2016 CHAIRMAN REPORT - electropowersystems.com€¦ · 2016 CHAIRMAN REPORT ... Edap-Technomed SA,...

2016 CHAIRMAN REPORT

1 INTRODUCTION ......................................................................................................................................................... 3 2 THE BOARD OF DIRECTORS ................................................................................................................................... 4 2.1 Summary of the composition of the Board of Directors ............................................................................................... 4 2.2 INFORMATION ABOUT THE DIRECTORS ................................................................................................................ 5 2.2.1 Massimo Prelz Oltramonti ...................................................................................................................................... 5 2.2.2 CARLALBERTO GUGLIELMINOTTI ...................................................................................................................... 5 2.2.3 Giuseppe Artizzu .................................................................................................................................................... 6 2.2.4 Sonia Levy-Odier .................................................................................................................................................... 6 2.2.5 Davide Peiretti ........................................................................................................................................................ 6 2.2.6 Cesare Maifredi ...................................................................................................................................................... 7 2.2.7 Emanuela Banfi ...................................................................................................................................................... 7 2.3 Diversity and rationale behind the composition of the Board ....................................................................................... 8 2.4 Mission of the Board of Directors ................................................................................................................................ 8 2.5 The Chairman and the Internal Rules of the Board of Directors .................................................................................. 9 2.6 Corporate governance ................................................................................................................................................ 9 2.7 Meetings of the Board of Directors ............................................................................................................................ 10 2.8 Attendance and participation rate to the Board of Directors ...................................................................................... 10 2.9 Major accomplishment of the Board of Directors ....................................................................................................... 11 2.10 Assessment of the operations of the Board ............................................................................................................... 15 2.11 Remuneration of the Board of Directors .................................................................................................................... 15 3 EXECUTIVES AND INFORMATION FLOWS ........................................................................................................... 17 3.1 Separation of the Managing Director from the Chairman role ................................................................................... 17 3.2 Remuneration of the Managing Director and top management ................................................................................. 17 3.3 Role of the Executive Committee .............................................................................................................................. 20 3.4 Information provided to the Board of Directors .......................................................................................................... 21 4 INDEPENDENCE CRITERIA AND COMMITTEES ................................................................................................... 22 4.1 Independence criteria of the members of the Board .................................................................................................. 22 4.2 Audit Committee ....................................................................................................................................................... 22 4.3 Remuneration and Nomination Committee ............................................................................................................... 24 5 INTERNAL CONTROL AND RISK MANAGEMENT PROCEDURES ....................................................................... 26 5.1 Risk analysis and system of internal control .............................................................................................................. 27 5.2 Supervisory Body ...................................................................................................................................................... 27 5.3 Recipients of the Model and diffusion thereof ........................................................................................................... 28 5.4 Function of the disciplinary system ........................................................................................................................... 31 5.5 Structure of control tools ........................................................................................................................................... 31 5.6 Rules for updating the Model .................................................................................................................................... 31 5.7 General standards of transparency and activities carried out .................................................................................... 31 5.8 Internal control procedures relating to the preparation and processing of accounting and financial information ........ 32 5.9 Statutory Auditors ..................................................................................................................................................... 32 6 PARTICIPATION TO THE SHAREHOLDERS' MEETINGS ...................................................................................... 33 6.1 Art. 21 of the By-Laws: Shareholders’ Meetings........................................................................................................ 33 6.2 Art. 22 of the By-Laws: deliberations and powers of the Shareholders’ Meetings ..................................................... 33 7 ADDITIONAL INFORMATION ON THE BOARD OF DIRECTORS .......................................................................... 34 7.1 Absence of conflicts of interests ................................................................................................................................ 34 7.2 Absence of convictions or official sanctions, or disqualification decision ................................................................... 34 7.3 Information referred to under article L. 225-100-3 of the French Commercial Code .................................................. 34


1 INTRODUCTION

The Board of Directors (the “Board”) of Electro Power Systems S.A. (the “Company” or “EPS”) has decided to adopt the Corporate Governance Code for Small and Mid-cap companies published by MiddleNext in December 2009 (the “Code”) as EPS’ reference for corporate governance practices and procedures, and particularly for the preparation of the present report. This Code is available at the following website http://www.middlenext.com/IMG/pdf/Code_de_gouvernance_site (in French only).

The Group’ risk management and internal control practices and procedures are based on the general principles defined by the French securities regulator (Autorité des Marchés Financiers, “AMF”) in its July 22, 2010 document entitled “Cadre de référence sur les dispositifs de gestion des risques et de contrôle interne: guide de mise en œuvre pour les valeurs moyennes et petites”, which provides risk management and internal control reference guidelines for small and mid-cap companies.

Since the listing of its shares on Euronext occurred on 23 April 2015, the Group has been gradually implementing the recommendations contained in the MiddleNext Code and intends to continue this process. In line with this, the members of the Board have been informed of the items included in the “Points to be watched” (Points de vigilance) sections of the Code, which set out the main issues to be addressed in order to ensure that the Company’s governance system operates smoothly. In addition, in accordance with AMF recommendation 2013-20 issued on November 18, 2013, this report contains a summary table setting out the recommendations in the Code that are not relevant to the Company or which the Company has elected not to apply.

Pursuant to Article L. 225-37 of the French Commercial Code, the present report presents, for the financial year ended on 31 December 2016, the information regarding the composition of the Board, the compliance with the principle of balanced representation of men and women within the Board, the conditions of preparation and organization of the works of the Board, as well as the internal control and risk management processes which have been put in place (including those applicable to the elaboration and treatment of financial information for the financial statements and the consolidated financial statements), and the limitations imposed by the

Board of Directors to the powers of the Managing Director.

This report has been approved by the Board of Directors during its meeting held on 22 March 2017.


2 THE BOARD OF DIRECTORS

EPS is established as a société anonyme with a Board of Directors.

The rules and operating procedures of the Board are provided under French law and further set out in the EPS’s articles of association (“By-Laws”) and the Internal Rules of the Board of Directors (“Board Rules” or “Internal Rules”) which the Company has adopted on 6 March 2015.

The members of the Board are appointed by the ordinary Shareholders’ meeting for three (3) years (article 14 of the By-Laws).

The members of the Board appoint, among themselves, the Chairman of the Board. The general management of the Company is assumed by a Managing Director (choice of the separation of the functions see paragraph 3.1 of this report). The members of the Board have then appointed a Managing Director, who is a member of the Board.

Article 14 of the By-Laws provides for the conditions of appointment of the members of the Board of Directors, as well as their duties in performing such functions.

According to article 15 of the By-Laws and article 11 of the Board Rules, the Board has established on 6 March 2015 two specialized committees: the Audit Committee and the Remuneration and Nomination Committee.

2.1 Summary of the composition of the Board of Directors

As of 31 December 2016 , the Board of Directors is composed of seven (7) members, as follows:

Name Date of appointment Independence Participation to Board meetings in 2016

Massimo Prelz Oltramonti

16 February 2015 as Board member

8 April 2016 as Chairman of the Board

YES 92.85%

Carlalberto Guglielminotti

22 December 2014

6 March 2015 as Managing Director

NO 100%

Davide Peiretti 22 December 2014 NO 100%

Emanuela Banfi 22 December 2014 YES 92.85%

Giuseppe Artizzu 21 June 2016 NO 100%

Sonia Levy Odier 21 June 2016 YES 100%

Cesare Maifredi 16 February 2015 NO 100%

At the Annual General Meeting scheduled to be held on 21 June 2017, the Board of Directors will propose a change in its composition by appointing Michela Costa, Executive Vice President of Operation of the EPS Group, as Executive Director. If this proposal is approved by the shareholders, the Board of Directors will have 8 (eight) members, including 3

(three) independent directors (37,5%) and 3 (three) women (37,5%) versus 2 (two) previously (see the chart above). A presentation of each member of the Board, as well as the list of corporate offices and other positions they hold and have held in the past five years, within the EPS group (the “Group”) or outside the Group,


are included in paragraph 2.2 of this Report and also in paragraphs 14.1.1 and 14.1.2 of the Registration Document.

2.2 INFORMATION ABOUT THE DIRECTORS

2.2.1 Massimo Prelz Oltramonti

Chairman of the Board of Directors of the Remuneration Committee, of the Audit Committee and member of the Executive Committee

Independent: YES

Born: 15th November 1954

3 children

Residence: United Kingdom

Education

• M.B.A. from Wharton School at the University of Pennsylvania

• “Licence” (B.A.) in management from the University of Geneva

Business Address:

2 Rosslyn Hill, London NW3 1PH, United Kingdom

Options and Shares:

Number of EPS shares held: [81,945]

Number of options or warrants held: 72,868

Background

Massimo Prelz Oltramonti began his career in strategic consultancy with the Boston Consulting Group in Paris. He then joined Olivetti, where he worked first in Corporate Development (external growth and venture capital), both in the United States and in Europe, then as Managing Director of the Financial Information Services division (Radiocor S.r.l.). He returned to the venture capital sector with Alta Berkley Associates in London, before turning to private equity, firstly with Advent International, then with Spectrum Equity and later with GMT Communication Partners. He held the positions of chairman of the Board of Directors of Jazztel Plc, of Deputy Chairman of Primacom AG and of member of the Board of Directors of a number of listed companies, including ESAT Telecom, SBS SA, Edap-Technomed SA, Esaote S.p.A., and Cityfibre Holding plc. He is also chairman of the investment committee of the venture capital fund DN Capital and Director of Gigaclear plc (UK).

Other positions and corporate offices held

- Board member: Gigaclear plc

- Advisory board member: DN Capital, Docu group Gmbh

Other positions and corporate offices held within the past five years but no longer held

- Board member: Melita plc and related companies, Bigpoint gmbh, Asiakastieto AS, Electro Power Systems Manufacturing S.r.l. (formerly Electro Power Systems S.p.A.), hereinafter referred to as “EPS Manufacturing”

- Executive: GMT Communication Partners

2.2.2 CARLALBERTO GUGLIELMINOTTI

Executive Director and member of the Executive Committee

Independent: NO

Born: 3rd March 1983

2 Children

Residence: Italy

Education

• M.B.A. with merit in Financial Risk Management from Bocconi School of Management (Milan)

• J.D. with honours and worthy of academic publication from the University of Turin

• J.D. with honours from the Université Paris Descartes in Paris

• Postgraduate program from European School of Economics (New York) and Law and Economics program at University of Haifa (Israel)

Business Address:

Piazza del Tricolore 4, 20129 Milan, Italy

Options and Shares:

Number of EPS shares held: 17, 135


Background

He has more than ten years’ experience in the high-technology, energy and digital sectors. He spent 3 years as Operating Partner at 360 Capital Partners, the leading venture capital investment fund in Italy and France, specialising in the selection of investments, technologies and management of the companies in the fund’s portfolio. He was co-founder of Blackshape Aircraft and Restopolis (now TheFork.it, TripAdvisor group) and has been a board member of various companies, notably Eataly Net and Musement. Prior to his MBA, he spent more than four years as associate at Linklaters and was seconded to the Royal Bank of Scotland, specialising in LBOs, M&A, industrial and financial restructuring and structured finance transactions in the renewable energy sector.



