LEGAL PROVISIONS ON BONDS ISSUED BY NON-LISTED COMPANIES

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1 September 2013 LEGAL PROVISIONS ON BONDS ISSUED BY NON-LISTED COMPANIES In 2012, the Italian government put forward a legislative proposal with the aim of rendering the corporate bond market an effective source of financing alternative to traditional bank funding for Italian non-listed companies. Such proposal was implemented with Law Decree No. 83 of 22 June 2012, converted into Law No. 134 of 7 August 2012, as amended by Law Decree No. 179 of 18 October 2012, converted into Law No. 221 of 17 December 2012 (collectively, the Decreto per la crescita, hereinafter the Growth Decree ). The new legal framework applicable to bonds issued by companies whose equity shares are not listed (the so-called Mini- Bonds ) is aimed at removing certain unfavourable features of civil and tax law rules which have, so far, rendered de facto unfeasible to companies whose equity shares are not listed the issue of bonds. In particular, Article 32 of the Growth Decree: amended Article 2412 of the Italian Civil Code, providing that the amount of bonds that a joint stock company (società per azioni) can issue is unlimited where the bonds (a) are convertible into common equity of the issuer or, alternatively, (b) if not convertible, are intended to be listed on either a regulated market or a multilateral trading facilities ( MTFs ) within the EU; allowed companies whose shares are not listed on a regulated market to issue bonds with a profit sharing clause (even in the form of subordinated participating bonds); amended Article 1 of Legislative Decree No. 239 of 1 April 1996 (the Decree 239/1996 ) providing that payments to the holders of bonds issued by companies whose shares are not traded on a regulated market shall benefit from the same tax treatment applicable to bonds issued by banks and listed companies, to the extent that such bonds are listed on a regulated market or a MTF of an EU member State or of States part to the Agreement on the European Economic Area and included in the list provided for under Article 168-bis (so called white list ) of the Italian Income Tax Code ( ITC ) (a Qualified Regulated Market and a Qualified MTF, respectively); removed certain limitations to interest payments deductibility also with respect to bonds issued by non-listed companies (and not only to bonds issued by banks and listed companies as it was the case before). Such benefit in terms of interest payment deductibility applies in so far as the bonds (a) are either listed on a Qualified Regulated Market or a Qualified MTF or (b) where not so listed, are held by qualified investors, under the meaning of Article 100 TUF (as defined below) not owning, either directly or indirectly, more than 2% of the issuer s share capital or equity, and the beneficiary of the payments under the bonds is resident either in Italy or in a white-list country. The following outlines in greater detail the rules set forth in Article 32 of the Growth Decree in relation to the issue of bonds

2 by non-listed companies. 1. Issue of bonds by non-listed companies Companies falling within the scope of Article 32 Legal provisions set forth in Article 32 of the Growth Decree apply to companies, other than banks and micro-sized enterprises (1), whose shares are not listed on EU regulated markets or MTFs (the Non-listed Companies ). The Non-listed Companies category includes companies falling within one of the following definitions: (ii) (iii) small-sized enterprises: this category includes enterprises which (a) employ fewer than 50 persons and (b) have an annual turnover and/or an annual balance sheet total not exceeding 10 million; medium-sized enterprises: this category includes enterprises other than small-sized enterprises which (a) employ fewer than 250 persons and (b) have an annual turnover not exceeding 50 million and/or an annual balance sheet total not exceeding 43 million; and Non-listed Companies other than those referred to under and (ii) above: this residual category includes large commercial and industrial Non-listed Companies, other than small and medium-sized enterprises (based on the aforesaid quantitative criteria). Exceptions from the limits to the issuance of bonds pursuant to Article 2412, Paragraph 5 of the Italian Civil Code By amending Paragraph 5 of Article 2412 of the Italian Civil Code ( Paragraph 5 ) Article 32 (last Paragraph) derogates and widens the limits of the issue of bonds by joint-stock companies (società per azioni) set forth under: (ii) Paragraph 1 of Article 2412 of the Italian Civil Code which lays down the maximum aggregate amount of allowed bonds issuances (i.e., twice the sum of the share capital, legal reserves and available reserves); and Paragraph 2 of Article 2412 of the Italian Civil Code which sets forth the possibility to exceed the above mentioned limit if the bonds are placed with professional investors subject to prudential supervision which remain liable for the issuer s solvency in the case of subsequent re-sale to non-professional investors. In accordance with new Paragraph 5 of Article 2412 of the Italian Civil Code, the above mentioned limits shall not apply (also to Non-listed Companies) in the two following cases: (1) non-convertible bonds intended to be listed on either a EU regulated market or a EU MTF; or (2) convertible bonds which entitle the holder to purchase or subscribe for the issuer s common equity. As a consequence, in order to exceed the limits on bond issuances, it is sufficient that the bonds are listed on either a EU regulated market or an EU MTF. Participating bonds Article 32, Paragraph 19 of the Growth Decree allows Non-listed Companies to issue bonds and similar securities with a profit sharing clause. Such securities are different from those referred to in Article 2411, Paragraph 2 of the Italian Civil Code which bear interest ( 1 ) According to recommendation 2003/361/EC issued by the European Commission on 6 May 2003, Micro-sized enterprises are enterprises which employ fewer than 10 persons and (ii) which have an annual turnover and/or annual balance sheet total not exceeding 2 million.

