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OPEN JOINT STOCK COMPANY MODEL CHARTER

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OPEN JOINT STOCK COMPANY MODEL CHARTER Powered By Docstoc
					Preamble

Prepared in accordance with the requirements of Civil Code and various regulations of the
State Securities Commission of the Republic of Azerbaijan effective as of 12th January 2006
and with incorporation of best corporate governance practices

Red colored provisions – stand for advanced corporate governance practices, which are not
                          reflected in the local practice and legislation
Blue colored provisions – provisions, which are to some extent ambiguous and/or unclear
                          and/or optional in Azeri legislation and practice, but clarified and
                          developed in the Charter.
Black colored provisions –provisions which are standard provisions and more or less clearly
                          follow from the legislative requirements

                        OPEN JOINT STOCK COMPANY
                             MODEL CHARTER


I.     GENERAL PROVISIONS

1.1.   The full legal name of the Company is “__________________________” Open
       Joint Stock Company.
1.2.   The abbreviated name of the Company is “_____________________________”.
1.3.   The legal address of the Company is: _____________________________. The
       Company is registered and has its head office at this address. The Company
       shall notify the competent registration authorities of any changes to its legal
       address.
1.4.   The Company shall be governed in accordance with the present Charter,
       Civil Code, and other legal acts of the Republic of Azerbaijan.
1.5.   The Company shall be guided in its activity by widely accepted principles
       and rules of best corporate governance.
1.6.   The duration of the Company shall be unlimited. The Company could be
       reorganized or liquidated pursuant to the present Charter and the legislation
       of the Republic of Azerbaijan.

II.    LEGAL STATUS OF THE COMPANY

2.1.   The Company has legal rights and responsibilities since the date of its state
       incorporation.
2.2.   The Company has its own property, rights to acquire and exercise property
       and non-property rights on its own behalf. It has an independent balance, a
       stamp with its own name on it, the company logo, and the right to open local
       and foreign settlement and other accounts in a bank. The Company shall be
       eligible to act as plaintiff, respondent or a third party in the court.
2.3.   The Company has the right to own its material and monetary assets, to use
       and dispose thereof and other rights.


                                            -1-
2.4.     The Company shall be liable for its obligations by its all property.
         Shareholders shall not be responsible for the Company’s liabilities and the
         Company shall not be responsible for liabilities of its shareholders.
2.5.     The Company may open its branch and representative offices. The branch
         and representative offices are not legal entities and shall act under the by-
         laws approved by the Company.
2.6.     The Company has also other rights provided by the legislation of the
         Republic of Azerbaijan.

III.     THE PURPOSE AND ACTIVITIES OF THE COMPANY

3.1.   The principal purpose of the Company is to earn profit.
3.2.   To accomplish its principal purpose the Company shall carry out the
       following principal activities:
3.2.1. ________________________________________;
3.2.2. ________________________________________.
3.3.   To accomplish its principal purpose the Company shall be eligible to carry
       out any activities not provided in the Company’s Charter and not prohibited
       by the legislation of the Republic of Azerbaijan.
3.4.   To carry out specific activities, the list of which is determined by the
       legislation of the Republic of Azerbaijan, the Company shall obtain necessary
       licenses or permits.

IV.      CHARTER CAPITAL, SECURITIES, AND FUNDS OF THE COMPANY

4.1.   The Charter Capital of the Company is composed of the nominal value of
       shares acquired by shareholders and amounts to _________[in digits]
       (_____________) [in words] manat.
4.2.   The Charter Capital is composed of total __________ [in digits] (____________)
       [in words] shares, which are divided into ________ [in digits]
       (________________) [in words] (registered/unregistered, paperless/paper-
       based) shares of common stock, each share having a nominal value of
       ____________[in digits] (________________) [in words] manat and _______ [in
       digits] (________________) [in words] shares of preferred stock,1 each share
       having a nominal value of _____________ [in digits] (________________) [in
       words] manat. The total amount and nominal value of shares comprises 100%
       of the Charter Capital.
4.3.   The Company shall be authorized to issue additional securities.
4.4.   The Company shall be authorized to increase its Charter Capital by decision
       of its General Meeting of Shareholders either by:
4.4.1. Increasing the nominal value of the issued shares; or
4.4.2. Issuing additional shares.
4.5.   The Charter Capital may be decreased by decision of the General Meeting of
       Shareholders either by decreasing the nominal value of the outstanding


1
    Article 106.2 of the Civil Code of the Republic of Azerbaijan,(hereinafter referred to as “CCRA”)
    provides that the share of preferred stocks must not exceed 25% (twenty five percent) of the
    charter capital of a joint stock company.


                                                 -2-
          shares or by redeeming a portion of shares to reduce the total number of the
          outstanding shares.2
4.6.      Payment for the shares so redeemed may be made in cash, securities, assets
          or property rights, or other rights having monetary value.
4.7.      The Company shall establish a reserve fund3 in the amount of ___________
          [in digits] (______________) [in words] manat, which equals ________ [in digits]
          (________________) [in words] percent of the Charter Capital.
4.8.      The amount of annual deductions from the net profits of the Company to be
          transferred to the reserve fund shall be determined by decision of the
          General Meeting of Shareholders. The deductions to the reserve fund shall be
          continued until the reserve fund is fully established as per article 4.7. of the
          present Charter.