- Board member: 360 Capital Partners Italia S.r.l (non-executive Chairman), EPS Manufacturing S.r.l. (CEO and Chairman of the Board of Directors), EPS Elvi Energy S.r.l. (“EPS S.r.l.”), Electro Power Systems India Private Limited (“EPS India”), Electro Power Systems Inc (“EPS USA”);


- Board member: Eataly Net S.r.l., Musement S.r.l., Blackshape S.p.A., Restopolis S.r.l.

- Executive: 360 Capital Partners (Operating Partner), Linklaters (associate).

2.2.3 Giuseppe Artizzu

Executive Director and member of the Executive Committee

Independent: NO

Born: 8th September 1973

2 children

Residence: Italy

Education

• Degree in Economics and Finance from the University of Bologna

Business Address:

Piazza del Tricolore 4, 20129 Milan, Italy

Options and Shares:

Number of EPS shares held: 5

Number of options: 173.840

Background

He spent his entire career focusing on the global energy markets, of which ten years with Lehman Brothers in London, Milan and Rome, as an energy specialist. He was responsible for the utilities sector in Southern Europe and coordinated the bank’s corporate finance activities in the European renewable energy field. Thereafter, he focused on the development of greenfield renewable energy projects in Italy. Giuseppe is a visiting professor at Politecnico di Milano, and a member of the board of the Ridef Master Course in renewable energy and energy efficiency.

He also maintains a blog on energy-related questions for the Huffington Post and is an occasional contributor to the specialist reviews Qualenergia, Staffetta Quotidiana and Quotidiano Energia.


- Board member: EPS S.r.l., EPS India Ltd, EPS USA Inc.;

- Executive: Cautha S.r.l.

Other positions and corporate offices held within the past five years but no longer held:

- EPS Manufacturing (Board member)

2.2.4 Sonia Levy-Odier

Director, member of the Audit Committee and of the Remuneration Committee

Independent: Yes

Born: 27th June 1967

2 children

Residence: France

Education

• Degree of ESSEC, and one of the Training Centre of the SFAF (Société Française des Analystes Financiers)

Business Address:

6 avenue Daniel Lesueur, 75007 Paris, France

Options and Shares:


Number of options or warrants held: 13.147

Background

She began her career at Archimedia, an investment fund specialising in media and communication. She has over 20 years’ experience in finance, specifically with investment funds (Archimedia, Aster & Associes), specialist media and communication (Capital Media, Media Publications, Cimarosa Communications). She currently holds the position of General Secretary of Euro Forma Dis, the leading French company in training at a distance. She is currently a member of the Training and Communication Committee of the Société d’Encouragement pour l’Industrie Nationale.


- Executive: EURO FORMA DIS

- Associations: Société D’Encouragement pour l’Industrie Nationale


- Board member: JOB & CO

- Executive: JOB & CO

2.2.5 Davide Peiretti

Director and member of the Audit Committee

Independent: NO


Born: 23rd October 1977

2 children

Residence: Italy

Education

• Executive MBA with ESCP Europe

• Graduate in Finance from the Faculty of Economics of the University of Torino

Business Address:

Strada Carignano 48/2, 10024 Moncalieri (Turin, Italy)

Options and Shares:


Number of options or warrants held: 106.492

Background

He began his career with KPMG as a consultant. He worked there for almost 7 years, gaining experience in auditing, internal control, company financing, strategy and team management. In 2008, he joined the Prima Industrie Group and currently holds the positions of Finance Director and Deputy Chairman of Prima Electro S.p.A., and is a member of the strategic committee.


- Board member: Prima Electro S.p.A, Prima Electro China co.Ltd, Osai UK Ltd

- Executive: Managing Director in DP Cube S.r.l.


- Board member: Prima Electro North America, Caretek S.r.l., EPS Manufacturing

2.2.6 Cesare Maifredi

Director and member of the Remuneration Committee

Independent: NO

Born: 6th July 1975

No children

Residence: Italy

Education

• M.B.A. from Darden School of Business Administration of the University of Virginia (2006)

• Master’s degrees in Industrial Engineering in 2004 and Mechanical Engineering in 1999 from the University of Brescia, Italy

Business Address:

Via Brisa 3, 20123 Milan, Italy

Options and Shares:

Number of EPS shares held: 1.500

Number of options or warrants held: None

Background

He joined 360 Capital Partners, a pan-European venture capital fund with more than 300Mio in investments under management, in 2010 as investment manager and became general partner in 2012. Currently holds board positions in 8 companies operating in the digital, energy and medical devices sectors. Prior to joining 360 Capital Partners he was Senior Engagement Manager in the Houston of McKinsey & Company where he gained extensive experience in cleantech, renewable energy, energy efficiency and storage, low carbon technologies, water conservation, power generation, upstream oil and gas with particular focus on investment selection, deal structuring, strategic and business planning, business development and policymaking. Before that he worked as a Project Manager at A2A S.p.A., a leading Italian multi-utility.


• Board member: Dove Conviene srl, Musement srl, Eatalynet srl, Jobdisabili srl, CharityStars srl, Thereson S.p.A., BeMyEye S.r.l.

• Executive: Managing Director of 360 Italia S.r.l., General Parner at 360 Capital Partners S.A.S.

• Associations: ItaliaStartup


• Board member: Newlisi S.p.A., NSE Industry S.p.A.

2.2.7 Emanuela Banfi

Director and Deputy Chairman

Independent: YES

Born: 20th January 1969

1 child

Residence: Italy

Education

• BS with honours in business administration from Bocconi University in Milan

• Participant in the exchange programme with the Rensselaer Polytechnic Institute (Troy, New York) and the University of Western Ontario (Ontario, Canada)

Business Address:


Via Marghera 45, 20149 Milan, Italy

Options and Shares:

Number of EPS shares held: 2,667


Background

After having spent four years as an Associate in Arthur Andersen’s Corporate Finance division, Emanuela Banfi spent two years as investment manager with Fidia S.p.A., a management company held by Mediobanca. From 2000 to 2005, Emanuela Banfi held the position of Executive Director with Lehman Brothers in London within the capital markets department, originating and structuring key transactions, both for financial institutions and corporates. Between 2006 and 2013, Emanuela Banfi was Managing Director at Société Générale in Milan, in charge of a portfolio of corporate clients. Currently she is senior banker at Natixis in the Corporate Coverage department. She was appointed Director of EPS Manufacturing on 19 September 2014 and currently is Director of EPS SA. She also serves as Chairwoman of the non-profit Foundation Varenna and as Independent Director of Nice S.p.A., a company listed on the Star segment of Borsa Italiana’s equity market, Milan. She is a chartered accountant and statutory auditor.


- Board member: EPS SA, Nice S.p.A.

- Associations: Fondazione Varenna


- Advisor in charge of Corporates and Holdings with Phinance Partners

- Managing Director with Société Générale

2.3 Diversity and rationale behind the composition of the Board

Two members of the Board of Directors out of seven being women, the proportion of women within the Board of Directors amounts to 28,57% and therefore exceeds the threshold that companies complying with the strongest corporate governance principles shall have reached within three years from the listing of their shares on a regulated market.

Pursuant to article L. 225-18-1 of the French Commercial Code, the proportion of women within the Board of Directors shall reach 40% at the end of the Shareholders’ meeting which shall be convened to approve the financial statements for the financial year to end on 31 December 2017. The Board of

Directors therefore pursues its works and discussions in order to reach that goal.

Furthermore, six members of the Board of Directors out of seven are foreign citizens resident in the UK and Italy.

The Board takes particular care in the selection of its members. Directors are chosen for their ability to act in the interests of all stakeholders and not only all Shareholders, as well as for their expertise, experience and understanding of the strategic challenges in markets where EPS operates. The composition of the Board is intended to adhere closely to the principles of diversity and to reflect the geographic mix of the business verticals (insofar as possible), to provide a range of technical skills, and to include individuals with in-depth knowledge of EPS’ activities.

Three Board members out of seven were deemed independent Directors as defined paragraph 4.1. No independent Director has material business ties with the Company or any other Group entity.

Directors hold office for a term of three years and may be re-elected. Exceptionally, the annual General Meeting may, pursuant to article 14 of the By-Laws and upon recommendation of the Board, appoint or re-elect one or several Directors for a period of less than three years, to enable the re-election of Directors to be staggered. To comply with French law and pursuant to the By-Laws, the number of Directors over the age of 70 is limited to one Director.

2.4 Mission of the Board of Directors

The Board of Directors determines the scope of the Company’s business and shall ensure its implementation. Subject to the powers expressly granted to the Shareholder’s meeting and within the limits of the Company’s purpose, the Board is vested with the powers to ensure the good functioning of the Company and shall address any matters and concerns related thereto.

The Board of Directors defines EPS's strategy, long-term objectives and overall policies.

It regularly supervises the management of the business and in particular progress made on metrics it has identified. It appoints corporate officers to manage Group policies.

It ensures the existence and effectiveness of risk management and internal control procedures, and oversees the quality of information provided to Shareholders and to the financial markets in the financial statements and in connection with major financial transactions.


As required by law, the Board of Directors approves the financial statements for publication, proposes dividends, and makes decisions on significant investments and financial policy.

In addition, the Internal Rules provide that the Board of Directors shall make specific decisions, jointly with the Managing Director, which are detailed in paragraph 3.1 of this report.

At least three days ahead of Board meetings, each Board member receives the Board Pack, i.e. a briefing document so that he or she can review and/or investigate the issues to be discussed.

The Group's senior executives make regular presentations to single Board members that require further information, and in particular the Managing Director and the other operations executives in each area of responsibility discuss regularly the potential for growth, competitive positions, the ambition, the strategy for achieving it and the principal elements of their action plans.

In particular, independent Board members are also kept regularly informed of questions, comments or critiques from Shareholders, whether at meetings with Shareholders or by mail, e-mail or telephone.

Upon joining the Board, all Directors receive training and sufficient information aligned with their specific needs and which relates to the specific area in which the Group operates and its organisation. They meet the Chairman of the Board of Directors, the Managing Director and the Group's senior executives. Meetings are also organized with certain executives and external advisors. Site visits are arranged to provide an overview of the Group's businesses and a better understanding of each one. Board members continue to receive training for as long as they remain on the Board on a continuous basis.

2.5 The Chairman and the Internal Rules of the Board of Directors

The Chairman of the Board of Directors represents the Board and organizes and directs its work, on which he reports to the Shareholders at the Annual

General Meeting. He also represents the Board in matters concerning third parties such as employee representatives, the external auditors and Shareholders. The Chairman oversees the functioning of all of the Company's corporate governance structures and, in particular, ensures that the Board members are able to fulfil their mission. The Board of Directors may appoint a Vice Chairman to chair Board meetings in the Chairman's absence.

On 6 March 2015, the Board of Directors adopted its Board Rules, which sets out the duties of the members of the Board of Directors, their missions and the functioning rules of the Board. It also sets out the respective duties and powers of the Chairman of the Board of Directors and of the Managing Director, and of the special committees set up by the Board of Directors.

