory Board) of the company.

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10. Disclosure of Information Regarding Interested-Party Transactions.

According to the Federal Law ‘Joint-Stock Companies’, members of the Board of Directors, executive bodies and shareholders owning more than 20% of voting shares, if they are recognized to be interested in carrying out a specific transaction, have to communicate to the Board of Directors, the Inspection Commission and the Auditor of the company the information regarding:
the companies in which they possess individually or jointly with their affiliated persons 20% or more of voting shares (interest);
the companies in management bodies of which they occupy positions;
known to them transactions or planned transactions, in which they may be recognized to be interested persons.

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11. Company Assets/Equity Appraisal.

(1) Independent Appraiser - in cases set forth by the legislation the determination of market value of assets/equity subject of a transaction, the price of the redemption by the company of the shares in possession of its shareholders requires the hire of an independent appraiser - a company providing appraisal services and not affiliated with the company.

(2) Board of Director’s Authority

The Federal Law ‘Joint-Stock Companies’ sets forth the list of transactions requiring the Board of Directors to set up the market value of assets/equity subject of a transaction (e. g., large-scale and interested-party transactions, shares redemption from shareholders).

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12. Bankruptcy risks.

According to the Russian Federal Law ‘On Insolvency (Bankruptcy)’, a company may be recognized a bankrupt by the arbitration court should it have an outstanding debt equal to at least 500 minimum statutory wages (RUR 100,000 or approximately US $ 3,300) for 3 months after it became due.

A number of companies, including, for example, Gazprom and RAO UES of Russia, are not subject to the Law ‘On Insolvency (Bankruptcy)’. These companies’ insolvency is regulated by the Federal Law ‘On Specifics Regarding the Insolvency (Bankruptcy) of Natural Monopolies in the Fuel and Energy Complex’ and they face virtually no bankruptcy risks.

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13. Transfer Prices.

Transfer prices differ from market prices on identical goods. Transfer prices are usually used in transactions between interdependent persons. Transfer pricing manipulations in Russia are primarily undertaken in order to lower profit and turnover taxes, avoid foreign exchange controls, and withdraw substantial funds abroad through offshore subsidiaries.