3 linked to, among other things, the issuer s economic trend and thus ascribe to bondholders the right to receive periodical payments simply related to, or calculated on the basis of, the issuer s net profit. Vice versa, participating bonds bear a floating remuneration related to the issuer s economic result, thus entitling their holders to directly share a portion of the issuer s net profits. This characteristic seems to be per se suitable to cause participating bonds to fall outside the scope of application of Article 2411, Paragraph 2, of the Italian Civil Code which expressly refers to the interest indexation and seemed to exclude, before the Growth Decree, that bondholders could directly share any other forms of floating remuneration of capital, including the issuer s net profits. The other main characteristics of participating bonds are: - their initial maturity shall be equal to, or longer than, 3 years (36 months, using the literal wording of Article 32 of the Growth Decree); - the floating remuneration representing a portion of the issuer s net profits (the Floating Remuneration ) shall be paid to bondholders on annual basis, within thirty days from approval of the issuer s annual financial statements; - the Floating Remuneration shall be proportional to the ratio between (x) the aggregate nominal value of issued and outstanding participating bonds and (y) the amount of the shareholders equity (share capital, legal reserve, and available reserves) as resulting from the last financial statements approved by the issuer, plus the aggregate nominal value of issued and outstanding participating bonds; - the methods of calculation of the Floating Remuneration: shall be set out upon issue of the participating bonds and shall not be changed until maturity; and (ii) shall depend on objective criteria and cannot derive, even partially, from corporate resolutions adopted at the end of each relevant financial year (e.g. the Floating remuneration shall not depend on the annual amount of profits to be distributed to the shareholders); - even in the lack of profits of the issuer, at maturity the bondholder has the right to the full reimbursement of the principal outstanding amount of the participating bonds; - regardless of the economic result of the issuer, bondholders are in any case entitled to receive fixed interest (fixed component of the periodic payments) on top of the Floating Remuneration; such interest shall not be lower than the official reference interest rate applicable at the time of the payment; - the Floating Remuneration will not be subject to the limits arising from the anti-usury provisions set forth in Law No. 108/1996; - participating bonds may include also subordination clauses (so-called subordinated participating bonds ). With regard to the tax regime, as mentioned below, participating bonds benefit from the same treatment described with reference to ordinary bonds issued by Non-listed Companies. Tax regime As anticipated, the objectives pursued by Article 32 of the Growth Decree include the removal of the main tax obstacles which have prevented in the past Non-listed Companies from issuing bonds and similar securities, thus limiting their potential as a financing instrument alternative to bank lending. More precisely, the reform has amended both the regime of deductibility of passive interest payable by the issuer and (ii) the tax regime of interest in the hands of the investors. For the sake of completeness, the aforesaid legislative changes affect not only the Mini-Bonds (including the so-called participating bonds), but also commercial papers. Deductibility of interest payable by the non-listed issuing company