The full text of the internal rules of the Board of Directors, in their version dated 6 March 2015, is available at the EPS website (www.electropowersystems.com) in the section “Media & Investors” > “corporate governance”, under sub-section “Organizational and Management Model”.

2.6 Corporate governance

In order to comply with the relevant governance and transparency principles applicable to a company whose shares are listed on a regulated market, and with the applicable obligations in terms of information of the public, the Company has decided to refer to and comply with the MiddleNext Code. Copies of such code have been made available to the members of the Board of Directors.

The Company aims at complying with all of the rules set out in the MiddleNext Code and with the strongest corporate governance principles for listed companies.

However, as at the date of the present report, the following rules under the MiddleNext Code have not yet been complied with, for the following reasons.

MiddleNext recommendations

EPS practice and explanation

Recommendation No. 5: Stock options and attribution of bonus shares

The Company implemented a stock options and warrants plan, shared in three different allocations, notably in favour of the executives and Directors of the EPS Group(see paragraph 21.1.4 of the Reference Document). The exercise of the stock options and warrants in these three allocations has not been subjected to performance conditions. However, the rationale behind this decision, which is not contrary to the mid/long term Company’s interest, has been deeply reviewed by the Remuneration and Nomination Committee and outlined in paragraph 3.2 of this Report.


Recommendation 8: Board Composition - presence of independent members on the Board

The four criteria to justify the independence of Board members, which is characterized by the absence of significant financial, contractual or family ties which may impair the independence of judgment are, inter alia, “Not being an employee or “corporate officer” of the company or its group company”.

The term "officer" used in the first of these criteria includes, as defined by the MiddleNext Code, the Chairman of the Board of Directors. However, MiddleNext Code allows the Board to determine that a member that does not meet all the criteria is nevertheless independent. The Board of Directors of the Company has considered that in this regard, to the extent that it met all the other criteria (see paragraph 4.1) and in view of its position and its recognition in the industry, Mr. Massimo Prelz could be described as independent, even though he holds the position of Chairman of the Board of Directors. In any event, the Council also considered that it was not appropriate to follow on that Recommendation No. 8 of MiddleNext Code, in that it automatically lead to question the independence of a Director merely because it is the Chairman of the Board (and not Managing Director at the same time), while it is important to have precisely an independent Chairman.

2.7 Meetings of the Board of Directors

The Board meets as often as necessary in the Company’s interest and at least 4 times per year. The dates of the following year’s meetings are set no later than one month before the end of the year, except for Extraordinary Meetings. The Independent Directors meet at least once a year without the Executive Directors in attendance, to conduct the performance evaluation of the Managing Director and the Executive Director.

Calls to Board meetings are sent to Directors by email at least five days before each meeting. The Statutory Auditors are invited to attend the Board Meetings called to review the interim and annual financial statements, as provided for in Article L.823-17 of the French Commercial Code.

In 2016, the Board of Directors held 10 meetings on the dates planned in 2015 (February 25, April 8, April 22, May 13, May 18, July 28, September 9, September 20, November 14 and December 20).

In addition, the Board held four additional meetings not planned in advance:

- on 29 April via conference call for the proposal of appointment of the new Auditors after the resignation of the previous ones;

- on 31 May and 29 June (the first held via conference call and the second convened in emergency during the Annual General meeting) for the amendment of

the resolutions to be submitted to the Annual General Meeting;

- on 13 October via conference call for the transfer of the registered office of the Company;

The meetings lasted on average 1 hours and 45 minutes.

2.8 Attendance and participation rate to the Board of Directors

The By-Laws and internal rules state that Directors may participate in certain meetings by videoconference or other telecommunications link, with the exception of those cases explicitly stipulated, such as the approval of the financial statements and preparation of the Management Report. Under the Board Rules, Directors who participate in meetings in this way are included in the calculation of the quorum and voting majority for the meeting.

The Company’s Auditors were invited to attend all the Board Meetings after the 25th February and they participated at 9 out of 13 Board Meetings.

The table below shows the number of Board and Committee Meetings from 2015 to the date of this report, as well as their members and the individual attendance at each of these meetings. The average attendance of Directors at Board Meetings was 92.26%.


Board of Directors Audit Committee

Remuneration and Nomination Committee

NUMBER OF MEETINGS

in 2016

14 7 7

Massimo Prelz 92.85 % 100%

(7/7 meetings)

100%

(7/7 meetings)

Carlalberto Guglielminotti

100 % - -

Davide Peiretti 100 % 100 %

(3/3 meetings)

100%

(3/3 meetings)

Emanuela Banfi 92.85 % 75 %

(3/4 meetings) -

Giuseppe Artizzu 100 % - -

Sonia Levy Odier 100 % 100%

(7/7 meetings)

100 %

(4/4 meetings)

Cesare Maifredi 100 % - 100%

(7/7 meetings)

2.9 Major accomplishment of the Board of Directors

The matters discussed by the Board in fiscal year 2016 and the decisions taken covered a wide range of areas, including:

(i) business developments: during four meetings, the Managing Director and the Executive Directors presented the Group’s general position from the previous period: changes in key financial indicators, “key events” in commercial and technical fields, state of competition, growth opportunities, etc.;

(ii) 2017 budget: this was discussed during one meeting at the end of 2016;

(iii) H1 2016 and yearly consolidated financial statements: they were approved by the Board after hearing the reports of the Audit Committee and the Statutory Auditors;

(iv) governance: the Board approved a reorganization plan according to the acquisition of

EPS S.r.l. (formerly Elvi Energy S.r.l.) finalized in December 2015 and the new Group structure;

(v) employee-related issues: during two meetings the Board heard a report by the Managing Director on Company developments in employee-related matters (workforce and business partners developments, major trade union negotiations, Company policy regarding equal employment opportunity and performance appraisal processes, etc.).

(vi) compensation of corporate Directors and officers: the Board allocated Directors’ fees to its members and also approved the allocation of stock options and warrants to the existing and newly hired management team and employees.

(vii) committee reports: the Board heard, for the preparation of its deliberations above in the areas that concern them respectively, reports by the Audit Committee (seven reports), and the Remuneration and Nomination Committee (seven reports).


The chart below outlines the main items discussed in each meeting of the Board and the attendance rate at each meeting.

Date Main items discussed Attendance Rate

25 February 2016 - Business and product development update;

- Business pipeline update; - Review of the Analysts presentation on FY 2015 results;

- Review of EPS SA’s consolidated and individual financial statements for the FY 2015 ended on 31st December 2015;

- Review of the drafts of the Registration Document, CSR report and Chairman’s report on the corporate governance and internal control process;

- Update on the activities of the Remuneration Committee; - Approval of the Remuneration Committee report on the

CEO’s remuneration;

- Update on the activities of the Audit Committee; - Review and signing of the minutes of the Board of

Directors meetings in French language;

- Approval of the Market Ethics Charter, including the approval of the black out periods;

- Update on the use of the buy-back program and proposal to the Shareholders’ meeting regarding the renewal of the authorization to implement a buy-back program;

- Update on the duties and responsibility of the Board of Directors and proposal to hire a dedicated resource to support CFO and General Counsel in that respect;

- Review of the regulated agreements with related parties;

- Update on the situation of the offices of the members of the Board of Directors, the Managing Director and statutory auditors (and confirmation that their offices have not yet expired);

- Acknowledgement that no stock-options or warrants which have been issued have been exercised yet;

- Review of the criteria governing the independence of the members of the Board of Directors, including the stating of the independence of Emanuela Banfi;

- Ratification of the delay notices on the Complementary reports of the Board post warrants allocation (Board minutes of 26th November 2015) and post the increase in

100%


share capital (Board minutes of 4th December 2015) and on the monthly liquidity provider communications.

8 April 2016 - review and approval of the Company’s consolidated

financial statements for the financial year ended on 31 December 2015;

- validation of the press release on the financial statements for the financial year ended on 31 December 2015;

- resignation of the Chairman and appointment of Mr. Massimo Prelz as new Chairman

- proposal for fixing the amount of attendance fees allocated to the Board of Directors;

- discussion on the possible renewal of the authorizations granted by the Shareholders’ general meeting;

- approval of the reference document draft, social and environmental information, Chairman’s Report and powers conferred to the Managing Director in order to finalize these documents and oversee the review process by the French Financial Market Authority (Autorité des marchés financiers);

- approval of the draft resolution to be submitted to the annual ordinary Shareholders’ meeting;

- Company policy on professional and wage equality. - finalization of the management report and the text of the

resolutions submitted to the general Shareholders’ meeting;

- convening of an extraordinary and ordinary general Shareholder’s meeting on 6 March 2015.

100%

22 April 2016 - review and approval of the Company’s individual financial

statements for the financial year ended on 31 December 2015;

- proposal for the allocation of the results of the financial year ended on 31 December 2015;

- proposal for fixing the amount of attendance fees allocated to the Board of Directors;

- preparation and approval of the complementary report to be submitted to the annual ordinary and extraordinary Shareholders’ general meeting;

- amendment and approval of the draft resolutions to be submitted to the annual ordinary and extraordinary Shareholders’ meeting;

- convening of an annual ordinary and extraordinary Shareholders’ general meeting of the Company;

- proposal of a capital increase reserved to ELVI transaction;

- allocation of stock-options and warrants.

85,7%

29 April 2016 - proposal to appoint new auditors of the Company in

replacement of Ernst & Young et Autres and Auditex;

100%


- approval of the draft letter from the Managing Director to Shareholders;

- amendment and approval of the draft resolutions to be submitted to the annual ordinary and extraordinary Shareholders’ meeting;

- convening of an annual ordinary and extraordinary Shareholders’ general meeting of the Company;

- update on the composition of the Nomination and Remuneration Committee and of the Audit Committee.

13 May 2016 - review and approval of the 2016’s first quarter results; - validation of the press release on the 2016’s first quarter

results.

100%

18 May 2016 - update on the self- assessment of the Board of Directors; - update on the group structure; - update on the business development; - update on the budget and cash flow; - update on the financial structure; - update on the products; - update on the organization; - update on the financial calendar.

100%

31 May 2016 - proposal of appointment of new members of the Board of

Directors; - convening of an annual ordinary and extraordinary

Shareholders’ general meeting of the Company; - amendment and approval of the text of resolutions to be

submitted to the annual ordinary and extraordinary Shareholders’ meeting;

- ratification of the intercompany agreements.

100%

21 June 2016 - amendment of the text of resolutions proposed by a

Shareholder during the Annual General Meeting

100%

28 July 2016 - review and approval of the 2016’s second quarter results; - validation of the press release on the 2016’s second

quarter results; - approval of the debt financing and the related security

package; - update on the composition of the Remuneration

Committee and the Audit Committee.

100%

9 September 2016

- presentation of consolidated H1 accounts; - update on business development and pipeline; - update on the Group reorganization; - allocation of stock options and warrants; - acknowledgement of the loss of the right to exercise

stock options or warrants for the individuals who left the Company;

- appointment of corporate brokers.