V.        RIGHTS AND OBLIGATIONS OF SHAREHOLDERS. DIVIDENDS.

5.1.    The shareholders shall have rights and obligations arising from their share-
        ownership in the Company.
5.2.    Shareownerhsip in the Company shall entitle a shareholder to the following
        rights:
5.2.1. To freely sell, transfer and/or assign his/her shares and/or part thereof to
        any interested party;
5.2.2. To elect and be elected to the governing bodies of the Company;
5.2.3. To receive information on activities of the Company, including annual
        reports and accounting records;
5.2.4. To request convention of the General Meeting of Shareholders;
5.2.5. To demand changes to the agenda of the General Meeting of Shareholders;
5.2.6. To participate and vote at the General Meeting of Shareholders under the
        principle one share one vote4 and to request a copy of protocol of the
        meeting;
5.2.7. To demand audit of the Company by the Revision Commission (Inspector)5
        or the External Auditor6;
5.2.8. To receive dividends from net profits;
5.2.9. To receive a portion of the Company’s assets in the event of the Company’s
        liquidation;
5.2.10. To receive the list of shareholders of the Company within 5 (five) days since
        the date of request to the Management Board (General Manager);7



2
    Pursuant to article 105.3 of CCRA reduction of the Company’s Charter Capital through redeeming
    of portion of shares can be made only if so provided for in the Company’s Charter.
3   There is no direct requirement in the legislation for joint stock companies to establish a reserve
    fund. Article 106-3.4 of CCRA provides that a joint stock company may establish special fund at its
    own expense to guarantee payment of interest on preferred shares. International Finance
    Corporation’s Azerbaijan Corporate Governance Project (hereinafter referred to as “IFC ACGP”)
    recommends to have a reserve fund in the company for wider purposes such as to cover the
    company’s losses, to redeem the company’s bonds and shares when other means are not available.
4   Except for cumulative voting procedures to elect the Supervisory Board’s members.
5
    See article 11.8.2 of the present Charter.
6
    See article 11.12 of the present Charter.
7   Pursuant to article 106-2.3 of CCRA this right can be carried out by a shareholder once per year.


                                                  -3-
5.2.11. To enjoy other rights provided for by the legislation of the Republic of
        Azerbaijan and present Charter.
5.3.    Each common share shall entitle its owner to equal rights. The owners of
        common shares have preemptive rights on the issuance of new shares.8
        Preemptive rights are applicable to the number of the newly issued shares
        needed to maintain the same shareholding percentage in the new charter
        capital as the shareholder had in the previous charter capital of the Company
        before the additional issuance. Preemptive rights of shareholders shall be
        carried out on the same terms and conditions as offered to third interested
        purchasers.
5.4.    Each preferred share shall entitle its owner to equal rights. The owners of
        preferred shares have no voting rights at the General Meeting of
        Shareholders,9 unless otherwise provided for by the legislation.10
5.5.    The shareholders shall:
5.5.1. Undertake to support the Company jointly and individually and render all
        such assistance as may be required by the Company and be in the power of
        the shareholders. The shareholders shall agree to cooperate and coordinate
        their assistance to the Company;
5.5.2. Not to disclose confidential information considered as such according to the
        law and/or the present Charter;
5.5.3. Fully pay up the shares in a timely manner;
5.5.4. Inform the share-registrar of any changes in his/her records by written
        notification within 10 (ten) calendar days of such changes;
5.5.5. Perform other obligations set forth in the legislation of the Republic of
        Azerbaijan.
5.6.    The Company has the right to declare and pay dividends based on the
        results of each fiscal year.11 The Company shall pay the declared dividends
        within ______ [in digits] (_____) [in words] days after the decision to declare
        dividends has been approved.12
5.7.    Only fully paid up shares shall be entitled to dividends.
5.8.    The payment of dividend on each common share is carried out in the form of
        payments accrued per share.
5.9.    The dividend on each preferred share shall be paid in the amount of ____[in
        digits] (_____) [in words] % out of its nominal value.
5.10. Dividends shall be paid in money or in the form of property and property
        rights having monetary value.




8  Pursuant to article 104.2 of CCRA preemptive rights for owners of common shares exist if
   provided for in the Company’s Charter.
9 Pursuant to article 106.2 of CCRA.
10 Pursuant to article 106-1.5 of CCRA.
11        Pursuant to article 106-3.2 of CCRA the Company may pay intermediary (quarter,
   semiannual) and annual dividends, depending on the stipulation in the Company’s Charter.
12 Pursuant to article 106-3.2 of CCRA, the obligation of the Company to pay dividends is effective

   since the day when the decision on payment of dividends is made.


                                               -4-
VI.     GOVERNING BODIES OF THE COMPANY

6.1.    The Company shall have the following governing bodies:

6.1.1. General Meeting of Shareholders;
6.1.2. Supervisory Board;13
6.1.3. Management Board (General Manager).14

VII.    GENERAL MEETING OF SHAREHOLDERS

7.1.   The General Meeting of Shareholders is the highest governing body of the
       Company.
7.2.   The General Meeting of Shareholders may be regular and extra-ordinary.
7.3.   Regular (annual) meeting(s) of shareholders shall be gathered once (twice)15
       a year on ______ [in digits] (_____) [in words](date) of each year.16
7.4.   All meetings of shareholders other than regular shall be considered extra-
       ordinary.
7.5.   The General Meeting of Shareholders shall be valid if a quorum is present.17
7.6.   The detailed procedures for preparing and conducting the General Meeting
       of Shareholders shall be specified in the by-laws on the General Meeting of
       Shareholders.
7.7.   The General Meeting of Shareholders shall be held in the Republic of
       Azerbaijan at the location of the Company. In case the General Meeting of
       Shareholders cannot be held at this address, another appropriate place shall
       be designated.
7.8.   The following issues shall fall within the authority of the General Meeting of
       Shareholders and shall be decided upon by 2/3 (two third) majority vote of
       shareholders:18
7.8.1. The reorganization and liquidation of the Company;19
7.8.2. Making amendments and additions to the Charter of the Company;


13 Pursuant to article 107.3 of CCRA, the Supervisory Board is created in a joint stock company that
   has more than 50 (fifty) shareholders. However, there is no prohibition to create Supervisory Board
   in companies with less than 50 (fifty) shareholders. IFC ACGP recommends establishment of
   Supervisory Board in a company even with less than 50 (fifty) shareholders.
14 Pursuant to article 107.4 of CCRA, the executive body of the Company can be collective

   (management board, directorate) and/or individual (director, general manager).
15 Pursuant to article 107.1-2 of CCRA, the regular general meeting of shareholders must be

   convened not less than once a year (annual general meeting).
16 Pursuant to article 107-1.3 of CCRA, the annual general meeting of shareholders shall be convened

   by the Supervisory Board not later than 6 (six) months after the end of financial year.
17 Quorum for the General Meeting of Shareholders shall be determined according to article 107.2 of

   CCRA.
18 Pursuant to article 107-5.1 of CCRA such significant decisions as on reorganization and liquidation

   of the Company, and on amendments and additions to the Company’s Charter, are adopted by a
   majority of 2/3 of the shareholders who have voting rights. Based on such legislative intent, IFC
   ACGP recommends that the decisions on other issues which are not stipulated in the legislation,
   but are of the same significance as the above mentioned ones, be adopted by a majority of 2/3 of
   the shareholders.
19 Pursuant to article 108.1 of CCRA, a joint stock company may be voluntarily reorganized or

   liquidated based on a decision of the General Meeting of Shareholders.


