TERMS AND CONDITIONS OF THE NOTES DENOMINATED Banco Popolare 2010/2014 4.75% convertibile con facoltà di rimborso in azioni Article 1 Amount, Notes and Issue Price The convertible notes, denominated "Banco Popolare 2010/2014 4.75% convertibile con facoltà di rimborso in azioni" (the Notes ), with a maximum aggregate nominal value of Euro 996,386,475.15, consist of a maximum of 162,014,061 notes, each with a nominal value of Euro 6.15 (the Nominal Value ), issued by Banco Popolare Società Cooperativa (the Bank or the Issuer ) on 24 March 2010 (the Issue Date ) at an issue price equal to 100% of the Nominal Value and convertible into ordinary shares of the Bank (the Ordinary Shares ). In accordance with Legislative Decree No. 213 of 24 June 1998, and the related implementing regulations, the Notes shall be entered and held in book-entry form into the centralised management system of Monte Titoli S.p.A. ( Monte Titoli ). The Notes will be issued in bearer form and fractions of Notes cannot be issued. The Notes will be delivered to investors (the Noteholders ) by authorised intermediaries participating in the centralised administration system managed by Monte Titoli (the Participating Intermediaries ) by the tenth business day following the Issue Date. Article 2 Term of the Notes The term of the Notes is from 24 March 2010 (the Entitlement Date ) to 24 March 2014 (the Maturity Date ), with the exception of cases in which the entitlement of the Notes ends before the Maturity Date pursuant to Articles 5, 11 and 12 of these Terms and Conditions (the Terms and Conditions ). Article 3 Interest The Noteholders will have the right to receive, on 24 March of each year until the Notes mature (each, a Payment Date ), a fixed coupon (the Coupon ) equal to 4.75% gross per annum of the Nominal Value (the Interest Rate ). The Coupons will be calculated according to the ACT/365 convention.
Each Note will cease to bear interest as from the first of any of the following: (i) the Maturity Date (inclusive); (ii) in the event the Conversion Right (as defined below) is exercised by the Noteholders, pursuant to Article 5 of the Terms and Conditions, the Payment Date immediately before the related Conversion Date (as defined below) (inclusive); and (iii) in the event the Issuer exercises the Redemption Option or Remaining Redemption Option (as defined below), pursuant to Article 11 and Article 12 of the Terms and Conditions, the Redemption Date (inclusive) or from the Remaining Redemption Date (inclusive) (as defined below). If interest is required to be calculated for a period ending on a date other than a Payment Date, interest will be calculated by multiplying the Interest Rate and the Nominal Value and multiplying the resulting amount by the Fractional Rate (as defined below). The resulting amount will be rounded down to the nearest whole multiple of Euro 0.01. For the purpose of this clause, Fractional Rate means the actual number of calendar days during the reference period from the most recent Payment Date (inclusive) to the day on which the calculation of interest must be made (exclusive) divided by 365 days. Article 4 Legal Status of the Notes The Notes constitute direct, general, unconditional, unsubordinated notes of the Issuer and will rank pari passu among themselves and with all other existing and future unsubordinated notes of the Bank. Therefore, the Notes will be subordinated to existing and future notes of the Bank which are senior on the basis of general and mandatory applicable provisions of law. Article 5 Conversion Right of the Noteholders No earlier than 18 (eighteen) months after the Entitlement Date, the holders of the Notes may, pursuant to the procedures and deadlines below, exercise the right to request the conversion of all or a part of the Notes held into Ordinary Shares, each with a nominal value of Euro 3.60 (the Conversion Right ). The Notes are convertible at the ratio of 1 Ordinary Share for every 1 Note (the Conversion Ratio ). The Ordinary Shares to be issued in the context of the capital increase to service the Notes, up to a maximum of 276,774,021 Ordinary Shares, in accordance with the resolution of the Management Board of 25 February 2010, subject to the favourable opinion of the - 2 -
Supervisory Council, by virtue of the power granted to it in accordance with Article 2420-ter of the Civil Code by the extraordinary shareholders meeting of the Bank on 30 January 2010, are to be issued irrevocably and exclusively for the purpose of the conversion of the Notes until the final deadline set for the conversion of the Notes. If, pursuant to the following provisions, an adjustment to the Conversion Ratio, as defined below, requires the Issuer to modify the number of shares, or to issue additional Ordinary Shares to service the conversion, the Issuer will take all corporate measures necessary, to the extent permitted by applicable law, to ensure that the number of shares to be issued at the time a Conversion Right is exercised is increased in such a way that the holder of each Note outstanding will have the right (during the period when such Note may be converted) to convert such Note into Ordinary Shares on the basis of the adjusted Conversion Ratio. Where the Issuer is unable to issue the additional Ordinary Shares, the Issuer will pay to Noteholders, at the time of the conversion, the Cash Consideration (as defined below) of the additional Ordinary Shares that would have been issued on the basis of the Conversion Ratio as adjusted. This payment must be made on the fifteenth Dealing Day (as defined below) after the Conversion Date (as defined below). Cash Consideration means the product of the number of shares not delivered and the arithmetic average of the Official Prices (as defined in the Regulations of the Markets organised and managed by Borsa Italiana S.p.A.) of an Ordinary Share during the ten Dealing Day-period starting on the second Dealing day after the date the Issuer, in accordance with Article 20 of these Terms and Conditions, announces it will settle in cash the obligation to supplement the number of Ordinary Shares to be delivered in the event of a conversion after an adjustment to the Conversion Ratio. This announcement must be carried out no later than two Dealing Days before the Conversion Date (as defined below). The Conversion Right may be exercised by delivering an appropriate request (the Conversion Request ) to the Participating Intermediary where the Notes are deposited, on any Bank Business Day (as defined below) starting on 26 September 2011 until the fifth Bank Business Day before the Maturity Date (the Conversion Period ) except for the cases of suspension set out in Article 7 below. For the Conversion Request to be valid, upon submission of the Conversion Request, the Noteholders must (i) acknowledge that the Ordinary Shares have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended, which is in force in the United States of America (the Securities Act ) and (ii) declare that they are not a U.S. Person as defined in Regulation S of the Securities Act. - 3 -