100%


20 September 2016 - approval of the half-year individual and consolidated

results as at 30 June 2016; - approval of the half-year financial report as at 30 June

2016; - approval of the related press release announcing the half-

year financial statements.

100%

13 October 2016 - transfer of the registered office of the Company. 85.7%

14 November 2016

- review and approval of the 2016’s third quarter results; - validation of the press release on the 2016’s third quarter

results; - granting of powers to Mr. Artizzu on the business

development; - granting of powers to the Managing Director on issuing

of guarantees; - proposal of retention plans for the management team; - allocation of stock options; - allocation of attendance fees to the Board of Directors.

100%

20 December 2016 - approval of the 2017 annual budget;

- allocation of stock options and warrants.

100%

2.10 Assessment of the operations of the Board

The Board of Directors, in accordance with the Internal Rules, assesses and debates about its functioning once a year.

On 25 February 2016, at the end of the first year of full work of the Board, upon request of the Chairman and following the recommendation of the Audit Committee, a formal assessment of the effectiveness of the Board of Directors' operating procedures was entrusted to the General Counsel under the leadership of the Remuneration and Nomination Committee.

The assessment was performed by the Remuneration and Nomination Committee in May 2016 through individual interviews of each of the non executive Board members and, in order to strengthen the commitment to the best Corporate Governance practices, it covered the following objectives:

- review the operating procedures of the Board; - ensure that important issues were suitably

prepared and discussed; - measure the contribution of each Director to the

Board’s accomplishments.

A questionnaire prepared by the Remuneration Committee in order to perform such Board assessment had been circulated and completed by the non-executives Board members. The questionnaire was divided into four sections: (i) size

and composition of the Board of Directors; (ii) meeting execution and Board of Director Organization; (iii) Chairman’s Role, CEO’s role and Directors’ role; and (iv) Remuneration Committee and Audit Committee.

On the 13th May 2016 the Remuneration Committee hold a meeting, during which it reviewed the answers given by the Board members, taking note of the overall positive feedback and focusing on the negative comments or evaluations and making recommendations to the Board about the areas of improvement.

As a result of the assessment, the Remuneration Committee outlined that an important area of improvement would have been the balance of powers between the Managing Director and the Board with regard to the decisional processes and strategic business decisions.

Upon release by the Remuneration Committee of the report of questionnaires, the Board decided that no amendment of the Internal Rules of the Board of Directors was necessary.

A new Board assessment will be performed in 2017.

2.11 Remuneration of the Board of Directors

The Board of Directors shall allocate attendance fees between the directors at the proposal of the Remuneration and Nomination Committee, on the


basis of the global amount of the attendance fees allocated by the Annual General Meeting. This allocation shall take into account the effective participation of the Directors at the Board meetings and their participation in the specialised committees of the Board.

The performance of particular missions may entail a supplementary amount of attendance fees attribution or exceptional remuneration payment, subject to the regime of the regulated agreements.

The Shareholder’s general meeting, by means of decisions dated 21 June 2016, set the global amount of attendance fees to be allocated among the members of the Board of Directors for the financial year to be ended on 31 December 2016 at 120,000 Euros.

The Board of Directors, on 16 November 2016 decided to approve the Remuneration Committee suggestion to allocate the global amount of 112,500 Euros in such a way that (i) the Chairman would receive 40,000 Euro and (ii) each Board member (included the Chairman) would receive 10,000 Euro and (iii) Mr. Luca Dal Fabbro, former Chairman and member of the Board of Directors until 8 April 2016, would receive 2,500 Euro as attendance fees for the financial year to be ended on 31 December 2016.


3 EXECUTIVES AND INFORMATION FLOWS

3.1 Separation of the Managing Director from the Chairman role

The “Managing Director” office is the legal position in a Société Anonyme which has been separated from the office of “Chairman of the Board”.

On 16 February 2015 the roles of the Chairman of the Board of Directors and the Managing Director were separated, Carlalberto Guglielminotti became the Managing Director of the Company, as well as the Chief Executive Officer and Mr. Luca Dal Fabbro was appointed as the Chairman.

This governance structure creates a clear separation between the strategic planning and oversight functions that are the responsibility of the Board of Directors, and the operational and executive functions that are the responsibility of senior management lead and chaired by the Managing Director and Chief Executive Officer.

The Managing Director is also Managing Director of all the subsidiaries of the Group (following a formal resolution taken by the Board of Directors of any single Group company), and has the authority to manage the operations and functions of the Group. Limits are placed upon the powers of the Managing Director, and these limits are set by the Board of Directors, based on the recommendations of the Chairman of the Board. The Managing Director must obtain the prior consent of the Board to take the following decisions:

- any acquisition or sale of an asset, activity, or any transaction with any entity, of whatever nature, which has not been taken into account in the annual budget and which represents an amount (on an individual basis or an accrued basis on a 12-month period) exceeding 500,000 EUR;

- any acquisition of a shareholding of another entity;

- any conclusion, amendment, or termination of agreements regarding intellectual property rights (namely, any right related to designs, models, inventions, projects, know-how, whether patentable or not) belonging to the Group, including the licence agreements, outside of the normal course of business;

1 OD&M is a consulting company specialized in HR management and in the engineering of organization model and development of corporate communication.

- any conclusion, amendment, or termination of agreements whose amount represent an annual amount of 500,000 EUR whose duration exceed 12 months;

- any loan agreement entered into by the Company and any conclusion, amendment, waiver, renewal or extension of loans granted to the Company, which have not been taken into account in the annual budget and whose amount exceed 1,000,000 EUR;

- besides the provisions of article L. 225-35, al.4 of the French Commercial Code on the grant of security interests, endorsements and guaranties, the grant of any security interest or guarantee under French of foreign law, and any amendment or extension of any such security, for an amount or a value exceeding 500,000 EUR;

- the approval of the annual budget, business plan and their amendments or adjustments;

- the introduction by the Company of any judicial or administrative proceedings, the conclusion of a settlement of any claim against the Company, when the claimed amount exceeds 500,000 EUR.

3.2 Remuneration of the Managing Director and top management

The Remuneration and Nomination Committee examined the Executives Compensation 2014 Report issued by OD&M (GI Group) , and identified a number of recommendations to guide the preparation of the renewal of the mandates in the coming years. It also provided an opinion to the Chairman on remuneration issues utilizing as annual report the Executives Compensation 2014 Report issued by OD&M1 (GI Group) as a basis for its recommendations made to the Board of Directors on 25 February 2016. The analysis was particularly based on a benchmark approach, in accordance with the MiddleNext Code.

According to these recommendations, the Remuneration and Nomination Committee firstly analysed the cash compensation level for Managing Directors in listed companies in Italy, by sector, segment, market capitalization and revenues generated. The geographical choice has been mainly driven by a conservative approach, in particular by the fact that salaries in Italy are below the French standard and that the EPS management is resident in Italy.


In addition, the Remuneration and Nomination Committee analysed the mix between fixed cash compensation, short term cash incentives (STI) and

long term incentives (LTI) for Managing Directors and Executive Directors in listed companies in Italy.

The first outcome of the analysis performed by the Remuneration and Nomination Committee has been an evident inconsistency between the market practice and the EPS remuneration policy for executive directors and key managers, which does not contemplate any STI and LTI based on performance and to be paid in cash.

However, the Remuneration and Nomination Committee outlined two main reasons as logical rationale behind this inconsistency. The first reason is the fact that the cash LTI and STI have been replaced by a stock grant, in the form of a warrants and stock options plans with a minimal strike price, which in particular for the Managing Director accounts approximately 42% of the equity based incentive plan.

The second reason for that inconsistency is mainly driven by the fact that the remuneration level of the

Managing Director is well below the market standard for small caps with limited turnover.


In other terms, the analysis made by the Remuneration and Nomination Committee highlights that the absence of an LTI and STI plan cash based, is not a breach of the recommendation of the MiddleNext Code in terms of excessive fixed remuneration, but rather a lack in cash based on incentives for the Managing Director’s activity.

In the short term this peculiarity, in light of the early stage of development of the Group in terms of financial performance and the recent raise of new equity on the market, seems to be counterbalanced by a compelling equity based incentive plan. However, in the medium run the Remuneration and Nomination Committee identified the need to review the compensation policy of the Managing Director, Executive Director and Chief Operating Officer (“Executives”), particularly in terms of STI, LTI and equity based incentive plans.

At the same time, from the retention perspective, the Remuneration and Nomination Committee noted in Chart 3 (Compensation clusters) above that in absolute terms:

- Post graduates are paid in line with average listed companies (“ALC”);

- EPS key managers are paid better than middle-management positions (Quadri) in ALC; and

- EPS Executives are paid in line with top managers (Dirigenti) according to market practise but significantly less than roles with equivalent positions and responsibilities in ALC (see Table 6 below in terms of pay ratio only).

In respect to the equilibrium principle analysed by the Remuneration and Nomination Committee, in accordance with Recommendation 2 of the MiddleNext Code and further in compliance with the US Securities Exchange Commission Rule 2015-160 issued on 5 August 2015, the report outlined a good balance within the Group’s remuneration policy.

The analysis carried out by the Remuneration and Nomination Committee benchmarked the pay ratios with the average listed company – where the absolute remuneration values are significantly higher than small and mid cap companies – exclusively because of a better granularity in terms of data available for all top management functions.

The pay ratios assessed by the Remuneration and Nomination Committee outlined the Group’s remuneration policy balance compared to ALC. In particular, the report outlines the balance between:

• Managing Director pay versus:

- post graduate entry salary: 5.2 times vs. 36.5 times for ALC

- top executives (Executive Director and COO) level: 18% higher, in line with ALC

• top executives (Executive Director and COO) pay: 4.4 times the post graduate entry salary vs. 31 times for ALC, but 45% higher than other top management roles, significantly below the ALC level.

• Top management (Executive VPs and “Chief” roles): 3 times the post graduate entry salary vs. 17 times for ALC.


With reference in particular to the transparency principle mentioned in the MiddleNext Code, the Remuneration and Nomination Committee stressed the fact that the directorship agreements of the Executives, except for the remuneration, have exactly the same format, terms and conditions and comply in full with the recommendation of the Remuneration and Nomination Committee made to the Board of Directors on 26 November 2015 (the “Remco Guidelines”).

In particular, the Remco Guidelines, strictly in compliance with the MiddleNext Code, led the Board to:

- limit the pension and social security regimes of the Executives;

- exclude any severance indemnity (TFR) for the Executives;

- exclude any departure indemnity in case of leaver of the Executives without cause or their revocation for cause (bad leaver);

- limit benefits of the Executives to insurance policies and a company car with a monthly renting fee in line with traditional managerial positions (and not C-level positions);

- exclude any coupling between the corporate officer role (mandataire social) and any employment contract of the Executives; and

- exclude any other benefits in kind or particular benefits, except for traditional working tools and reimbursement of expenses.