                                                -5-
7.8.3. An increase in the Charter Capital by increasing the nominal value of the
        outstanding shares or by issuing additional shares;
7.8.4. A reduction of the Charter Capital by decreasing the nominal value of the
        outstanding shares or by reducing the total number of outstanding shares
        through redeeming part of shares;20
7.8.5. Splitting, consolidating and converting shares;
7.8.6. The approval of extraordinary transactions involving more than 50% (fifty
        percentage) of the book value of the Company’s assets;
7.9.    The following issues shall fall within the authority of the General Meeting of
        Shareholders and shall be decided upon by a simple majority vote of the
        shareholders participating in the General Meeting of Shareholders:21
7.9.1. The approval of the amount and terms of compensation for the Supervisory
        Board’s chairperson and members;
7.9.2. The delegation of the authority of the Management Board (General Manager)
        to an External Manager (External Director);22
7.9.3. The approval of the amount and terms of compensation for the External
        Manager;
7.9.4. The election and dismissal of the Revision Commission’s (Inspector)
        members;23
7.9.5. The approval of the amount and terms of compensation for the Revision
        Commission’s (Inspector) members ;
7.9.6. The election of the External Auditor and approval of the amount and terms
        of compensation to the External Auditor;
7.9.7. The election of the Counting Commission consisting of ______ [in digits]
        (_____) [in words] members;24
7.9.8. The approval of by-laws of the governing bodies, the Revision Commission
        (Inspector) and the Corporate Secretary of the Company and other by-laws,
        not within the authorities of the Supervisory Board;
7.9.9. The approval of the annual and financial reports;
7.9.10. The declaration and payment of dividends, taking into consideration
        recommendations of the Supervisory Board and based on the results of each
        fiscal year;25



20
   See article 4.5 of the present Charter.
21
   Pursuant to article 107-5.1 of CCRA, the decision of the General Meeting of Shareholders shall be
   adopted by a simple majority of votes of the shareholders participating in the meeting, unless
   otherwise is stipulated by the civil code and the company’s charter. In other words, other majority
   voting caps may also be stipulated for the adoption of decision of the General Meeting of
   Shareholders on the issues mentioned in this article of the Charter. The best practices of corporate
   governance suggest that the decision on such issues be adopted by a simple majority of votes of
   the shareholders participating in the General Meeting of Shareholders.
22 Pursuant to article 107.4 of CCRA, another commercial entity or individual entrepreneur may act

   as the External Manager.
23 Pursuant to article 107-11.1 of CCRA, this body may be organized in a collective (Revision

   Commission) or individual (Inspector) composition.
24 Pursuant to article 107-4 of CCRA, in order to determine results of voting at the General Meeting

   of Shareholders in companies with more than 100 (one hundred) shareholders, there must be
   established Counting Commission, consisting of at least 3 (three) members.
25 See article 5.6 of the present Charter.




                                                 -6-
7.9.11. The approval of extraordinary transactions, involving more than 25%
        (twenty five percentage) and up to 50% (fifty percentage) of the book value
        of the Company’s assets;
7.9.12. Determining the amount of deductions to the reserve fund of the Company;
7.9.13. Authorization for the Company to participate in the holding companies,
        financial and industrial groups, and any associations or other unions of
        commercial entities for commercial purposes.
7.10. The appointment and dismissal of the Chairperson and members of the
        Supervisory Board26 shall also fall within the authority of the General
        Meeting of Shareholders.27
7.11. Written notification on the convening of the General Meeting of Shareholders
        shall be sent to shareholders by registered mail. At the same time, the
        announcement on the convening the General Meeting of Shareholders shall
        be published in at least one national daily newspaper.
7.12. To secure the right of shareholders to demand changes in the agenda of the
        General Meeting of Shareholders, a draft agenda shall be sent to the
        shareholders at least 65 (sixty five) days prior to the convening of the General
        Meeting of Shareholders. Shareholders’ proposals to the draft agenda shall
        be presented 50 (fifty) days prior to the convening of the General Meeting of
        Shareholders. 28
7.13. Shareholders shall carry out their right to demand changes to the agenda of
        the General Meeting of Shareholders without prejudice to the timely holding
        of the General Meeting of Shareholders.29
7.14. No decision shall be made on issues not included in the agenda of the
        General Meeting of Shareholders.
7.15. Documents on all issues of the agenda shall be made available to
        shareholders 30 (thirty) days30 prior to the General Meeting of Shareholders.
7.16. The issues that are within the authority of the General Meeting of
        Shareholders may not be delegated to the Management Board (General
        Manager) of the Company;




26 Pursuant to the Article 107-7.6 of the CCRA, the General Meeting of Shareholders by its decision
   may early terminate tenure of the Supervisory Board or any of its member. .
27 See article 8.2 of the current Charter.
28 According to articles 107-1.4 and 107-1.5.3 of CCRA, the agenda of the General Meeting of

   Shareholders included in the notification shall be sent to shareholders 45 (forty five) days prior to
   the convening of the General Meeting of Shareholders. Submitting the draft agenda to the
   shareholders 65 (sixty five) days prior to and seeking shareholders’ proposals to the draft agenda
   50 (fifty) days prior to the convening of the General Meeting of Shareholders sets an effective
   mechanism for the shareholders’ right to demand changes to the agenda and helps to minimize the
   possibility of jumping over the deadline for convening the General Meeting of Shareholders
   (article 107-1.3 of CCRA). .
29
   Pursuant to the Article 107-1.3. of the CCRA, the General Meeting of Shareholders shall be
   convened not later than 6 (six) months after the completion of the financial year. Thus, June 30 is
   the deadline for holding the regular general meeting of shareholders.
30 30 (thirty) days advance availability of documents provides the maximum period for the

   shareholders to get acquainted with the documents complying with the periods specified in
   articles 107-1.4 and 107-1.8.3 of CCRA.