The Ordinary Shares will be delivered through Monte Titoli S.p.A. on the third Dealing Day of the calendar month following the month the Conversion Request is presented by the Noteholders (the Conversion Date ) except for Conversion Requests which are presented in the last calendar month of the Conversion Period, in relation to which, the Ordinary Shares will be delivered on the Maturity Date. The Ordinary Shares allocated for conversion purposes to Noteholders will be entered in the centralised administration system of Monte Titoli and will have the same entitlement to receive dividends as the Ordinary Shares traded on the Mercato Telematico Azionario organised and managed by Borsa Italiana S.p.A. (the MTA ) on the Conversion Date. If the Conversion Date for the Notes occurs after the occurrence of an event that results in one of the adjustments specified in Articles 8, 9, and 10, but before this adjustment goes into effect or is reported by MTA systems, the Issuer shall issue the additional Ordinary Shares by the tenth Dealing Day (as defined below) after the date on which this adjustment goes into effect or is reported by MTA systems. Bank Business Day means any calendar day other than a Saturday or Sunday on which banks in Italy are open for business. Dealing Day means any day on which the MTA is open for the trading of the financial instruments traded on it. Article 6 Fractions If, following the exercise of the Conversion Right, Noteholders have the right to receive an amount of Ordinary Shares that is not a whole number, the Issuer shall deliver Ordinary Shares, pursuant to the procedures and deadlines as set out in Article 5 above, to reach a whole number, and will pay the cash amount, on the same date, rounded up to the nearest Euro cent, of the fractional portion valued on the basis of the arithmetic average of the Official Prices of Ordinary Shares over the last fifteen Dealing Days of the month prior to that in which the Conversion Request is submitted. Article 7 Suspension of Conversion Period The Conversion Period will be considered automatically suspended ( Limitation Period ) and Conversion Requests may no longer be presented during periods starting on the day (inclusive) of the meeting of the Management Board resolving to convene a Shareholders Meeting until the day (inclusive) when the Shareholders Meeting takes place, even if at a call subsequent to first call. - 4 -
However, in the event the Management Board convenes the Shareholders' Meeting to approve the distribution of dividends or reserves, the Limitation Period shall start on the day (inclusive) on which the meeting of the Management Board is held and end on the ex-date for the payment of the related dividends (exclusive). In the event the Shareholders Meeting does not resolve to distribute dividends, the suspension of the Conversion Period will end the day immediately after the Shareholders Meeting is held. If the Management Board convenes the Shareholders Meeting to approve the merger or spinoff of the Issuer, the suspension of the Conversion Period shall start on the day (inclusive) on which the meeting of the Management Board is held and end on the day immediately after the day on which the Shareholders Meeting is held, as an exception to the provisions of Article 2503-bis, paragraph 2 of the Italian Civil Code (the Limitation Period for Merger or Spin-Off ). Article 8 Rights of the Noteholders in the Event of Transactions Involving the Issuer s Share Capital If any of the events listed below occurs during the period from the Issue Date to the Maturity Date of the Notes, the Conversion Ratio will be adjusted as described below, and the Issuer will communicate such adjustment together with the new Conversion Ratio, in accordance with Article 20 below. In particular: (a) If the Issuer carries out a capital increase for consideration or issues notes convertible into Ordinary Shares, warrants over Ordinary Share Warrants or other similar instruments, offered in option to the Issuer s shareholders, such option rights will be assigned at the same conditions and by the same terms to the Noteholders on the basis of the Conversion Ratio; (b) If the Issuer carries out a capital increase for consideration - including by issuing options, warrants or other rights to subscribe for or purchase Ordinary Shares - by issuing new shares that are not offered in option to the shareholders, at a per share price per for newly issued ordinary share (the "New Ordinary Shares") that is less than 95% of the Current Market Price per Ordinary Share (as defined below), the Conversion Ratio will be adjusted by multiplying the Conversion Ratio in force immediately prior to such share issue by the following ratio: (A+B)/(A+C) - 5 -