In addition, in order to increase the stability of the management from the one hand, and implement an appropriate retention plan for the Executives from the other hand, the Remco Guidelines, as complied with by the Board in the approval of the directorship agreements, recommended a 1-year:

- prior notice for the Board to remove or revoke the Executives without cause; and/or

- prior notice for the Executives to resign without good reasons;

- compensation indemnity limited exclusively to the removal or revocation of the Executives without cause, or resignation of the Executives with good reasons (mainly due to a material breach of the obligations provided by the law or undertaken pursuant to the directorship agreement by the Group).

3.3 Role of the Executive Committee

The senior management of the Company is organized in the form of an Executive Committee which meets on a regular basis to discuss decisions to be taken by the management of the Company. Its composition may evolve depending on the evolution of the structure of the Company’s senior management and its functioning is not subject to the Board Rules.

To ensure a proper information flow between the Board members and the senior management, the Chairman of the Board is also a member of the Executive Committee. All Board members can attend the meetings and Vice Presidents and key managers of the Group are usually invited either as observers or to report on specific matters.

The Group's gradual transition from a product manufacturer of storage products to a provider of turn-key energy storage solutions has led to a realignment of responsibilities and change in the composition of the Executive Committee. As the date of this report, the Executive Committee is composed as follows:

- Massimo Prelz Oltramonti, independent Chairman;

- Carlalberto Guglielminotti, Managing Director;

- Giuseppe Artizzu, Executive Director;

- Paolo Bonetti, Chief Financial Officer;

- Michela Costa, Executive Vice President of Operations;

- Andrea Rossi, Chief Business Officer;

- Gabriele Marchegiani, Senior Vice President;


- Paolo Morandi, Chief Operating Officer;

- Daniele Rosati, Vice President Engineering;

- Nicola Vaninetti, Vice President Products and R&D;

- Ilaria Rosso, Chief Innovation Officer; and

- Emiliano Novo, Chief Technology Officer.

In his role as Managing Director, Carlalberto Guglielminotti is strongly supported by the Executive Committee. This Executive Committee is the place for the Managing Director, to exchange and discuss about the decisions to make in a serious and objective manner. This Executive Committee avoid the loneliness of the Managing Director.

The Executive Committee meets once a month, and is the linchpin of the management structure. It is responsible not only for discussing and developing strategies to be recommended to the Board of Directors, but also for monitoring implementation of these strategies once the Board has approved them. The Executive Committee tracks implementation of action plans, monitors business unit performance, and assesses the potential benefits of growth opportunities and the risks inherent in its business operations. It implements the strategy developed by the Board of Directors and the Chief Executive Director. It helps to shape strategy, coordinate and share initiatives and track cross-functional projects to ensure the alignment of action plans deployed by the Group companies.

3.4 Information provided to the Board of Directors

All necessary documents to inform the Board members about the agenda and any matters to be discussed by the Board are enclosed with the notice of meeting or sent, handed to or otherwise made available to them before every meeting with a reasonable advance.

Each Board member is required to ensure that he or she has all the information they deem essential for the Board and the Board special committees in order to properly perform their duties. If any information is not provided or if a Director believes that information may have been withheld, he or she should request it to be provided. Board members’ requests are submitted to the Chairman of the Board or to the Managing Director since the two positions are separated, who should ensure that Board members are able to fulfil their duties.

Before any meeting, all Board members also receive a complete Board Pack, which contains all useful as well as business-critical information about all events or transactions that are material to the Company. In addition, they receive copies of all press releases published by the Company.

Board members have been informed of the standard black-out periods for 2016, during which they may not trade in EPS shares or any instruments that have EPS shares as their underlying, either directly or through a third party. On 25th February 2016, the Board approved the Market Ethics Charter, which extended the duration of the standard black out periods to 30 days preceding the publication both of the annual/half year results and any quarterly result and states that Board members are considered as permanent insiders because they regularly receive price-sensitive and other confidential information. The full text of the Market Ethics Charter is available at the EPS website (www.electropowersystems.com ) in the section “Media & Investors” > “corporate governance”, under sub-section “Organizational and Management Model”.

Directors may, if they deem it necessary, receive additional training in the specifics of the Company, its business and its industry. Upon their appointment, the members of the Audit Committee are provided with specific details about the Company’s accounting, financial and operational practices.


4 INDEPENDENCE CRITERIA AND

COMMITTEES

Under the terms of article 15 of the By-Laws, the Board may decide to create specialized committees responsible for assisting it with its works.

On 6 March 2015, pursuant to article 11 of the Internal Regulations, two committees were established: an Audit Committee and a Remuneration and Nomination Committee. The composition, attributions and operating rules of such committees are described below.

4.1 Independence criteria of the members of the Board

Pursuant to the AMF recommendation 2013-20 issued on 18 November 2013, the annual report includes a summary table setting out changes in the Board of Directors’ membership during 2016, as well as the independent status of each Director as assessed using the independence criteria contained in the MiddleNext Code.

The Board does not have any member representing either employee Shareholders or employees in general, as the Company’s headcount is below the thresholds specified in articles L. 225-23 and L. 225-27-1 of the French Commercial Code that trigger the requirement for such Board members.

In accordance with the Board Rules, the Board ensures the presence of at least two independent Directors among the Board Members.

Currently, the term "independent Director" has no definition under French law. However, Internal Rules of the Board has set a definition which reflects the MiddleNext Code and which specifies that four criteria allow to justify the independence of Board members, which is characterized by the absence of significant financial, contractual or family ties which may impair the independence of judgment. These criteria are:

(i) not being an employee or corporate officer of the company or its group company, and not having been in the last three years;

(ii) not be a significant customer, supplier or banker of the company or its group or for which the company or its group represents a significant part of the activity;

(iii) not be a company's reference Shareholder;

(iv) not have close family ties with a corporate officer or a reference Shareholder; and/or

(v) not be an auditor of the company over the last three years.

Based on this definition, the Board of Directors, in accordance with the report of the Remuneration and Nomination Committee presented during the Board meeting held on 25 February 2016 (which debated and assessed these criteria) and published in the Annual Report, considers that three EPS Directors are independent. In particular, have been deemed independent:

- Massimo Prelz Oltramonti, Chairman of the Board;

- Emanuela Paola Banfi, Deputy Chairman of the Board;

- Sonia Levy Odier, Director.

As explained in paragraph 2.6 of this report, the Board of Directors has estimated that Massimo Prelz could be considered as an independent Board member.

However, to comply with the recommendations stated in the MiddleNext Code mentioned above, the Remuneration and Nomination Committee periodically provides the Board of Directors with a list of Directors considered independent under those criteria.

4.2 Audit Committee

(i) Membership

According to the Internal Rules, the Audit Committee is composed of at least three members. The members of the Audit Committee are designated from among the members of the Board and, as far as possible, two thirds of them are independent Directors.

The Audit Committee is chaired by Massimo Prelz Oltramonti and as at the date of this report is composed of three members (two of which are independent) as follows:

• Massimo Prelz Oltramonti;

• Sonia Levy-Odier; and

• Davide Peiretti .

All members of the Audit Committee have remarkable expertise in financial and/or accounting matters necessary for carrying out their duties and at least one of them have specific expertise in financial or accounting matters.

The duration of the mandates of the members of the Audit Committee coincides with that of their mandate as member of the Board of Directors. It may be renewed at the same time as this latter mandate.

(ii) Role and functioning


The Audit Committee assists the Board with its mission regarding the monitoring and preparation of the annual company and consolidated financial statements and of the information submitted to the Shareholders. It is also responsible for ensuring the monitoring of issues relating to the preparation for auditing of the accounting and financial information, as well as of the legal audit of the accounts.

The Audit Committee shall notably carry out the following tasks:

(a) monitoring the elaboration process for financial information;

(b) monitoring the effectiveness of internal controls, internal audits and risk management systems relating to financial and accounting information;

(c) monitoring the legal control of the Company and consolidated accounts by the statutory auditors of the Company; and

(d) monitoring the independence of the statutory auditors.

The Audit Committee shall also review the report by the Chairman of the Board of Directors on the functioning of the Board and of the internal audit, required by law.

In order to carry out its mission, the Audit Committee may consult the statutory auditors other than the Company representatives, the other Directors or the members of the finance department. The Audit Committee may also invite the statutory auditors to attend its meetings.

It may also consult the employees of the Group responsible for drawing up the accounts and internal controls, notably the Finance and Accounting Director.

The Audit Committee shall be able to consult external experts as required.

The Audit Committee, under the same conditions provided for the Board of Directors, may take valid decisions during its meetings, either physically or by means of teleconference or videoconference, provided that each meeting should be attended by at least half of the Committee’s members.

Notices of calling shall include an agenda and may be transmitted either verbally or by any other means.

The Audit Committee shall take its decisions with a majority of members having voting rights and taking part in the meeting, with each member holding one vote.

The Audit Committee shall meet as often as it is deemed necessary and in any event, at least twice a

year on the occasion of the preparation of the Company’s annual and half-yearly accounts. As far as it is possible, these meetings shall be held before the meetings of the Board of Directors called to approve the accounts and at least two days before these Board meetings.

The Audit Committee shall submit its conclusions, recommendations, proposals or opinions to the Board on a regular basis, in order to support the Board in taking its decisions.

In the event the Audit Committee, performing its duties, detects a significant risk, which have not been dealt with adequately, it shall alert the Board immediately.

(iii) Major accomplishment in 2016

The work of this committee is based on the recommendations of the AMF Audit Committee Working Group of June 14, 2010.

In 2016, the Audit Committee met 7 times (with a participation rate of 85.71%) and, in addition, single Audit Committee Members heard the Group’s Managing Director, Chief Financial Officer, the Group General Counsel, and the Statutory Auditors in dedicated meetings.

The following topics were discussed at these various meetings:

- financial statements: review of the financial statements for the first half 2016 and the results published for first and third quarter of 2016, and the financial statements for the financial year ended on 31 December 2016 (this examination was performed with sufficient time before the relevant meetings of the Board of Directors) and review of the related press releases;

- internal audit and internal control: monitoring of internal and external audits, Chairman’s Report on corporate governance and internal control, performance indicators, budget and review of activity of the internal audit, appointment of the new auditors of the Group;

- review of the main risks and the risk management process, particularly in light of the Organizational, Management and Control Model of the Group (please see paragraph 5);

- financing and fund raising strategy, particularly in light of the going concern and working capital impacts of the budget; and

- risk control: thematic reviews (protection of innovation and intellectual property, litigation risks and proceedings relating to public funding, group reorganization after the EPS S.r.l. and MCM acquisition, key supplier vulnerability, liquidity,


subsidiary counterparties, fraud across the Group), review of the Group’ s insurance policies.

4.3 Remuneration and Nomination Committee

(i) Membership

According to the Internal Rules, the Remuneration and Nomination Committee is composed of at least three members. The members of the Remuneration and Nomination Committee are designated from among the members of the Board and, as far as possible, two thirds of them are independent Directors.

The Remuneration and Nomination Committee is chaired by Massimo Prelz Oltramonti and as the date of this report is composed of three members (two of which) are independent, as follows:

• Massimo Prelz Oltramonti;

• Cesare Maifredi; and

• Sonia Levy-Odier .

The Remuneration and Nomination Committee members have been appointed in consideration of their independence and competences regarding selection and remuneration of listed companies’ representatives.