                                                 -7-
VIII. SUPERVISORY BOARD

8.1.     The Supervisory Board of the Company shall exercise general governance
         and supervise operations of the Company.
8.2.     The Supervisory Board shall consist of ______ [in digits] (_____) [in words]
         members. The Supervisory Board’s members shall be elected by the General
         Meeting of Shareholders for the period of ______ [in digits] (_____) [in words]
         years.31 ”The Supervisory Board’s members” or “the members of the
         Supervisory Board” shall include all members and the Chairperson of the
         board.
8.3.     The Supervisory Board’s members shall be elected by cumulative voting.32
8.4.     Except for cases when the entire Supervisory Board is to be removed by the
         General Meeting of Shareholders, the amount of votes cast for election by
         cumulative voting of any member of the Supervisory Board shall be the basis
         for such member’s removal without cause. In this case, the removal is not
         possible if votes cast against such member’s removal equals (or exceeds) the
         number of votes cast for election of such member.
8.5.     A person who is not a shareholder of the Company may also be elected to the
         Supervisory Board.33
8.6.     The Chairperson of the Supervisory Board shall lead the board and chair at
         the General Meeting of Shareholders.
8.7.     The candidates for the position of the member of the Supervisory Board shall
         meet the following qualifications:
8.7.1.   Possess higher education;
8.7.2.   Be fit and proper;34
8.7.3.   …………………_;
8.7.4.   …………………_;
8.8.     To elect the Supervisory Board’s members the shareholders shall have the
         following information about candidates:
8.8.1.   The identity of the shareholder or a group of shareholders who nominated
         the candidate;
8.8.2.   The age and educational background of the candidate;

31 Pursuant to article 107-7.4 of CCRA, members of the Supervisory Board shall be elected by the
   General Meeting of Shareholders for the period of no more than 3 (three) years.
32 A system for electing directors to the Supervisory Board whereby a shareholder may multiply his

   or her number of shares by the number of open directorships and cast the total for a single
   candidate or select a few candidates. The main principle of cumulative voting is that a shareholder
   distributes its multiplied votes among nominees and is able to accumulate all its votes with one
   nominee. Cumulative voting enhances the ability of minority shareholders to elect at least one
   director.
33 Pursuant to article 107-7.5 of CCRA, the company may prohibit in its charter election of non-

   shareholders.
34 By analogy with the “Law on Banks” of the Republic of Azerbaijan “fit and proper person” shall

   mean a person of civil integrity, who by virtue of his walk of life may be regarded as honest and
   trustworthy and whose professional qualifications and experience, financial position, or business
   interests do not disqualify that person to be a member of the Supervisory Board of the Company.
   “Civil integrity” shall mean absence of criminal record for intended crime; past criminal
   indictments for dangerous and especially dangerous crimes against property and economic crimes,
   absence of a prohibition on occupation of a certain position or practicing a profession imposed by a
   decision of the court.


                                                -8-
8.8.3.   The position(s) held by the candidate during the last 5 (five) years;
8.8.4.   The position(s) held by the candidate at the moment of his/her nomination;
8.8.5.   The nature of the relationship the candidate has with the Company;
8.8.6.   The positions held by the candidate to the Supervisory Board, or any other
         positions that are held by the candidate in other legal entities;
8.8.7.   The relationship of the candidate with any affiliated persons of the
         Company;35
8.8.8.   The nature of the candidate’s relationship with major business partners36 of
         the Company;
8.8.9.   Information related to sources of income of the candidate and other
         circumstances that may affect the duties of the candidate as a member of the
         Supervisory Board.
8.9.     The members of Supervisory Board shall:
8.9.1.   Act in the best interest of the Company;
8.9.2.   Owe fiduciary duties37 to the Company and carry out their duties with an
         appropriate degree of care and loyalty;
8.9.3.   Not disclose confidential or any other valuable and non-public information
         he/she became aware of during the course of performing his/her duties to
         persons that do not have access to such information, nor use such
         information for their own personal interests or for the interests of other
         persons;
8.9.4.   Notify the Supervisory Board in writing of any conflicts of interests and do
         not participate in voting on that transaction;
8.9.5.   Provide the shareholders with complete and accurate information about the
         Company’s activities, financial status and corporate governance practices in
         a timely manner.
8.9.6.   Be entitled to act as a member or chairperson in the Supervisory Boards of
         not more than ______ [in digits] (_____) [in words] other companies.38
8.9.7.   Not act either as member of the Supervisory Board or officer or employee of
         any competing company;
8.9.8.   Disclose the information on transactions with securities in his/her ownership
         to mass media before concluding such transactions.39

35 By analogy with the “Law on Banks” of the Republic of Azerbaijan “affiliated persons” shall mean
   members of the Supervisory Board, Management Board (General Manager), Revision Commission
   (Inspector), chief accountant (head of the accounting service), heads and chief accountants of the
   Company’s branches, departments and representative offices as well as the Company’s other
   officials participating in decision making and close relatives thereof (husband/wife, parents,
   including parents of spouse, grandparents, children, including those legally adopted, brother and
   sister); any person who has qualifying holding (10% (ten percentage) and more) in the Company,
   or legal entity, in which the Company has the qualifying holding, and any person who has the
   qualifying holding in this legal entity, as well as heads of executive bodies of these legal entities,
   who have such qualifying holding
36 For the purposes of the present Charter “major business partner” is a person which has continuous

   business relations which the Company and whose total amount of transactions with the Company
   equals or more than 10% (ten percentage) of the book value of the Company’s assets.
37 A duty to act with the highest degree of honesty and loyalty towards the Company and its

   shareholders and in the best interests of the Company and its shareholders.
38 The IFC ACGP recommends not to provide for more than three (3) directorships for an acting

   director in the Supervisory Board.
39 Pursuant to article 107-10.6 of CCRA.