where: "A" is the number of Ordinary Shares outstanding immediately prior to the issuance of the New Ordinary Shares; "B" is the number of New Ordinary Shares (or, in the event of a capital increase for consideration implemented through the issue of options, warrants or other rights to subscribe for or purchase Ordinary Shares, then the maximum number of Ordinary Shares that could be issued to service the exercise of such option warrants or other instruments, calculated of the date of issue of such options, warrants or rights); "C" is the number of Ordinary Shares that could be purchased at the Current Market Price per Ordinary Share with an amount equal to the amount to be paid to subscribe for the Ordinary Shares to be issued, including those to service the exercise of such options, warrants or other rights to subscribe for or purchase the Ordinary Shares. Current Market Price for the purpose of this Article 8, means the arithmetic average of the Official Prices (as defined in the Regulations of the Markets organised and managed by Borsa Italiana S.p.A.) of Ordinary Shares during the five Dealing Days immediately preceding the date of the first public announcement of such issue (the Reference Period ). (c) If capital is increased for no consideration through the capitalisation of profits or reserves (excluding capital increases carried out in the context of the assignment to shareholders of a scrip dividend, i.e., a dividend of newly issued shares, which will entail adjustments, as applicable, in accordance with Article 9 below) involving the issuance of Ordinary Shares, the Conversion Ratio will be adjusted by multiplying the Conversion Ratio in force immediately prior to such share issue by the following ratio: A/B where: "A" is the aggregate nominal value of the Ordinary Shares outstanding immediately after such share issue; and "B" is the aggregate nominal value of the outstanding Ordinary Shares immediately before such share issue; and Such adjustment will be effective as from the date of issue of such Ordinary Shares. - 6 -
(d) In the event of: - an increase, for no consideration, of the nominal value of Ordinary Shares; - a reduction of the nominal value of Ordinary Shares as a result of losses; - incentives granted to directors, employees or former employees in the form of shares, stock options or stock grants; - the merger of another company into the Bank; - a spin-off in which the Bank is the beneficiary bank; - any capital increases other than those set out under paragraphs (a), (b), or (c), capital increases resulting from merger and/or spin-off, or capital increases carried out in the context of the assignment to shareholders of a scrip dividend, i.e., a dividend of newly issued shares, each of which will entail adjustments as applicable, in accordance with Article 9 below; the Conversion Ratio will not be adjusted; (e) If a grouping or split of Ordinary Shares occurs, the Conversion Ratio will be adjusted by multiplying the Conversion Ratio in force immediately prior to such stock grouping or split by the amount resulting from the ratio of the aggregate number of Ordinary Shares outstanding (meaning also Ordinary Shares held directly or indirectly by the Issuer or by any Subsidiaries) immediately afterwards as a result of the grouping or split respectively, to the aggregate number of Ordinary Shares outstanding (meaning also Ordinary Shares held directly or indirectly by the Issuer or by any Subsidiaries) immediately before such grouping or split respectively. This adjustment shall take effect on the date the grouping or split of the Ordinary Shares goes into effect; (f) If the Issuer merges into or with another company (excluding the case in which the Issuer is the receiving company), and in the event of a spin-off (excluding the case of spin-off in which the Issuer is the beneficiary company), each Note will be assigned the conversion right into a number of shares of the company resulting from the spin-off or merger equivalent to the number of shares that would have been assigned in relation to each Ordinary Share underlying the Note according to the related exchange ratio if the Note had been converted prior to the effective date of the merger or spin-off. - 7 -
If the Issuer carries out capital-related transactions other than those indicated above, the Conversion Ratio may be adjusted, subject to a consultation between the Issuer and an Independent Financial Consultant (as defined below), according to generally accepted methodologies and in compliance with laws and regulations in force. Unless there is a manifest error, the adjustment will be made on the basis of the written opinion of the Independent Financial Consultant. To the extent permitted by applicable law, with respect to any adjustment to the Conversion Ratio, and pursuant to this Article, and Article 9 and 10, if the Conversion Ratio as calculated is not a whole multiple of 0.001, it shall be rounded down to the nearest whole multiple of 0.001. Independent Financial Consultant means a leading international investment bank designated by the Issuer. A Subsidiary of an entity means the subsidiaries as defined in Article 2359, paragraph 1, part (1) and (2) of the Civil Code. Article 9 Noteholders Rights in the Event of the Distribution of Reserves and Extraordinary Dividends (a) If, between the Issue Date and Maturity Date, the Issuer approves the distribution of Total Cash Dividend that exceeds the Cash Dividend Threshold (such excess amount an "Extraordinary Cash Dividend") (as defined below), unless an adjustment has already been made for this distribution pursuant to one of the other provisions of the Terms and Conditions, the Conversion Ratio shall be adjusted by the following ratio: CRa = CRx M M CDT TD where: "CRa" is the adjusted Conversion Ratio; "CR" is the Conversion Ratio on the Record Date (as defined below); "M" is the Average Market Price (as defined below); "TD" the Total Cash Dividend paid in the year (calculated on a per share basis); - 8 -