The mandate of the Remuneration and Nomination Committee members has the same duration of the mandate as Board members and may be renewed contextually.

(ii) Role and functioning

The Remuneration and Nomination Committee, in its capacity as “appointments committee” has the mission summarised below:

(a) examination and proposal to the Board of Directors concerning candidates for the position of Directors, of Managing Director, of deputy Managing Director, of Chairman of the Board of Directors, of members and of chairman of the Audit Committee.

In that respect, the Committee shall assess that the candidates have the competence, knowledge and experience required to be appointed for each position, considering the interests of the Shareholders. The Committee shall establish and update a succession plan for the members of the Board of Directors, the Managing Director and the principal Directors of the Group, in order to propose a prompt succession solution to the Board of Directors in the event of an unforeseen vacancy.

With regard to the appointment of the Board members, the Committee shall notably consider the following criteria:

(i) desirable balance in the composition of the Board of Directors with a view to the composition and evolution of the shareholding structure of the Company;

(ii) desirable number of independent Directors;

(iii) proportion of men and women required by current regulations;

(iv) opportunity for renewing mandate; and

(v) integrity, competence, experience and independence of each candidate.

The Remuneration and Nomination Committee shall also organise a meeting intended to select the future independent Directors and carry out its evaluation on the potential candidates before any selection.

When the Remuneration and Nomination Committee issues its recommendations, it shall insist on:

(a) the minimum number of independent Directors of the Board and of the specialised committees, in compliance with the principles of governance adopted by the Company.

(b) Annual assessment, on a case-by-case basis, of each Director situation with regard to the independence criteria listed in the internal regulations and submission of related opinions to the Board of Directors.

The Remuneration and Nomination Committee, in its capacity of “remuneration committee” shall notably carry out the missions summarised below:

(a) examination and proposal to the Board of Directors concerning the remuneration of the Directors, the Managing Director and deputy Managing Director of the Group.

(b) Provision of recommendations on the remuneration of the Directors. These recommendations on remuneration shall include fixed and variable remuneration, but also, as appropriate, the share purchase or subscription of warrants, the attributions of actions of performance, the pension and social security regimes, departure indemnities, benefits in kind or particular benefits and any other element of direct or indirect remuneration (also in the long term) which may constitute remuneration of the Directors.

The Committee shall be informed of the principal Group executives remuneration and of the remuneration policies implemented within the Group.

When the Remuneration and Nomination Committee issues its recommendations, it shall consider the principles of MiddleNext Code to which the Group adheres.


(c) Assessment of the amount of attendance fees and of their system of allocation among the Board members, as well as the reimbursement conditions related to any costs in which they have incurred.

(d) Ensuring the observance by the Company of its obligations regarding the remuneration transparency. On this point, it shall prepare an annual report on the remuneration, to the attention of the Board of Directors, and shall review the Company’s draft annual report on the remuneration of the Directors.

The Remuneration and Nomination Committee, under the same conditions provided for the Board of Directors, may take valid decisions both during a meeting and by telephone or videoconference, provided that each meeting should be attended by at least half of the Remuneration and Committee’s members.

Notices of calling shall include an agenda and may be transmitted verbally or by any other means.

The Remuneration and Nomination Committee takes its decisions with a majority of members having voting rights and attending the meetings, which take place at least twice a year. These meetings are preferably held before the meetings of the Board of Directors convened to set the Directors’ remuneration and to allocate the attendance fees.

The Remuneration and Nomination Committee shall submit its conclusions, recommendations, proposals or opinions to the Board on a regular basis, in order to support the Board in taking its decisions.

(iii) Major accomplishment in 2016

In 2016 the Remuneration and Nomination Committee met 7 times (with a participation rate of 100%), and the single members had a series of individual meetings with the Managing Director and the Executive Directors.

The following topics were discussed at these various meetings:

(a) confirmation of the Independent Director classification attributed to Mr. Massimo Prelz Oltramonti and Sonia Levy Odier, and attribution to Mrs. Emanuela Paola Banfi of the attribute of independence after a review conducted by Remuneration and Nomination Committee reported to the Board of Directors held on 25 February 2016 (see paragraph 4.1);

(b) examination of the Executives Compensation 2014 Report issued by OD&M (GI Group), from which the Committee has identified the

need to review in the medium term the recommendations related to the Managing Director, Executive Director and Chief Operating Officer compensation policy and consequent recommendations to the Board of Directors during the meeting held on 25 February 2016;

(c) review of the Group’s draft annual report on the remuneration of the Directors;

(d) review of directorship agreements, related benefits and retention plans for the management team;

(e) examination of the proposals made by the Managing Director on the appointment of key managers;

(f) review of any proposal submitted to the Board in order to allocate new Options and Warrants to the management team, Directors and employees. More precisely, the Remuneration and Nomination Committee made recommendations to the Board regarding Options and Warrants allocation, executive incentive programs and compensation packages with no performance conditions (in compliance with the MiddleNext Code, please see paragraph 2.6);

(g) proposal of the amount of attendance fees and of their system of allocation among the Board members, as well as the reimbursement conditions related to any costs in which they have incurred;

(h) annual assessment of the Board of Directors, performed on a case-by-case basis, through a questionnaire fulfilled by the non-executive Directors. The Committee reviewed the answers given by the Board members, taking note of the overall positive feedback and focusing on the negative comments or evaluations and made recommendations to the Board about the areas of improvement.


5 INTERNAL CONTROL AND RISK

MANAGEMENT PROCEDURES

The Company has implemented internal control and risk management procedures in large part based on the guidelines established by the Italian Legislative Decree No. 231 of 8th June 2001, as amended from time to time (“Decree 231”), considering that the major operational subsidiary of the Group, EPS S.r.l., is based in Italy. The principles set forth in Decree 231 reflects in part those provided for under the 2007 AMF guidelines, updated in the document entitled “Cadre de reference sur les dispositifs de gestion des risques et de controle interne: guide de mise en œuvre pour les valeurs moyennes et petites”, dated July 22, 2010, concerning risk management and internal control reference guidelines for small and mid-cap companies (“AMF Risk Management Guidelines”).

The Company’s aims are:

- create and preserve values, activities and reputation of the Company;

- assure that the decision-making processes and the operational processes contribute to the achievement of the Company’s goals;

- promote actions compliant with the Company’s values;

- engage employees with the main risks and raise them awareness of the specific risks of their activities.

To face internal and external risks the Company has established an organization and implemented policies intended to identify, evaluate and prevent these risks in order to limit any adverse impact, which are intended to ensure:

- compliance with laws and regulations; - the application of Group policies; - the effectiveness of the Company’s internal

processes, especially those concerning he safeguarding of its assets; and

- reliability of the financial information;

Generally, internal control and risk management procedures contributes to the control of the Company’s business, the effectiveness of its operations and the efficient use of its resources.

Since the majority of the activities of the Group are performed in Italy, in compliance with Decree 231, EPS S.r.l. adopted a new Organizational, Management and Control Model (the “Model”), approved on 8 February 2017 by the Board of Directors’. Such Model integrates the new Group business model and procedures, in order to comply with the AMF Risk Management Guidelines and the specific aspects of the Group business model.

The Model will be subject to further updates and integrations in light of the legislative and regulatory changes or Company’s developments.

The Group Companies adopted also a Code of Ethics, which is an integral and substantial part of the Model (the “Ethic Code” or “Ethical, Anti Fraud and Corruption Code of Conduct”).

Both the Model and the Code of Ethics are published on EPS website, in the section “Media & Investors” > “corporate governance”, under sub-section “Organizational and Management Model”.

The Company and all the Group Companies are compliant with all the principles and guidelines set forth in the Model and the Code of Ethics, which can be considered the basis of the Group’s conduct.

The Model, which is compliant with the guidelines drawn up by trade associations and with the corporate governance best practices, is composed by a “General Part”, including a comprehensive framework for the organization, management and control of the Company, and a “Special Part”, attaining to different kinds of breaches, violations and potential criminal offences and misbehaviours to be prevented.

The purpose of the Model, in addition to the design of a comprehensive framework for the organization, management and control of the Company, is to prevent the commission – in the interest or to the benefit of the Group – from committing certain offences, by individuals who are:

• representatives, Directors or managers of the Company or of one of its organizational units that have financial and functional independence, or by individuals who are responsible for managing or controlling the Company (individuals in top management positions or "apicals"); or

• managed or supervised by an individual in an apical position (individuals under the management and control of others).

The general part of the Model is divided into the following chapters:

1) "The Legislative Decree 8 June 2001, n. 231", a general overview of the regulation;

2) “The Company EPS Elvi Energy S.r.l.”, describing the Company’s structure;

3) “Adoption of the Model by EPS”, concerning the aims, methodology and structure of the Model, as well as the recipients and the implementation and updating program;


4) “The Supervisory Body”, describing its functions and powers as well as the information flows to and from the structure itself;

5) “Disciplinary system and measures in case of breach of the Model”, which contains the definition of sanctions imposed in case of violation of Model;

6) “Diffusion of the Model and training”, with the identification of the recipients of the Model, the definition of the principles and rules for the extension of it and the communication of the same to the staff and the market, including the adoption of contractual clauses for any relations with third parties

The special part covers the risk analysis, the control system and the specific procedures and illustrates in detail all the crimes to be prevented by the Company

5.1 Risk analysis and system of internal control

The identification of business activities which may entail the risk of committing breaches underlying corporate liability pursuant to Decree 231 (hereinafter, the "Sensitive Activities") is achieved through the detailed analysis of business processes and the possible ways of commission illustrated in the special part of the Model.

Each Sensitive Activity is associated with a specific reference person for any individual corporate process (Key Officer), as well as existing operational and management conditions, and existing control factors.

A comparative analysis is then carried out between the existing internal control system and the principles and contents of the Model (in particular control tools).

The internal control system implemented by the Company is a set of rules, procedures and instruments prepared and/or implemented by the management to ensure the achievement of efficiency of business operations, reliability of financial information, compliance with laws and regulations and protection of the Company’s assets.

The main elements of the risk analysis carried out regularly within the framework of the internal control system implemented by the Company are:

(a) Control of the management attitudes:

It reflects the attitudes and actions of top management with reference to internal control within the organization. Such control includes the following elements:

• integrity and ethical values;

• management philosophy and style;

• organizational structure;

• assignment of authorities and responsibilities;

• personnel policies and practices; and

• personnel’s skills.

(b) Risk Assessment:

Definition of processes aimed at identifying and managing the most relevant risks that may prevent the achievement of corporate goals.

(c) Information and communication:

Definition of an information system (computer system, reporting flow, system of process/activity indicators) enabling both upper management and operational staff to perform the tasks assigned to them.

(d) Control activity:

Definition of corporate regulations ensuring an organized management of risks and corporate processes, and allowing to achieve set objectives.

(e) Monitoring:

Such process checks the quality and results of the internal controls over time.

The above-mentioned components of the system of internal control are considered for the analysis of the risks outlined under Decree 231.