                                                  -9-
8.10. The 1/3 of the Supervisory Board’s members shall be independent.
8.11. For the purposes of the present Charter, the Supervisory Board’s member(s)
        shall be deemed independent if: 40
8.11.1. He/she (they) are not shareholders of the Company;
8.11.2. His/her (their) relationship with the Company, Supervisory Board,
        Management Board (General Manager), Revision Commission or any other
        officer is limited by their directorship in the Supervisory Board;
8.11.3. Over the last three years has (have) not been, and, at the time of his/her
        (their) election to the Supervisory Board, is (are) not an executive officer(s) or
        employee(s) of the Company;
8.11.4. Over the last three years has (have) not been, and, at the time of his/her
        (their) election to the Supervisory Board, is (are) not an affiliated person(s)41
        of any officer of the Company;
8.11.5. Over the last three years has (have) not been, and, at the time of his/her
        (their) election to the Supervisory Board, is (are) not a major business
        partner(s)42 of the Company
8.12. Independent Director(s) shall inform the Supervisory Board of any changes
        in his/her (their) independence.
8.13. The Supervisory Board’s meetings shall be held ______ [in digits] (_____) [in
        words] (frequency)43 and the Chairperson of the Supervisory Board shall chair
        those meetings.
8.14. The Supervisory Board’s meetings are convened by the Chairperson of the
        Supervisory Board upon:
8.14.1. The initiative of the Chairperson of the Supervisory Board; or
8.14.2. The request of the Supervisory Board’s member; or
8.14.3. The request of the Revision Commission (Inspector); or
8.14.4. The request of the Management Board (General Manager); or
8.14.5. The request of the External Auditor; or
8.14.6. The request of shareholders holding 5% (five percentage) of the Company’s
        voting shares. 44
8.15. The procedures for conducting the Supervisory Board’s meetings shall be
        specified in the by-laws for the Supervisory Board.
8.16. By the request of the Supervisory Board any other officer of the Company
        shall participate at the meeting of the Supervisory Board.
8.17. A quorum for the Supervisory Board’s meeting shall be ______ [in digits]
        (_____) [in words] of the elected Supervisory Board’s members.45

40 The independence of the Supervisory Board’s member is important for the effective activity of the
   Board and the Company as a whole. The present Charter establishes a minimum framework for
   independency of its Supervisory Board’s member. However, the Company may set additional and
   wider criteria for determining the independency of its Supervisory Board’s member.
41 A person that has significant influence over the Company, and that can direct the decisions and

   operations of the Company.
42 See article 8.8.8 of the present Charter.
43 Pursuant to article 107-9.1 of CCRA, the Supervisory Board’s meetings shall be convened not less

   than once in three months by the Chairperson of the Supervisory Board. Following the best
   corporate governance practices the IFC ACGP recommends to have the Supervisory Board’s
   meetings more frequently.
44 Pursuant to article 107-9.1 of CCRA the Company’s Charter may provide for “other persons,”

   which can demand convening of the Supervisory Board’s meeting from the Chairperson.
45 The IFC ACGP recommends to provide for different quorums for different issues on the agenda.




                                               - 10 -
8.18.   Decisions at the meetings of the Supervisory Board shall be adopted by
        simple majority of votes, with each member of the Supervisory Board having
        one vote. In case of even division of votes, the Chairperson’s vote is
        considered a decisive vote for accepting or rejecting a decision.46
8.19. The Supervisory Board’s member shall be prohibited from transferring
        his/her vote to any other person, including other members of the
        Supervisory Board.
8.20. The Supervisory Board may make its decisions by an absentee vote.
8.21. The written opinions of absentee Supervisory Board’s members shall be
        considered at the meeting of the Supervisory Board when it makes decisions.
8.22. The following issues shall fall within the exclusive authority of the
        Supervisory Board:47
8.22.1. Determining the strategic direction and strategic goals of the Company;
8.22.2. Approving the financial and business plans of the Company;
8.22.3. Supervising the operations of the Management Board (General Manager);
8.22.4. Appointing and dismissing the Head and the members of the Management
        Board (General Manager);48
8.22.5. Appointing the Corporate Secretary;
8.22.6. Approving the Registrar of the Company;49
8.22.7. Designating terms of contracts with the Head of the Management Board
        (General Manager), the Management Board’s members, the Corporate
        Secretary, the Company’s Registrar and the External Manager (individual
        entrepreneur),50 including the amount and terms of remuneration thereof;
8.22.8. Authorizing other members of the Supervisory Board, other than the
        Chairperson of the Supervisory Board, to sign contracts with the Head of the
        Management Board (General Manager), the Management Board’s members,
        the Corporate Secretary, the Company’s Registrar and the External Manager
        (individual entrepreneur);
8.22.9. Authorizing members of the Management Board (General Manager) to serve
        in any governing body (except Management Board/General Manager or any
        other executive body/position) of another legal entity;51
8.22.10. Establish permanent and ad hoc (temporary) Supervisory Board’s
          committees;

46 Pursuant to article 107-9.3 of CCRA.
47 Pursuant to article 107.3 of CCRA, the issues that the Company’s Charter refers to exclusive
   authorities of the Supervisory Board can not be delegated by the Board to executive body of the
   Company for decision-making.
48 Pursuant to article 107.1.3 of CCRA, this issue shall be decided by the General Meeting of

   Shareholders, unless it is referred to the authorities of the Supervisory Board in the Company’s
   Charter.
49 Pursuant to article 106-2.2 of CCRA, if the number of owners of registered shares does not exceed

   20 (twenty) shareholders, the Company may the register itself; in other cases, register-keeping
   function must be delegated to a registrar being a professional participant of the stock market.
50 Pursuant to article 107.4 of CCRA, the powers of a company’s executive body may be delegated on

   a contract basis to another commercial entity or individual entrepreneur based on decision of the
   general meeting of shareholders.
51 Pursuant to article 107-10.4 of CCRA, members of the Management Board (General Director) of the

   Company shall be allowed to occupy positions in other companies, subject to no conflict with the
   legislation and consent by the Supervisory Board. This consent can be given by the General
   Meeting of Shareholders, if it is so authorized by the Charter.