"CDT" is the Cash Dividend Threshold for the year. (b) If, during the period from the Issue Date to the Maturity Date, the Issuer approves the distribution of: a Cash Dividend from retained earnings; and/or a Surplus Dividend (as defined below); and/or any special dividend that is designated as such by the Shareholders' Meeting of the Issuer, the Conversion Ratio will be adjusted in accordance with the following ratio: where: CRa = CRx M M R "R" is the amount of any portion of the Cash Dividend, if any, which comprises a Cash Dividend from retained earnings, and/or the amount of the Surplus Dividend and/or the amount of the special dividend, as the case may be (in each case calculated on a per share basis). There will be no adjustment of the Conversion Ratio if CRa would, by applying the above formula, be lower than CR. "Record Date" means the Dealing Day immediately preceding the Dealing Day Ex Date (as defined in the Regulations of the Markets organised and managed by Borsa Italiana S.p.A.). "Cash Dividend" means (i) the total amount of any cash dividend (calculated on a per share basis) paid by the Issuer prior to deduction of any withholding tax; and (ii) the newly issued shares assigned to the shareholders as a scrip dividend, valued on the basis of the arithmetic average of the Official Prices of an Ordinary Share reported during the three Dealing Days following the Dealing Day on which the scrip dividend is paid. "Total Cash Dividend" means the amount of any Cash Dividend (other than any portion of such Cash Dividend which comprises a Cash Dividend from retained earnings) the Record Date of which falls during a particular year, together with the aggregate amount of any other Cash Dividends previously paid (other than (i) any amount of a Cash Dividend previously paid in respect of such year for which an adjustment was previously made and (ii) any portion of such Cash Dividends which comprises a Cash Dividend from retained earnings) the Record Dates of which fell during the same year. - 9 -
"Average Market Price" means the arithmetic average of the Official Price of the Ordinary Share reported during the three consecutive Dealing Days until the Dealing Day (inclusive) immediately before the Dealing Day Ex-Date (or, in the case of a purchase of Ordinary Shares by or on behalf of the Issuer or one of the Subsidiaries, the date on which the Ordinary Shares are purchased). "Cash Dividend Threshold" means Euro 0.10 for the year 2010, Euro 0.10 for the year 2011, Euro 0.15 for the year 2012, Euro 0.15 for the year 2013, and Euro 0.15 for the year 2014. "Surplus Dividend" means any Cash Dividend paid from the Dealing Day Ex Date of the Extraordinary Dividend and up to the end of the same year. Article 10 Rights of Noteholders in the Event of a Tender Offer on the Bank s Ordinary Shares If, between the Issue Date and the Maturity Date, an announcement is made, as described in Article 102 of Legislative Decree No. 58 of 24 February 1998, to the Issuer s shareholders concerning the intention to launch a tender offer or an exchange offer affecting all or a part of the Ordinary Shares (the Offer ), other than an Offer launched, in any event, by the Issuer on its own shares, the Issuer shall give notice to Noteholders, in accordance with Article 20 below, of the option to exercise the Conversion Right at any time, including, if necessary, before the beginning of the Conversion Period and/or as an exception to the provisions of Article 7, with the maximum prior notice permitted by the terms of the Offer, and the Issuer will do everything in its power to ensure that the Conversion Date falls on a date that would allow Noteholders exercising the Conversion Right to contribute to the Offer the Ordinary Shares issued to Noteholders following the exercise of the Conversion Right. In this case, a different conversion ratio (the Conversion Ratio in the Event of an Offer ) shall be applied to Conversion Requests presented within 30 calendar days of the publication of the notice in which the Issuer announces the Offer, and such ratio shall be determined as follows: Conversion Ratio in the Event of an Offer = Conversion Ratio * [1+(PCJ*J/JT)] where: PCJ is the percentage of the conversion premium of the Note at issuance, which is equal to 34.01%; J is the number of days between the last valid date to adhere to the Offer (inclusive) and the Maturity Date (exclusive); - 10 -
JT is the number of days between the Issue Date (inclusive) and the Maturity Date (exclusive); Article 11 Issuer s Redemption Option After 18 (eighteen) months from the Entitlement Date, the Issuer may redeem all or a part of the Notes outstanding (the Redemption Option ) through the delivery of Ordinary Shares (the Share Settlement ), with the exception for the case set out in paragraph (b)(ii) below according to which the Issuer may redeem all or part of the Notes outstanding through the delivery of Ordinary Shares and the payment of a cash amount (the Mixed Settlement ). To that end, by the twenty-third Bank Business Day prior to the redemption date (the Redemption Date ), the Issuer will publish a notice in accordance with Article 20 of the Terms and Conditions (the Notice to Exercise the Redemption Option ) stating the intention of the Issuer to exercise the Redemption Option, the amount of the Nominal Value for which the Redemption Option will be exercised, the percentage in relation to which the Issuer intends to exercise the Redemption Option, and redemption settlement procedures (i.e., Share Settlement or Mixed Settlement); and in case of Mixed Settlement, the percentage of cash and Ordinary Shares will also be indicated. On the Redemption Date: (a) If the market value of the Ordinary Shares, determined on the basis of the arithmetic average of the Official Prices of the Ordinary Shares reported in the Reference Period for the Redemption (as defined below) (the Market Value of Ordinary Shares in the Reference Period for the Redemption ), is higher than the ratio of the Nominal Value of the Notes to the Conversion Ratio (the Conversion Price ), the Issuer shall: (i) deliver a number of Ordinary Shares to Noteholders equal to the sum of (i) the number of Ordinary Shares resulting from the Conversion Ratio and (ii) the number of Ordinary Shares resulting from the ratio of 10% of the Nominal Value of the Notes (the Premium ) to the Market Value of Ordinary Shares in the Reference Period for the Redemption (the Ordinary Shares for Redemption A ); or (b) If the Market Value of Ordinary Shares in the Reference Period for the Redemption is lower than the Conversion Price, the Issuer shall: (i). deliver to Noteholders a number of Ordinary Shares (the Ordinary Shares for Redemption B ) resulting from the ratio of (i) the Nominal Value of the - 11 -