In particular, the analysis activity is focused on (i) identifying the Sensitive Activities of the Company which may potentially lead to the commission of the violations provided for by Decree 231 and whose potential methods of commission have been previously identified, (ii) detecting appropriate control standards to prevent the commission.

The aim of such activity is to ensure the maintenance and the updating of the identification of risk area, as well as the mapping and classification of significant business activities subject to risk, even for the purposes of supervisory activities.

5.2 Supervisory Body

EPS S.r.l. appointed a Supervisory Body, which defines and carries out its duties in accordance with the rule of collective operating process and is entrusted with "independent powers of initiatives and control", pursuant to article 6, paragraph 1, letter b) of Decree 231 (“Supervisory Body” or “Surveillance Committee”). The Supervisory Body performs its duties under its set of rules.

The Supervisory Body’s autonomy and independence are guaranteed by its position within the organizational structure of the Company, as well as by the necessary requisites of independence, good reputation and professionalism of its members


The Supervisory Body is supported by and liaise regularly with the Human Resources department and

the management team, as well as with the Audit Committee and Statutory Auditors.

* Non-operational geographical legal entities (India and USA) are not included in this representation. Surveillance Committee has been appointed exclusively for EPS S.r.l., whereas the Statutory Auditors have been appointed for all the Italian subsidiaries, even though it is not required by law.

5.3 Recipients of the Model and diffusion thereof

The principles and contents of the Model are widely publicized both inside and outside the Group.

The Supervisory Body monitors the initiatives aimed at promoting communication and training regarding the Model.

The principles and contents of the Model concern the members of corporate bodies and management, the employees as well as the business partners who work in Italy or abroad for the achievement of the Company’s objectives.

Communication and staff training are important requirements for the effectiveness of the Model. The Company undertakes to facilitate and promote the knowledge of the Model to the management and the employees, with trainings shaped on the different positions and roles, encouraging the active participation in them for the diffusion of the Model principles and contents.

Each member of the Board of Directors is also personally committed to comply with the provisions contained in the Model, adopted or updated by means of a Board resolution.

The Directors that have not participated in the decision concerning the adoption or update of the Model sign a declaration of knowledge and adherence to its principles and contents. Such declaration is filed and kept by the Supervisory Body.

The Model is communicated to all the executives and the heads of organizational units, but also to employees and blue collars workers.

The principles and contents of Decree 231, AMF Risk Management Guidelines and Model are also explained in training courses and dedicated EPS Academy sessions (please see Environmental and Social Responsibility Report). Attendance to the courses is mandatory.

Structure of the training courses is approved by the Supervisory Body upon proposal of the relevant Company departments.

(i) Training and communication for managers, employees and blue collar workers (including heads of units, line and staff functions)

The Model is published on EPS website and notified to each employee. Dedicated training initiatives are also organized for managers, employees and blue collar workers (including heads of units, line and staff functions), subject in each case to the mandatory participation in training initiatives related to the Code of Ethics.

(ii) Training and communication by means of Information Technology tools

The Model is available to all employees on the Company’s Intranet site and it is also available to all users - even non-employees - on the website of EPS. The dedicated training and information initiatives may also be performed remotely and through the use of IT resources. In 2017 the Company will set the majority of the training courses via dedicated webinars.

(iii) Communication to third parties and the market


In accordance with the regulations contained in the Group Code of Ethics, the principles and contents of the Model are brought to the attention of all those with whom EPS maintains contractual relationships. The commitment to the observance of the law and principles of the Model by the third parties that have a contractual relationship with the Group is provided by a clause in the relevant contract and it is subject to its acceptance by the third party contractor.

he standard clause which is mandatorily inserted in any contract or agreement with any counterparty of the Group is reported below:

“The Company is committed to the highest standards of ethics, honesty, openness and accountability. It is crucial that the Company takes all necessary steps to protect the reputation of the Company and the value of the Company brand. As an organization, the Company takes a zero-tolerance approach to any form of corruption: in the course of business activities the Company does not endorse any form of fraud or corruption from either its own staff or those acting on its behalf.

The Company fully endorses all applicable anti-bribery, fraud, corruption, and money-laundering legislation. The Company and its Supervisory Committee (Organismo di Vigilanza) provide ongoing bribery awareness training to employees and have developed proportionate procedures across all its areas of operations to ensure that bribery and corruption risks are minimized and eliminated where possible.

This commitment is reflected in the key principles contained within the Ethical, Anti Fraud and Corruption Code of Conduct approved by the Company, which the Company expects all its staff and those acting on its behalf to understand and comply with.

In this respect, the Partner agrees to – and undertakes to fulfil any provision of – the Ethical, Anti Fraud and Corruption Code of Conduct approved by the Company and therefore agree, inter alia, to perform its activities under this agreement in the full respect of business, corporate and professional ethics, preventing the Company from any relationship, agreement or role that may negatively affect its reputation, values and commitment to the highest standards of ethics, honesty, openness and accountability.

In that respect, and without prejudice to the above, any payment to be made by EPS to the Partner or any of its affiliated companies shall be made in compliance with any applicable anti-money laundering regulation from time to time.

Furthermore, the shares of Electro Power Systems S.A. are listed on the regulated market of Euronext in Paris. In this context, compliance by the Partner with rules applicable to stock transactions and the holding and use of material non-public information it may receive in the course of its activities under this Agreement is crucial for the Company. Such rules mainly stem from Articles 621-2 to 622-2 of the General Regulation of the French Autorité des Marchés Financiers (AMF) and Articles L. 465-1 et seq. of the French Monetary and Financial Code.

The Company aims at respecting and enforcing the applicable legislation in terms of securities law and the principles and applicable regulations and the recommendations of the market authorities on to the holding, the disclosure or the use of material non-public information.

It should be noted that the Partner may also be concerned by similar rules and/or those applicable in the countries it is present or it conducts its activities. In any event, it is the responsibility of each Partner to ensure compliance with the different laws that could apply to its situation”.

In this regard, internal regulations define standard clauses that, depending on the activity governed by the contract, bind the counter-parties to comply with the Model, also providing appropriate contractual remedies (such as the right to early terminate and/or suspend performance of the contract and/or penalty clauses) in case of non-compliance.

(iv) Functions, powers and budget of the Supervisory Body

The tasks of the Supervisory Body are defined as follows:

(a) supervision on effectiveness of the Model (including the Code of Ethics) and monitoring of the Model implementation and updating activities;

(b) review of the adequacy of the Model, i.e. its real (and not merely formal) effectiveness in preventing unlawful conduct pursuant to Decree 231;

(c) analysis of the maintenance, over time, of the accuracy and functionality of the Model;

(d) promotion of the necessary updating of the Model, based on a dynamic approach;

(e) approval of the annual schedule of supervisory activities within the Company’s structures and departments (the "Audit Plan"), in compliance with the principles and contents of the Model as well as with the internal control system plan;

(f) coordination between the implementation of the Audit Plan and of the scheduled or unscheduled control inspections; examination of the results of the


activities carried out and relevant reports; drawing up of directives and guidelines for Company departments;

(g) assurance of relevant information flows to the Company departments;

(h) any other task assigned according to the law or to the Model.

In carrying out its duties, the Supervisory Body has unrestricted access to corporate information for their own investigations, analysis and monitoring which are performed directly, through competent units of the internal audit function, other internal corporate functions or professionals/third-party companies. Any Company department, employee and/or member of the Company’s bodies is subject to the obligation to disclose any information to the Supervisory Body upon request or in case of relevant events or circumstances.

The Supervisory Body can arrange meetings, even on a periodical basis, with the heads of the departments of the Company, for purposes of being informed on issues, events or circumstances that are relevant for carrying out its activities and exchange related data and assessments.

The Supervisory Body is granted with:

• the faculty – with autonomous representation powers - to enter into, modify and/or terminate professional engagements - by means of the relevant business units - with third parties having the specific expertise necessary for the best execution of the task concerned; and

• the availability of the financial resources necessary for the performance of the activities falling within the field of competence of the Supervisory Body, with the obligation to inform the Board of Directors.

(v) Risk analysis and system of internal control: information flows from the Supervisory Body towards the upper management

The Supervisory Body reports on the implementation of the Model and on possible critical aspects emerged, and communicates the result of the activities carried out while performing its tasks. The lines of reporting are the following:

(a) continuous reporting line, towards the Managing Director, who informs the Board of Directors through the information notes regarding the implementation of the delegations granted;

(b) yearly, to the Chairman, the Audit Committee and the Statutory Auditors; in this regard there is a semi-annual meeting on the activities carried out, illustrating the outcome of the supervisory activities carried out and the eventual legislative amendments

related to administrative liability of entities; in such event, meetings may be organized with the Chairman, the Audit Committee and the Statutory Auditors to discuss the topics covered in the report and any additional issues of common interest;

(c) yearly, to the attention of the Board of Directors; the Supervisory Body prepares an annual report, signed by all its members, disclosing the following elements:

• a description of the main activities carried out during the previous year;

• the Board’s overall assessment of the implementation and effectiveness of the Model, including any suggestions for its integration, correction, or amendment;

• any problems with regard to the implementation of the Model; and

• any action plans implemented and that will be implement;

(d) immediate reporting line, in case of ascertained facts of special importance and significance, towards the Audit Committee and the Statutory Auditors, after informing the Chairman and the Managing Director.

(vi) Information flows towards and for the benefit of the Supervisory Body: required information

The Supervisory Body shall be informed by the parties that are required to comply with the Model about any events that may entail a responsibility of the Company pursuant to Decree 231.

Each Group Company is subject to the information flow towards the Supervisory Body. In this regard:

• the Executive Vice President or head of business unit shall provide to the Supervisory Body a report in case of breach of the Model or of the Code of Ethics;

• the manager in charge of drawing up the Company’s accounting documents shall inform the the Supervisory Body on the results of of the audits carried out on the management of financial resources;

• each manager or employee shall report any behaviours which are not in line with the principles and contents of the Model, contacting the Supervisory Body;

• consultants, collaborators and business partners shall report on their activity carried out for the Company directly to the Supervisory Body upon request.

The Supervisory Body shall evaluate the reports received and the actions to be taken.


The reporting parties in good faith are protected against any form of retaliation, discrimination or penalization. In any case confidentiality on their identity shall be ensured, without prejudice to the obligations under the law applicable and the protection of the rights of the Group or of the individuals wrongly accused/accused in bad faith.

“Dedicated Information Channels” are established in order to facilitate the communication and information flow. In particular, each information flow may be addressed to: [email protected].

It is anyhow possible for the Supervisory Body to establish at any time, even on a periodical basis, information channels dedicated to the discussion of important issues with the heads of the relevant functions and business units.

5.4 Function of the disciplinary system

The sanctions (which shall be proportional to the violation committed), that are applicable in case of violation of the Model, are designed to contribute to: (i) the effectiveness of the Model, and (ii) the effectiveness of the control process carried out by the Supervisory Body.

For this purpose, it is established a disciplinary system in order to punish the non compliance to the prescriptions contained in the Model, applicable both to individuals in apical positions and individuals subject to the management and control of the former. The disciplinary system is applied independently from the development and results of any possible criminal procedure carried out by the relevant judicial authorities.