4 Before the entry into force of the Growth Decree the deduction of passive interest paid in connection with bonds issued by companies (other than banks), whose shares were not traded in a Qualified Regulated Market was subject to certain limitations provided for under Article 3, Paragraph 115, of Law No. 549 of 28 December 1995 ( Law 549/1995 ). Passive interests were deductible by the issuer, for corporate income tax purposes, provided that, at the issue date, the effective yearly return of the debt instruments was not higher than: twice the official reference interest rate established by the European Central Bank for bonds and similar securities traded on a Qualified Regulated Market, or offered to the public; or (ii) the official reference interest rate increased by 2/3, for debentures different from those under. Therefore, whenever the effective yearly return exceeded the thresholds under or (ii) above, the portion of passive interest exceeding such thresholds could not be deducted by the issuer for corporate income tax purposes. In light of the current levels of the official reference interest rate, the possibility for the aforesaid companies to deduct passive interest accrued on the corporate bonds issued by them was significantly impaired. Article 32 of the Growth Decree abolished the aforesaid limitations concerning the deduction of passive interest in the hands of corporate issuers (i.e., companies, other than banks and micro-enterprises, whose shares are not traded on regulated markets or on a MTF), provided that the Mini-Bonds, to which such interest relates: (a) have been issued after the entry into force of the Decree No. 179/2012 (i.e., 20 October 2012); (b) (c) are traded on a Qualified Regulated Market or a Qualified MTF; or in case the requirement under (b) above is not met, are subscribed by and circulate only among qualified investors, as defined by Article 100 of Legislative Decree No. 58 of 24 February 1998 ( TUF ), not holding, either directly or indirectly, even through intermediaries, more than 2% of the share capital or equity of the issuer and provided that the beneficiary is resident either in Italy or in a State allowing the exchange of information with the Republic of Italy. Provided that all said requirements are met, the interest deduction regime for the issuer falls within the general provisions of Article 96 ITC, according to which passive interests are deductible within the amounts of active interest accrued and, with reference to the portion exceeding such threshold, up to 30% of the EBITDA. Tax treatment of interest in the hands of the investor Application of Legislative Decree No. 239 of 1 April 1996 Article 32 of the Growth Decree also introduced a provision aimed at making the purchase of Mini-Bonds more appealing in the perspective of foreign investors, due to the exemption from taxation in Italy, likewise securities issued by banks and listed companies. More precisely, the Growth Decree amended Decree 239/1996, extending the substitutive tax regime applicable to bonds issued by banks or companies whose shares are traded on a Qualified Regulated Market to the following securities: corporate bonds issued by companies whose shares are traded on a Qualified MTF; and (ii) Mini Bonds issued by unlisted companies (other than banks), provided that the Mini-Bonds themselves are listed in a Qualified Regulated Market or a Qualified MTF. Based on the foregoing, under Decree 239/1996 (a) interests paid on the aforementioned securities to Italian institutional investors (including banks and insurance companies) do not trigger any withholding tax or substitutive tax and are subject to ordinary income taxation in the hands of the recipient; (b) non-italian investors established in white list countries may benefit from a full exemption from Italian taxation on interest paid to them, subject to compliance with certain requirements and fulfilments; (c) in all other cases, interests remain subject to a substitutive tax at 20% rate.

5 Deductibility of the issuance charges All costs related to the issue of Mini-Bonds are deductible by the issuer, for corporate income tax purposes, in the tax return of the fiscal year during which they have been incurred, irrespective of their computation criterion for accounting purposes. ***** The Debt Capital Markets and the Tax departments of Legance are available to provide any further clarification, also in respect of any specific situation which may be of interest for you. Andrea Giannelli Claudia Gregori Tel Tel Emanuela Campari Bernacchi Vittorio Pozzi Tel Tel Or your direct contact at Legance

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