Note increased by the Premium to (ii) the Market Value of Ordinary Shares in the Reference Period for the Redemption; or (ii). deliver, in the proportion communicated in the Notice to Exercise the Redemption Option, a number of Ordinary Shares and pay an amount in cash, so that the aggregate equivalent value is equal to the value of Ordinary Shares for Redemption B (valued at the Market Value of Ordinary Shares in the Reference Period for the Redemption). The Reference Period for the Redemption starts on the third Dealing Day (inclusive) after the date the Notice to Exercise the Redemption Option is published and ends on the sixth Dealing Day (inclusive) prior to the Redemption Date. In any case, the number of Ordinary Shares for Redemption B may not be higher than the number of Ordinary Shares resulting from the ratio of the Nominal Value of the Note to the nominal value of Ordinary Shares. To that end, if the value of Ordinary Shares for Redemption B (valued at the Market Value of Ordinary Shares in the Reference Period for the Redemption) is lower than the Nominal Value of the Notes increased by the Premium, the Issuer will pay to the Noteholders an adjustment in cash equal to the difference between the aforementioned values. In the cases described above in paragraphs (a)(i) and (b)(i) and (b)(ii), the Issuer shall deliver Ordinary Shares until a whole number is reached, and shall pay an amount in cash, equal to the Market Value of Ordinary Shares in the Reference Period for the Redemption, rounded up to the nearest Euro cent for any fractions. In the cases described in paragraphs a) (i) and b) (i) and (ii), if the value of the Ordinary Shares delivered, valued at the Official Price of the Ordinary Shares on the Redemption Date (together with the cash amount paid in relation to fractions and as the cash amount paid as described above at paragraph (b)(ii)) is lower than the Nominal Value of the Note, the Issuer will pay the Noteholders, on the first Bank Business Day following the Redemption Date, a cash amount as an adjustment equal to the difference between the Nominal Value of the Note and the value of the Ordinary Shares delivered, which are valued at the Official Price of the Ordinary Shares on the Redemption Date (and the cash amount paid in relation to fractions together with any amount of cash paid in the case described in paragraph (b)(ii)) so that the entire value of Notes allocated to the Noteholders is equal to the Nominal Value. If the Issuer carries out a partial redemption, which in any case may not be lower than 20% of the aggregate nominal value of the remaining Notes (percentage calculated by taking into account the aggregate nominal value of the remaining Notes before the redemption), such redemption shall be exercised with respect to each Noteholder through the partial repayment - 12 -
of the Nominal Value of each Note. In the event of a partial redemption, the provisions of this clause shall be applied on a pro rata basis to the amount of the Nominal Value to be redeemed under the Redemption Option. Following the Redemption Date, in the event of a partial redemption, the Issuer shall announce, in the manner set forth in Article 20 of these Terms and Conditions, (i) the new Conversion Ratio and (ii) the new amount of the Coupon recalculated according to the new Nominal Value of the Notes (however, the Interest Rate will not be changed). The Nominal Value of the Notes redeemed will stop earning interest on the Redemption Date, and no claim may be made in relation to unaccrued interest. Article 12 Issuer s Redemption Option for Remaining Notes Outstanding (Clean Up Call) If, following the Noteholders exercise of the Conversion Right pursuant to Article 5 of these Terms and Conditions and the Redemption Option has not been partially exercised by the Issuer pursuant to Article 11 of these Terms and Conditions, outstanding Notes represent less than 10% of the aggregate Nominal Value, the Issuer will have the right to redeem all outstanding Notes (the Remaining Note Redemption Option ) by paying in cash the Nominal Value of the Notes plus the Coupon, the interest of which will be calculated until the date (inclusive) when the Issuer carries out the redemption (the Remaining Note Redemption Date ). Provisions under this Article are subject to the Conversion Rights of the Noteholders as set out under Article 5 of these Terms and Conditions. To this end, no later than twenty-three Bank Business Days preceding the Remaining Note Redemption Date, the Issuer shall publish a notice in accordance with Article 20 of the Terms and Conditions which will indicate the Issuer s intention to exercise the Remaining Note Redemption Option and the amount of the Coupon. Article 13 Final Redemption Except as specified in Articles 11 and 12 of these Terms and Conditions, on the Maturity Date, any Notes not converted during the Conversion Period (the Unconverted Notes ) will be redeemed at nominal value. The Issuer will have the right to fulfil the obligation to redeem the Unconverted Notes through the payment of a cash amount (the Cash Settlement ) and/or the delivery of - 13 -
Ordinary Shares (the Share Settlement or, if payment is made in cash and shares, the Mixed Settlement ). To that end, on or before the twenty-third Bank Business Day prior to the Maturity Date, the Issuer shall publish a notice pursuant to Article 20 of the Terms and Conditions, in which it notifies holders of the Unconverted Notes of the redemption settlement procedures (the Notice on Redemption Settlement Procedures ). On the Maturity Date, the Issuer shall: a) in the event of a Cash Settlement, redeem the Unconverted Notes at nominal value through the payment of a cash amount equal to the Nominal Value of each Unconverted Note. b) in the event of a Share Settlement, deliver to Noteholders a number of Ordinary Shares, valued as indicated below, with a value equal to the Nominal Value of the Unconverted Notes. c) in the event of a Mixed Settlement, deliver to holders of Notes to be redeemed, in the proportions indicated in the Notice on Redemption Settlement Procedures, the Ordinary Shares valued at the Value of the Ordinary Shares for Redemption and cash up to an aggregate amount equal to the Nominal Value of the Notes. The Issuer shall issue Ordinary Shares to reach a whole number, and pay a cash amount, which is valued at the Value of Ordinary Shares for Redemption (as defined below) rounded up to the nearest Euro cent, for