The Supervisory Body reports any violation of the Model to the relevant departments, and monitors, along with the General Counsel and the management, the application of the disciplinary measures.

5.5 Structure of control tools

The tools aimed at preventing the risk referred to in Decree 231 and supporting compliance with the Code of Ethics, are structured on two control levels:

1) general standards of transparency of the activities, which must always be present in all Sensitive Activities illustrated in the Model; and

2) specific control standards, which contain special provisions designed to regulate specific aspects of Sensitive Activities and that must be contained in the Company applicable regulatory instruments. Such instruments include the reference to the Model, as standard reference.

5.6 Rules for updating the Model

Because of the complexity of the organizational structure of the Group and of the Model, the update of the Model is based on an innovation implementation program proposed by the Supervisory Committee and approved by the Board of Directors.

5.7 General standards of transparency and activities carried out

General standards of transparency of Sensitive Activities pursuant to the Model are:

a) Segregation of duties: there must be segregation of duties between executing parties, controlling parties and authorizing parties. In that respect, (i) the role of the Chairman has been separated from the role of the Managing Director and CEO, (ii) two technical committees have been created within the Board of the Company and (iii) independent Statutory Auditors have been appointed for each Company of the Group;

b) Regulations: Company regulations should provide at least general reference principles to monitor the Sensitive Activities. In this respect, the Model and the Code of Ethics, along with the Market Ethics Charter are parts of such regulations;

c) Powers of signature and authorization: formal rules should be implemented to exercise powers of signature and internal powers of authorization and to ensure that the assignment of the aforementioned powers is in line with the organizational responsibilities assigned;

d) Traceability: the parties or departments concerned and/or the information system used should ensure the identification and traceability of sources, of information and of the checks carried out supporting the adoption and implementation of Company’s decisions, as well as financial resources management modalities. In that respect, a new ERP (Enterprise Resource Planning) has been implemented in 2016.

General standards of transparency are introduced by the competent functions within the internal regulatory instruments relating to Sensitive Activities. These regulatory instruments are communicated and diffused by the relevant functions in accordance with the laws and contracts and bind the management and employees to their observance.


5.8 Internal control procedures relating to the preparation and processing of accounting and financial information

The accounting and financial function is managed in-house by a team of five persons, including an Administrative and Financial Director. General and local accounting, along with consolidated accounting, is done in-house and reviewed by locally qualified chartered accountants. The tax review and payroll management is conducted by external qualified consultants in each jurisdiction.

The scope of consolidation comprises the French Company and its subsidiaries. The consolidation of the accounts is carried out by the Administrative and Finance Department on a half-year basis. The Company is formalizing further accounting procedures, which thanks to the new ERP (please see 5.7(d) above) will be based on a monthly reporting (a light reporting, consisting of commercial and projects data) and a quarterly reporting format (a more completed economic and financial reporting).

The aims of consolidation procedures are to:

- guarantee compliance with the applicable rules (group policies, AMF Risk Management Guidelines, etc.) through the implementation of general procedures and the issuance of specific consolidation instructions to the various entities;

- provide assurance concerning the reliability of financial information, through the execution of controls provided for by the system; and

- guarantee data integrity through high level security systems (please see a detailed description of the new system security implemented in the Registration Document).

Each Group Company will have an annual budget. The budgeting process and consolidation procedures will enable the Company to constantly monitor the performance of the various units and to swiftly identify any variances from the budget in order to carry out immediate corrective actions.

Notwithstanding the fact that the Group Companies’ accounting is currently done in-house, each subsidiary can consider the opportunity to outsource some functions to optimize financial information flows.

The Auditors of the Group at the end of the first half conduct a limited review of the interim financial statements and at the end of the fiscal year certify the reliability of the year financial statements. The accounts of all Group subsidiaries will be audited by independent Auditors.

A review of the quarterly, half and year results is also conducted by the Audit Committee before their submittal to the Board for their approval.

5.9 Statutory Auditors

EPS Group’s approval of half and year financial statements are certified by the Auditors with a specific report.

The Auditors can identify, during their mandate, either risks or lacks that could have an impact on the financial accounts and monitor:

• the administrative and accounting system and the reliability of the latter in accurately representing operations;

• full compliance with legal reporting requirements;

• that the annual financial statements shows a true and fair view of the Company’s financial situation.


6 PARTICIPATION TO THE SHAREHOLDERS'

MEETINGS

All holders of ordinary shares are entitled to attend the Shareholders’ Meetings, regardless of the number of shares they own, provided that such shares have been paid up to the extent called.

The rights of Shareholders to be represented by proxy and to participate in the vote are exercised in accordance with the relevant laws and regulations. The Company’s bylaws do not contain any restrictions on the exercise of these rights.

The By-Laws (Chapter 4 – Shareholders’ Meetings) include the following provisions concerning the organization of the Shareholders’ Meetings, its main powers and the rights of the Shareholders, which are in compliance with the law.

6.1 Art. 21 of the By-Laws: Shareholders’ Meetings

“Shareholders’ meetings are called and held in accordance with the conditions, procedure and time limits provided by law. The meetings are held at the registered office or in any other location in or outside of France, indicated in the meeting notice.

The agenda of the shareholders’ meeting shall appear in the notices and letters of meeting; it shall be determined by the author of the notice.

The shareholders’ meeting may only consider those matters indicated in the agenda, it may nevertheless under any circumstances dismiss and replace one or several directors.

One or several shareholders representing at least the proportion of the share capital provided by law, and acting in accordance with the legal procedure and time limits, shall have the right to request the mention on the agenda of draft resolutions.

Shareholders shall have the right to attend meetings and take part in the deliberations in person or by proxy.

The right to participate in meetings is subject to the shareholder’s registration in the Company accounts at least two business days before the meeting.

Upon decision of the Board of Directors published in the notice of meeting or calling to use such method of telecommunications, shareholders who (which) participate in meetings via videoconference or by other means of telecommunications and electronic transmission, including internet, which enable their identification in accordance with the conditions provided by applicable laws, shall be deemed to be present for the calculation of the quorum and majority.

Every shareholder may vote by correspondence or give a proxy in accordance with applicable laws, using a form prepared by the Company and addressed to the latter in accordance with the conditions provided by applicable laws, including by electronic or remote transmission, on decision of the Board of Directors. This form must be received by the Company in accordance with the conditions provided by applicable laws in order to be enforceable on the Company.

An attendance sheet shall be kept for each meeting to record the information required by law.

Meetings shall be chaired by the Chairman or by the director specially appointed by the Board of Directors if the Chairman is absent or lacking. In the absence of the person authorised or appointed to chair the meeting, the shareholders’ meeting shall appoint its own Chairman.

The duties of scrutineers shall be performed by the two shareholders, present and consenting to carry these duties, and who (which) on their own account and as proxies, hold the greatest number of votes.

The committee of the meeting so formed shall appoint a secretary, who needs not be a shareholder.

The members of the committee of the meeting shall have the duty to check, certify and sign the attendance sheet, ensure that discussions are conducted properly, settle any incidents occurring during the meeting, monitor the votes cast and ensure they have been properly cast and finally establish the minutes.

Copies and excerpts of the minutes of the General Meeting shall be certified and issued as required by applicable laws”.

6.2 Art. 22 of the By-Laws: deliberations and powers of the Shareholders’ Meetings

“Shareholders’ meetings having a quorum and the majority required for extraordinary and ordinary shareholders’ meetings exercise powers conferred onto them by law.

Shareholders’ meetings, may not however, increase shareholders’ undertakings, subject to transactions resulting from a consolidation of shares properly conducted, nor undermine their equal rights, except if agreed by all shareholders”.


7 ADDITIONAL INFORMATION ON THE

BOARD OF DIRECTORS

7.1 Absence of conflicts of interests

To the Company’s knowledge, and except as provided under paragraph 14.2 of the Registration Document:

(i) except for the role of Davide Peiretti and his position as executive of Prima Electro S.p.A. outlined in this Report and in the Registration Document as well as renewed on 25 February 2016 to the Board of Directors, there are no potential conflicts of interest between the duties, with regard to EPS, and the private interests and/or other duties with regard to third parties, of any of the members of the Board. To this end, the Internal Rules provides under Article 18 that Directors have an obligation to inform the Board of any conflict of interest, even potential, and must refrain from participating in the deliberations related thereto; and

(ii) no member of the Board or any Managing Director or Executive Director has a service contract with EPS or any of its subsidiaries providing for the award of benefits at the end of such contract.

7.2 Absence of convictions or official sanctions, or disqualification decision

The members of the Board of Directors currently in office have indicated to the Company that they have never been convicted, have not been associated to any bankruptcy proceedings, liquidation proceedings or any similar proceedings, have not been subject to any public sanction or any disqualification decision, as provided for under section 14.1 of Annex I of the EC Rule n°809/2004 dated 29 April 2004.

7.3 Information referred to under article L. 225-100-3 of the French Commercial Code

Pursuant to article L. 225-100-3 of the French Commercial Code, the following elements may be potentially relevant in the event of a public offer:

• Structure of the Company’s share capital

The Company’s share capital’s structure is presented under paragraph [18.1] of the Registration Document.

• Restrictions provided for under the bylaws related to the voting rights and share transfers – provisions of agreements brought to the Company’s knowledge pursuant to article L. 233-11 of the French Commercial Code

The By-Laws do not provide for any restriction related to the voting rights or the share transfers. No provision referred to under article L. 225-100-3, 2° of

the French Commercial Code has been disclosed to the Company. The Company, pursuant to articles L. 233-7 and L. 233-13 of the French Commercial Code (crossing of thresholds and treasury shares) has knowledge of direct and indirect shareholdings.

The Company’s share capital’s structure is presented under paragraph [18.1] of the Registration Document.

• List of holders of shares to which are attached specific control rights

There are no specific control rights attached to the shares issued by the Company.

• Control mechanism provided for in employees’ shareholding system

The Company has not set up any profit sharing plan or participation agreement.

• Shareholders’ agreements brought to the Company’s knowledge and including restrictions on share transfers and the exercise of voting rights

To the Company’s knowledge, there are no Shareholders’ agreements between the Shareholders of the Company.

• Rules applicable to the appointment and replacement of the members of the Board of Directors and to the amendment of the bylaws

There are no specific rules in the By-Laws or in any other agreement entered into between the Company and another entity regarding the appointment and replacement of the members of the Board of Directors and the amendment of the By-Laws which will be relevant in the event of a public offer.

• Powers of the Board of Directors in the event of a public offer

The delegations granted by the Shareholders’ meetings to the Board of Directors which are still ongoing are detailed in paragraph [21.1.5] of the Registration Document.

• Agreements entered into by the Company which may be amended or terminated in the event of a change of control, and Agreements entered into by the Company which provide for specific indemnities to be granted to the members of the Board of Directors or to employees, if they resign or are dismissed without good cause, or if their position is terminated because of a public offer

There are no agreements entered into by the Company which fall in the category referred to under article L. 225-100-3, 9° and 10° of the French Commercial Code.

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