                                              - 11 -
8.22.11. Adopting and approving the by-laws for the Supervisory Board’s
         committees;
8.22.12. Establishing and liquidating branches and representative offices of the
         Company;
8.22.13. Convening the annual General Meeting of Shareholders; 52
8.22.14. Determining time for commencing and ending the registration of
         shareholders and their representatives;
8.22.15. Approving the list of persons, in addition to shareholders of the Company,
         entitled to participate in the annual General Meeting of Shareholders;
8.22.16. Reviewing proposals of shareholders and including approved proposals in
         the agenda of the General Meeting of Shareholders or rejecting proposals
         with reasonable explanations;
8.22.17. Approving the agenda of the annual General Meeting of Shareholders;
8.22.18. Compiling the list of information and materials to be made available for
         shareholders during the preparation for the annual General Meeting of
         Shareholders;
8.22.19. Determining the form and the text of the voting ballot;
8.22.20. Including additional items on the agenda of the General Meeting of
         Shareholders upon its own initiative;
8.22.21. Initiating convening of an extra-ordinary General Meeting of Shareholders;
8.22.22. Proposing the procedures for the payment of dividends to shareholders53
         and making recommendations on the payment of dividends;
8.22.23. Approving or rejecting the related party transactions;54
8.22.24. Approving any transactions that involve 10% (ten percentage) to 25%
         (twenty five percentage) of the book value of the Company’s assets;55
8.22.25. Making decision on revision of the Company’s financial/economic activity
         by the Revision Commission (Inspector);56
8.22.26. Making recommendations to the General Meeting of Shareholders
         regarding the remuneration of the Revision Commission’s members;
8.22.27. Signing the contract with the External Auditor, the terms of which
         approved by the General Meeting of Shareholders;
8.22.28. Making recommendations to the General Meeting of Shareholders on
         increasing and reduction of the Charter Capital of the Company;
8.22.29. Requesting from the Management Board (General Manager) and any other
         officers of the Company oral and written reports as well as any other


52 Pursuant to article 107-1.3 of CCRA, the General Meeting of Shareholders shall be gathered by
   executive body if the Company does not have the Supervisory Board.
53 Pursuant to article 106-3.5 of CCRA, such proposal is made by the Supervisory Board or, if that

   body is not established, by executive body of the Company. See article 9.11.2 of the present Charter.
54 Related party transactions shall mean business operations between two parties that originally have

   special relations with each other. For example, the contract for repair works in the office of the
   Company signed between the Head of the Management Board of the Company and its shareholder
   or his relative is considered a related party transaction.
55 Pursuant to article 99.3 of CCRA, a deal which amounts to more than 25% (twenty five percentage)

   of the book value of net assets of the Company shall be considered a special deal and the decision
   on the special deal shall be adopted by the General Meeting of Shareholders.
56 Pursuant to article 107-11.5 of CCRA, audit of financial/economic activity of the Company can also

   be conducted based on the decision of the General Meeting of Shareholders or the Supervisory
   Board.


                                                - 12 -
           documents and information necessary to fulfill its duties as Supervisory
           Board;
8.22.30.   Making decisions regarding operations that go beyond the financial and
           business plans of the Company;
8.22.31.   Determining the list of additional documents to be prepared and kept by
           the Company;
8.22.32.   Preliminarily approving the annual report of the Company;
8.22.33.   Developing and reviewing the remuneration system for the Management
           Board (General Manager);
8.22.34.   Preparing and approving the annual report of the Supervisory Board on
           business priorities of the Company for inclusion into the annual report of
           the Company.
8.23.      Issues falling under the exclusive authority of the Supervisory Board may
           not be delegated to the Management Board (General Manager) of the
           Company.

IX.     EXECUTIVE BODY

9.1.    The management of day-to-day operations of the Company shall be
        conducted by its collective (sole) executive body – Management Board
        (General Manager).57
9.2.    The Management Board (General Manager) shall be accountable to the
        Supervisory Board and the General Meeting of Shareholders.
9.3.    The members of the Management Board (General Manager) shall be
        appointed      and      dismissed        by      the     Supervisory Board.58
        ”The Management Board’s members” or “the members of the Management
        Board” shall include all members and the Head of the board.
9.4.    The Management Board shall consist of ______ [in digits] (_____) [in words]
        members.
9.5.    The members of the Management Board shall be elected for the period of not
        more than ______ [in digits] (_____) [in words] years.59
9.6.    The members of the Management Board cannot be elected to the Supervisory
        Board of the Company.
9.7.    The members of the Management Board (General Manager) shall not serve
        on a governing body of any other company without prior approval of the
        Supervisory Board. The members of the Management Board (General
        Manager) cannot be members of management board or hold any executive
        position in any other company and cannot act in any capacity in a competing
        company.
9.8.    In addition to the authorities stipulated by the present Charter, by-laws or
        any other legal documents, the rights and obligations of the members of the
        Management Board (General Manager) shall be specified in the employment
        contract signed between the members of the Management Board (General

57 Pursuant to article 107-4 of CCRA, based on decision of the General Meeting of Shareholders, the
   powers of a company’s executive body may be delegated on a contract basis to another commercial
   entity or individual entrepreneur.
58 See article 8.22.4 of the present Charter.
59 IFC ACGP recommends that this period not to exceed 5 years.