any fractions. The value of Ordinary Shares shall be determined based on the arithmetic average of the Official Prices of the Ordinary Shares reported in the Reference Period for the Redemption (as defined below) (the Value of Ordinary Shares for Redemption ). The Reference Period for the Redemption starts on the third Dealing Day (inclusive) after the date the Notice of Redemption Settlement Procedures is published and ends on the sixth Dealing Day (inclusive) prior to the Maturity Date. If the Value of Ordinary Shares for Redemption is lower than the nominal value of the Ordinary Shares, the Issuer shall deliver to the holders of Unconverted Notes a number of shares that is not higher than the number resulting from the ratio of the Nominal Value of the Notes to the nominal value of Ordinary Shares, and shall, on the first Bank Business Day after the Maturity Date, pay the same holders of Unconverted Notes a cash amount as an adjustment, equal to the difference between the Nominal Value of the Convertible Notes and - 14 -
the Value of the Ordinary Shares for Redemption multiplied by the number of Ordinary Shares delivered. In any case, if the Official Price of the Ordinary Shares on the Maturity Date is lower than the Value of Ordinary Shares for Redemption, the Issuer shall, on the first Bank Business Day after the Maturity Date, pay to holders of the Unconverted Notes a cash amount as an adjustment, equal to the difference between the Value of Ordinary Shares for Redemption and the Official Price of the Ordinary Shares on the Maturity Date multiplied by the number of Ordinary Shares delivered. Article 14 Payments The payment of principal, interest and other amounts due in relation to the Notes will be subject to tax and/or other laws and regulations applicable in the place of payment. No commissions or expenses shall be charged to Noteholders in respect of such payments. If any date for the payment of principal, interest and any other amount due for the Notes is not a Business Day, payment shall be made on the following Business Day. Solely for the purpose of this article, Business Day shall mean any day on which the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) is operational. Amounts owed by the Issuer in respect of the Notes shall be paid to the parties entitled by crediting the current account indicated by the Noteholder to the Participating Intermediary acting as custodian of the Notes. Article 15 Taxation The information provided below summarises certain aspects of the taxation regime applicable to the Notes pursuant to the Italian laws applicable on the date of these Terms and Conditions. The taxation information described below, takes into account among others the most recent modifications to the Presidential Decree No. 917 of 22 December 1986, ( D.P.R. 917/1986 or TUIR ) and is based on the legislation, as customarily applicable on the issue date; however, future new legislation may be introduced that could modify completely or partially, and even with retroactive effect the taxation regime described below. The following is not an exhaustive analysis of the taxation laws relevant to the Notes, and does not analyse the tax regime applicable to all possible categories of investors. Investors should consult with their tax advisors regarding the tax regime applicable to them in respect of the Notes. - 15 -
Interest, premium and other amounts The interest, premium and other amounts relevant to the Notes are subject to the taxation regime ordinarily applicable to interest, premium and other amounts in respect of notes issued by Italian banks. Investors resident in Italy According to Article 1, paragraph 1, and to Article 2 of Italian Legislative Decree No. 239 of 1 April 1996 ( Decree 239/1996 ), interest, premium and other amounts relevant to notes with a duration of at least than 18 months issued by Italian banks, are subject to a substitute tax (imposta sostitutiva) of 12.50% when received by the following subjects resident in Italy (the so-called "nettisti"): a) individuals, including those operating commercial businesses; b) partnerships, de-facto companies or entities that do not have commercial operations as their object, and professional associations and association of performing arts; c) public and private entities, other than companies, which do not have commercial operations as their exclusive or main object, in accordance with Article 73, paragraph 1(c), of the TUIR, including the subjects set out in Article 74 of the TURI (State and public entities); d) subjects exempt from ordinary tax on corporate income ( IRES ) (in each case, unless the noteholder has given an authorised intermediary mandate to manage its portfolio of assets, including the notes, and has selected the discretionary investment portfolio regime (regime del risparmio gestito) pursuant to Article 7 of Legislative Decree No. 461 of 21 November 1997 ("Decree 461/1997"). According to Article 5, paragraph 1, of Decree 239/1996, individuals operating commercial activities, and public or private entities other than companies as described in Article 73, paragraph 1(c) of the TUIR, who operate a commercial business include in their taxable business income (subject to ordinary taxation) the interest, premium and other amounts of in relation to the notes held in connection with their commercial operations, and have the option to deduct the substitute tax paid upon filing of the tax return. The substitute tax is withheld by, among others, banks and fiduciary companies, brokerage firms, brokers and other financial intermediaries resident in Italy listed in specific Ministerial Decrees, or by the permanent establishment in Italy of intermediaries who are not resident in Italy, who - 16 -
nevertheless act to withhold interest, premium and other revenues or in the context of the transfers of notes, including as purchasers. According to Article 5, paragraph 2 of Decree. 239/1996, where the notes are not under the custody of the aforementioned authorised intermediaries, the substitute tax is withheld by the intermediary who pays the interest, premium and other amounts relevant to the notes, or by the Issuer. Normally, the substitute tax is not applied on interest, premium and other amounts relevant to notes received by the following subjects resident in Italy (so-called "lordisti"): a)partnerships such as società in nome collettivo, società in accomandita semplice and other similar entities; (b) companies such as società per azioni and società in accomandita per azioni, società a responsabilità limitata, società cooperative and società di mutua assicurazione ; (c) public and private entities, other than companies, having commercial activities as their exclusive or main object; (d) investment funds pursuant to Law No. 77 of 23 March 1983, investment funds in pursuant to Law No. 344 of 14 August 1993, companies such as società di investimento a capitale variabile" pursuant to Law No. 84 of 25 January 1992, real estate investment funds, pension funds pursuant to Legislative Decree No. 252 of 5 December 2005, and the socalled lussemburghesi storici investment funds pursuant to Article 11-bis of Legislative Decree No. 512 of 30 September 1983, as converted into Law No. 649 of 25 November 1983. Included in the category of lordisti are also (i) permanent establishments in Italy of non resident companies or commercial entities, to which the Notes are effectively connected, and (ii) portfolios that include the Notes managed by an authorised intermediary for which the investment portfolio regime has been chosen pursuant to Article 7 of Decree 461/1997. In addition to the subjective requirements listed above, for the interest, premium and other amounts relevant to the notes to be received by the above subject for their gross amount, i.e. without the application of the substitute tax, it is generally necessary that the notes be deposited with the above resident intermediaries or with the permanent establishment in Italy of non-resident intermediaries. Where the notes are deposited with authorised intermediaries, the interest, premium and other amounts relevant to the notes received by "lordisti" resident subjects in the exercise of their - 17 -
normal business activity are not subject to withholding tax and are included in the total income of the recipient and subject to ordinary taxation on income. Where the notes are deposited with authorised intermediaries, the interest, premium and other amounts relevant to the notes received by the so-called organismi d investimento collettivo del risparmio ( O.I.C.R. ) pursuant to Decree 461/1997 are not subject to any withholding tax and are included in their entirety in the annual income of the portfolio subject to substitute tax, generally at a rate of 12.50% (a substitute tax of 27% will instead apply on the annual income deriving from qualified holdings held by O.I.C.R.s that have less than 100 members, except where qualified investors, as defined in Ministerial Decree No. 228 of 24 May 1999, other than individuals, hold more than 50% of the shares or units of any such O.I.C.R.. For the purposes of this calculation, a qualified holding is ownership in the voting capital or voting equity in excess of 10%, for ownership in companies whose shares are traded on regulated markets, taking into account for the purposes of calculating such 10% ownership - any rights that permit the purchase of voting shares or quotas, including the Notes). Where the notes are deposited with authorised intermediaries, the income from the notes received by pension funds subject to the taxation regime pursuant to Article 17 of Legislative Decree No. 252 of 5 December 2005 is included in its entirety in the annual income of the fund, subject to substitute tax at a rate of 11%. Pursuant to Law Decree No. 351 of 25 September 2001 ( Law Decree 351/2001 ), as amended and converted into Law No. 410 of 23 November 2001, as subsequently modified by Article 41-bis of the Law Decree No. 269 of 30 September 2003, income received by real estate investment funds established pursuant to Article 37 of Legislative Decree No. 58 of 24 February 1998, and Article 14-bis of Law No. 86 of 25 January 1994, including interest, premium and other amounts relevant to convertible notes, are not subject to taxation at the fund level. Pursuant to Article 7 of Decree 461/1997, the interest, premium and other amounts relevant to convertible notes managed by an authorised intermediary, for which the discretionary investment portfolio regime (regime del risparmio gestito) has been chosen, are not subject to any withholding tax and are included in their entirety in the annual income of the portfolio, subject to substitute tax at a rate of 12.50%. Pursuant to Article 5, paragraph 2, of Decree 239/1996, where the notes are not deposited with the above authorised intermediaries, the intermediary who pays the interest, premium and other income in connection with the notes or the issuer will withhold the substitute tax, including in relation to investors who are "lordisti". - 18 -
Investors not resident in Italy Pursuant to Article 6 of Decree No. 239/1996, the substitute tax is not applicable, subject to certain conditions, to interest, premiums and other amounts received by: (a) subjects resident in states or countries that allow an adequate exchange of information with Italy and included in the list provided by the Ministerial Decree to be issued pursuant to Article 168-bis of the TUIR or, until the fiscal year in which the aforementioned Ministerial Decree enters into force, if received by subjects resident in countries that allow an adequate exchange of information with Italy and listed in the Ministerial Decree of 4 September 1996, as amended and supplemented; (b) Entities or international bodies established according to international treaties enforceable in Italy; (c) Foreign institutional investors, even if not separate tax entities, established in a country that satisfies the requirements under (a); (d) Central banks or bodies that also manage the official reserve of a state. Exemption from substitute tax is available provided that the notes are deposited with a resident authorised intermediary or with a non-resident subject that participates to centralised securities management systems and that has a direct relationship with the Italian financial administration. For non-resident subjects, exemption from substitute tax is