                                              - 13 -
        Manager) and the Company. The terms of such contract shall not be in
        conflict with the provisions of the Charter and by-laws of the Company and
        in case of any conflicts, the conflicting articles of such contract shall be
        amended as per the Charter and by-laws of the Company.
9.9.    The Head of the Management Board (General Manager) shall:
9.9.1. Act without a power of attorney on behalf of the Company and represent the
        Company in relations with third parties;
9.9.2. Conduct operations and sign contracts on behalf of the Company within the
        authorities set forth by the present Charter and by-laws of the Company;
9.9.3. Hire staff, sign labor contracts and lead activities of all employees of the
        Company;
9.9.4. Sign contracts with the Corporate Secretary and the Registrar of the
        Company;
9.9.5. Chair the Management Board’s meetings;
9.9.6. Convene the Management Board’s meetings on its own initiative, or by the
        request of a member of the Management Board or by the request of the
        Supervisory Board;
9.9.7. _______________________________;
9.9.8. _______________________________.
9.10. The Management Board’s member shall:
9.10.1. Regularly attend and actively participate in the Management Board’s
        meetings;
9.10.2. Actively participate in the discussion of issues and vote on matters included
        in the agenda of the Management Board’s meetings;
9.10.3. Be entitled to propose issues to the agenda of the Management Board’s
        meetings and request from the Head of the Management Board to convene
        the Management Board’s meeting;
9.10.4. Notify the Head of the Management Board if unable to attend the
        Management Board’s meeting;
9.11. The following shall fall within the authority of the Management Board
        (General Manager):
9.11.1. Development of the Company’s financial and business plans;
9.11.2. Making proposal to the General Meeting of Shareholders on dividends and
        their payment procedure;60
9.11.3. Convening annual (regular) General Meeting of Shareholders;61
9.11.4. Taking initiative on convening an extra-ordinary General Meeting of
        Shareholders;62
9.11.5. Convening an extra-ordinary General Meeting of Shareholders;
9.11.6. Other authorities.63


60
   Pursuant to article 106-3.5 of CCRA, the Company’s executive body enjoys this power only if
   Supervisory Board is not established in the Company. See article 8.22.22 of the present Charter.
61
   Pursuant to article 107-1.3 of CCRA, the Company’s executive body enjoys this power only if
   Supervisory Board is not established in the Company.
62
   Pursuant to article 107-1.6 of CCRA, where the Supervisory Board is not established in the Company, an
   extra-ordinary General Meeting of Shareholders is convened by the initiative of the executive body.
63 Pursuant to article 107-10.2 of CCRA, the scope of powers of executive body of the Company shall

   include all issues that are not referred to exclusive authorities of other governing bodies of the
   company.


                                                 - 14 -
9.12.   The procedures for conducting the Management Board’s meetings shall be
        specified in the by-laws for the Management Board.
9.13. The Management Board shall make decision by a simple majority votes of its
        members. In case of even division of votes, the Head’s vote is considered a
        decisive vote for accepting or rejecting a decision
9.14. The Management Board’s (General Manager) members shall owe fiduciary
        duties to the Company and shall strictly adhere to the following:
9.14.1. Act honestly;
9.14.2. Act in the best interests of the Company;
9.14.3. Act with care and be loyal to the Company;
9.14.4. Refrain from participating in the related party transactions;
9.14.5. Not disclose confidential information, or any other material and non-public
        information they became aware of during the course of performing their
        duties to persons that do not have access to such information, nor use such
        information for their own personal interests or for the interests of other
        persons;
9.14.6. Notify the Supervisory Board in writing of any conflicts of interests and
        abstain from voting on any such transactions.
9.14.7. Provide the Supervisory Board and shareholders with complete and accurate
        information about the Company’s activities, financial status and corporate
        governance practices in a timely manner.
9.14.8. Disclose the information on transactions with securities in their possession to
        mass media before concluding such transactions.64

X.         CORPORATE SECRETARY

10.1.   The position of the Corporate Secretary shall be established by the decision
        of the General Meeting of Shareholders.
10.2. The Corporate Secretary shall be appointed by the Supervisory Board and
        shall discharge its responsibilities in compliance with the Company’s
        Charter, the by-laws for the Corporate Secretary and his/her individual
        contract.
10.3. The Corporate Secretary shall:
10.3.1. Ensure compliance of preparation and conducting of the General Meeting of
        Shareholders and the Supervisory Board’s meetings with the legislation,
        the Charter and by-laws of the Company;
10.3.2. Ensure disclosure of relevant information and storage of documents of
        the Company;
10.3.3. Examine shareholders’ requests (inquiries);
10.3.4. Resolve any disputes related to violation of shareholders’ rights.
10.4. The candidate for the Corporate Secretary’s position shall meet the following
        qualifications:
10.4.1. …………………………..;
10.4.2. …………………………...
10.5. The Corporate Secretary shall be entitled to request any information from the
        Company’s governing bodies and employees as required to perform his/her


64   Pursuant to article 107-10.6 of CCRA.


                                             - 15 -
        duties. The Supervisory Board, the Management Board (General Manager)
        and other officials of the Company shall provide the Corporate Secretary
        with any information so requested.