conditional upon the presentation of the documentation requested by the Ministry of Finance, attesting to the existence of the requirements. Where the aforementioned substantial and documentary requirements are not met, a substitute tax of 12.50% will be applied to the income, without prejudice to the application of more favourable conditions provided for by international treaties against double taxation stipulated by Italy, i.e. Legislative Decree No. 143 of 30 May 2005, to the extent applicable. Early Redemption Assuming no changes in the legislative framework described above, to the extent the Notes are redeemed, in whole or in part, within 18 months from the issue date, then pursuant to Art. 26, first paragraph, of Decree of the President of the Republic No. 600 of 29 September 1973, as subsequently amended, the issuer will be required to pay tax equal to 20% of the interest, premium and other amounts accrued from the date of issue until the early redemption date. - 19 -
Capital Gain on the sale of the Notes Generally, capital gains on the sale of the Notes are subject to different taxation according to the type of investor effecting such sale. Pursuant to applicable law, the sale of securities or rights through which it is possible to acquire holdings (such as the Notes) can be assimilated to the sale of holdings and are subject to the same taxation. In particular, capital gains are considered other financial income and are subject to taxation at the same conditions as capital gains from the sales of shares (Articles 67 et seq. of the TUIR), therefore differently if the sales of the Notes is the sale of a non-qualified or of a qualified holding. For the purpose of the above provisions, holdings are considered to be qualified if they represent, in the case of listed companies, more than 2% of the voting rights in the issuer s shareholders meeting or, alternatively, a percentage higher than 5% of the share capital or of equity. To establish whether such percentages are exceeded, securities or rights which entitle the holder to acquire a qualified holding (i.e. subscription and acquisition warrants, options to acquire holdings, option rights as defined in Articles 2441 and 2420-bis of the Civil Code and convertible notes) shall be taken into account. As a consequence, a sale could constitute a sale of qualified holdings even if the securities or rights that are sold, considered separately or together with the other holdings sold, represent a percentage of the voting rights and of the capital in excess of the thresholds indicated. If the above minimum thresholds are exceeded, then the transfer will be considered a transfer of a qualified holding if the transferred holdings exceed the minimum thresholds described above. The calculation of the percentage of voting rights and holding transferred, must include all transfers carried out within a 12-month period. The tax treatment applicable to specific types of investors is set out below. (i) Individuals who are fiscally resident in Italy, partnerships such as società semplici and similar entities Capital gains realised, not in the course of the exercise of business activities, by individuals fiscally resident in Italy, or partnerships such as società semplici and similar entities, as a result of the sale of Notes are taxed differently depending on whether the sale is the sale of a non-qualified holding or of a qualified holding or: - Non-qualified holdings Capital gains realised by individuals fiscally resident in Italy, through the sale of Notes that is a sale of a non-qualified holding, are subject to a substitute tax of 12.50%. The seller may opt for the capital gain to be taxed based on the tax return - 20 -
regime (regime della dichiarazione), to the non-discretionary investment portfolio regime (regime del risparmio amministrato) or the discretionary investment portfolio regime (regime del risparmio gestito), respectively pursuant to Article 5, 6 and 7 of Legislative Decree No. 461 of 21 November 1997. - Qualified holdings Capital gains realised by individuals fiscally resident in Italy, through the sale of Notes that is a sale of a qualified holding, are included in taxable income, subject to a progressive tax rate for 49.72% of their amount. (ii) Individuals operating business activities, partnerships such as società in nome collettivo, società in accomandita semplice and similar entities (Article 5 of the TUIR), companies such as società di capitali and business entities (Article 73, paragraph 1(a) and (b) of the TUIR) and non-resident subjects with a permanent establishment in Italy. Capital gains realised, through the sale of the Notes, by individuals operating business activities, partnerships such as società in nome collettivo, società in accomandita semplice and similar subjects, pursuant to Article 5 of the TUIR other than società semplici, by società di capitali and business entities, as provided for by Article 73, paragraph 1(a) and b) of the TUIR, or by non-resident subjects with a permanent establishment in Italy, are included in their entirety in the business income of the selling entity. Pursuant to Article 86, paragraph 4 of the TUIR, if the Notes were held for a period of not less than three years, the capital gains can, at the choice of the tax payer, be added to the income in equal amounts in the fiscal year of the sale and in the following years, but no further than the fourth. (iii) Public and non-public entities that do not operate commercial businesses as their exclusive or principal object fiscally resident in Italy (Article 73, paragraph 1(c) of the TUIR) Capital gains realised in relation to non-commercial operations by entities listed in Article 73, paragraph 1(c) of the TUIR, i.e., public and non-public entities fiscally resident in Italy, other than companies, that do not operate commercial activities as their exclusive or main object, are subject to the taxation regime applicable to resident individuals, described in paragraph (i) above. (iv) Italian Pension Funds and O.I.C.R.s Capital gains on the notes realised by Italian pension funds governed by Legislative Decree No. 252 of 5 December 2005 and by O.I.C.R.s subject to the provisions of Article 8, - 21 -