XI.     REVISION COMMISSION (INSPECTOR)65 AND EXTERNAL AUDIT

11.1.   The Revision Commission (Inspector)66 shall be established for the purpose
        of revision of financial and business activity of the Company.
11.2. The Revision Commission (Inspector) shall be elected at the General Meeting
        of Shareholders for the period of ______ [in digits] (_____) [in words] years.67
11.3. The Revision Commission shall consist of ______ [in digits] (_____) [in words]
        members.
11.4. The member of the Revision Commission (Inspector) cannot be a
        shareholder, the Supervisory Board’s or Management Board’s (General
        Manager) member of the Company.68
11.5. The Revision Commission shall perform its duties in compliance with the
        legislation, the Company’s Charter and by-laws for the Revision Commission
        (Inspector).
11.6. The Revision Commission (Inspector) shall:69
11.6.1. Inspect the Company’s financial and business activities and submit its
        reports to the General Meeting of Shareholders, the Supervisory Board and
        the Management Board (General Manager);
11.6.2. Review the Company’s financial status, its solvency, and creditworthiness;
11.6.3. Examine the use of the Company’s reserve fund and other funds;
11.6.4. Inform the General Meeting of Shareholders and the Supervisory Board of
        any deficiencies revealed;
11.6.5. Oversee the valuation of the Company’s net assets;
11.6.6. Confirm the accuracy of data contained in the Company’s annual report and
        other annual financial statements;
11.6.7. Verify compliance of the activities of the Supervisory Board with the Law;
11.6.8. Verify facts regarding the use of insider information;70
11.6.9. Verify the timeliness of payments to contractors, payments to the budget,
        calculation, payment of dividends and payment for issued shares, and the
        performance of other obligations by the Company.




65 Pursuant to article 107-11.1 of CCRA, the revision of financial and business activities of the
   Company could be carried out by the collective organ - Revision Commission or sole official –
   Inspector.
66 Pursuant to article 107-11.1 of CCRA, the Revision Commission (Inspector) shall be established in

   the Company if there are more than 50 (fifty) shareholders. However, if the Company’s Charter
   stipulates, the Revision Commission (Inspector) may also be elected (appointed) even if there are
   less than 50 (fifty) shareholders in the Company.
67 Pursuant to article 107-11.4 of CCRA, the tenure of members of the Revision Commission

   (Inspector) shall be determined by the Charter, for the period not longer than 3 (three) years.
68
   Pursuant to article 107-11.3 of CCRA.
69 Internal audit function is, in fact, carried out by the Revision Commission and the modern

   business practice uses “audit” instead of “revision.”
70 Pursuant to article 1078-46.1 of CCRA – “inside information.”




                                              - 16 -
11.7.   The Revision Commission (Inspector) shall be entitled to request from all the
        bodies and officials of the Company any information related to the business
        activity of the Company;71
11.8. The Revision Commission (Inspector) shall carry out inspections:72
11.8.1 On its own initiative by decision of the General Meeting of Shareholders or
        the Supervisory Board; or
11.8.2. Upon the request of shareholders or a group of shareholders owning more
        than 10 (ten) percentage of the Company’s voting shares; or
11.8.3. Upon the request of the Management Board (General Director).
11.9. The Company shall have the External Auditor for the purpose of audit of the
        Company’s business activities.
11.10. The External Auditor shall be elected by the General Meeting of
        Shareholders.73
11.11. The balance sheet and accounts of the Company shall be examined and
        certified on an annual basis by the External Auditor74 and submitted for
        approval to the General Meeting of Shareholders.
11.12. External audit of the Company’s operations must be conducted any time
        upon request of the shareholders owning 10% (ten pecentage) and more
        shareholding in the Charter Capital of the Company.75
11.13. The duties of the External Auditor shall be defined by the legislation and the
        terms of contract signed with the External Auditor.76

XII.    THE ANNUAL REPORT OF THE COMPANY

12.1. The annual report77 of the Company shall include the following:
12.1.1. The Company’s market position in its industry;
12.1.2. Priority directions of the Company’s activities;
12.1.3. The report of the Supervisory Board on the Company’s results in its principal
        areas of activity;
12.1.4. Prospects for the Company’s development;
12.1.5. The report on the payment of declared dividends;
12.1.6. The analysis of the principal risks associated with the Company’s activities;
12.1.7. A list of extraordinary transactions concluded by the Company during the
        reporting year, including the significant terms of those transactions.
12.1.8. A list of related party transactions concluded by the Company during the
        reporting year including a list of related parties;
12.1.9. The composition of the Supervisory Board, including information regarding
        changes in the composition of the Board that took place during the reporting
        year, as well as information on the members of the Supervisory Board,


71 Pursuant to article 107-11.6 of CCRA.
72
   Pursuant to article 107-11.5 of CCRA.
73
   See article 7.9.6 of the present Charter.
74
   Pursuant to article 107.6 of CCRA,
75 Pursuant to article 107.6 of CCRA.
76
   See article 8.22.27 of the present Charter.
77 The full list of information that should be included in the Annual Report is stipulated in the Civil

   Code and the State Securities Commission’s Regulation on preparation and disclosure of annual
   reports by issuers of investment securities.


                                                 - 17 -
       including a brief summary of their personal data and information on their
       share ownership in the Company during the reporting year;
12.1.10. Information on the Management Board’s members (General Manager)
         including a brief summary of their personal data and information on their
         share ownership in the Company during the reporting year;
12.1.11. Criteria for the determination of remuneration for the Supervisory Board’s
         and Management Board’s (General Manager) members and the aggregated
         amount of remuneration paid to all these persons;
12.1.12. The discussion and the analysis of the results and developments for the last
         year by the Management Board (General Manager);
12.1.13. Corporate governance practices and policies of the Company;
12.1.14. Any other information required to be included in the by-laws of the
         Company.
12.2.    The annual report shall be signed by the Head of the Management Board
         (General Manager), the Chairperson of the Supervisory Board and Chief
         Accountant.
12.3.    The annual report of the Company shall be approved by its General
         Meeting of Shareholders.78

XIII. REORGANIZATION AND LIQUIDATION OF THE COMPANY

13.1.      The reorganization and liquidation of the Company shall be carried out
           pursuant to the grounds and procedures specified in the Civil Code of the
           Republic of Azerbaijan and other legal acts.

XIV. MISCELLANEOUS

14.1.      The issues related to the Company’s activities but not specified in the present
           Charter shall be regulated by the Company’s by-laws, the decisions of the
           General Meeting of Shareholders and the legislation of the Republic of
           Azerbaijan.
14.2.      The requirements of the Charter shall be binding upon all bodies, officials
           and shareholders of the Company.




78
     Pursuant to article 107.1.4 of CCRA.


                                            - 18 -