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<p align="center"><b>Corporate Governance Principles</b></p> |
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<p>With clearly defined strategic goals, PLIVA is the leading pharmaceutical company |
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in Central and Eastern Europe.</p> |
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<p>Since April 1996, the company has been listed on both the Zagreb and London |
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Stock Exchanges.</p> |
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<p>PLIVA's vision is to be a pharmaceutical company bringing superior and innovative |
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solutions to customer needs in the global market.</p> |
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<p>Within the company, there is no discrimination based on nationality, culture, |
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religion or gender.</p> |
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<p>The continual improvement of health protection, safety and the environment |
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is an integral part of PLIVA's strategy.</p> |
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<p> <b>Supervisory Board</b></p> |
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<p>The monitoring role of the Supervisory Board of the Company is regulated by |
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legislation of the Republic of Croatia principally embodied in the Companies |
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Act. It is also regulated by PLIVA's corporate by-laws.</p> |
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<p>The nine members of the Supervisory Board are elected by the General Assembly |
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to 4-year terms and can be re-appointed to two additional terms.</p> |
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<p>The Supervisory Board elects a president and a deputy president from among |
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its members by majority open vote.</p> |
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<p>Members of the Supervisory Board will possess international expertise, having |
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in mind that their experience and knowledge represent significant contributions |
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to the development and reputation of the Company.</p> |
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<p>Upon appointment, all new members of the Supervisory Board are given a comprehensive |
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introduction to the Company's business as well as to their roles and responsibilities |
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as Supervisory Board members. In addition, all members of the Supervisory Board, |
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if needed, have access to the advice and services of the Company Secretary with |
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regard to their roles and responsibilities as members of the Supervisory Board.</p> |
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<p>The Supervisory Board passes resolutions by an open majority vote of all its |
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members.</p> |
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<p>The re-appointment of the Supervisory Board members is not automatic and is |
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given careful consideration.</p> |
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<p>The Supervisory Board meets four times annually.</p> |
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<p>The Supervisory Board should meet according to a predetermined schedule.</p> |
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<p>The Supervisory Board report of its annual monitoring role is attached to the |
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Company's Annual Report.</p> |
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<p>Any business relationship between members of the Supervisory Board and the |
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Company will be published in the Annual Report. Supervisory Board members facing |
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a conflict of interest must inform the president of the Supervisory Board immediately |
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and resign before the end of their allotted term if an irreconcilable ongoing |
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conflict of interest arises. If a one-off conflict of interest arises (other |
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than by virtue of his/her interests in shares of, or otherwise in or through, |
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PLIVA), the relevant member will be required to disclose the relevant conflict |
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of interest immediately and will be prohibited from voting on the matters in |
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relation to that from which the conflict has arisen. This will also be the case |
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where the interest at issue is that of a person related to the relevant member.</p> |
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<p>The Supervisory Board is provided with regular and adequately detailed information |
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about the management of the Company, so as to be able to effectively fulfil |
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its monitoring role.</p> |
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<p>The Supervisory Board elects the president and members of the Management Board |
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of the Company (according the PLIVA's corporate by-laws) and determines their |
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remuneration.</p> |
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<p>The Supervisory Board should be well informed about the work of Company auditors, |
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who are elected by the General Assembly of the shareholders.</p> |
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<p>The Supervisory Board should consider the Company's strategy and the results |
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of the Management Board's assessment of the Company's internal systems of control.</p> |
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<p>The Supervisory Board can meet to discuss its own functioning and its relationship |
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with the Management Board. This discussion should also include an assessment |
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of the Management Board. Management Board members will not be allowed to attend |
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this meeting.</p> |
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<p><b>Management Board</b></p> |
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<p>The role of the Management Board of the Company is regulated by legislation |
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of the Republic of Croatia, principally embodied in the Companies Act. It is |
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also regulated by PLIVA's corporate by-laws.</p> |
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<p>The main task of the Management Board is to represent the best interests of |
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the Company's shareholders taken as a whole, to ensure the growth and maintenance |
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of a successful business.</p> |
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<p>All members of the Management Board should have a wide range of knowledge and |
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experience which they contribute to the Management Board's deliberations.</p> |
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<p>The Management Board has between three and seven members.</p> |
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<p>The president and the members of the Management Board are elected by the Supervisory |
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Board for a 5-year term with the possibility of re-appointment.</p> |
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<p>The Management Board reports regularly on its work to the Supervisory Board |
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in conformance with the laws of the Republic of Croatia, principally contained |
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in the Companies Act and PLIVA's corporate by-laws.</p> |
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<p>The Management Board will present a balanced and comprehensible assessment |
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of the Company's position and prospects by ensuring that:</p> |
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<li>both directors and auditors explain their reporting responsibilities in |
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financial reports;</li> |
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<li>interim and other price sensitive reports are balanced and understandable;</li> |
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<li>and financial reports are on a "going-concern" basis, including an explanation |
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of assumptions and qualifications.</li> |
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</ul> |
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<p>At least once annually, the Management Board submits a report on the Company's |
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business policy to the Supervisory Board.</p> |
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<p> The Management Board passes resolutions at its meetings by an open majority |
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vote of all its members.</p> |
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<p>The Management Board holds meetings at least once monthly.</p> |
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<p>The Management Board remuneration will be linked to corporate and individual |
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performance with clear criteria for the award of such pay.</p> |
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<p>Any real or apparent conflict of interest between any members of the Management |
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Board and the Company must be avoided. If a conflict does arise (other than |
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by virtue of an interest in shares of, or otherwise in or through, PLIVA), the |
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relevant member will be required to disclose the nature of his/her conflict |
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of interest and will be prohibited from voting on the matters in relation to |
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which it has arisen. This will also be the case where the interest at issue |
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is that of a person related to the relevant member.</p> |
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<p><b>Board Committees</b></p> |
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<p>The Supervisory Board has delegated specific powers, as set out in the terms |
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of reference to the following committees.</p> |
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<p><b>Audit Committee</b></p> |
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<p>The Audit Committee is a sub-committee of the Supervisory Board whose purpose |
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is to assist the Supervisory and Management Boards in the effective discharge |
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of their responsibilities for corporate governance, financial reporting and |
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corporate control.</p> |
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<p>The Audit Committee has no executive powers with regard to its recommendations |
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and does not relieve the Supervisory Board or the Directors of their responsibilities |
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for these matters.</p> |
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<p><b>Membership</b></p> |
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<p>The Audit Committee shall be composed of at least three members of the Supervisory |
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Board who are not officers or employees of the Company and are not linked in |
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any way to the external auditors, such members being chosen by the Supervisory |
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Board to serve for such term or terms as shall be determined by the Supervisory |
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Board. The Audit Committee's chairman will be chosen by its members in conjunction |
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with the chairman of the Supervisory Board.</p> |
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<p><b>Responsibilities</b></p> |
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<p>The Audit Committee shall have the following responsibilities and powers and |
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shall perform the following functions:</p> |
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<p><b>(a)</b> Recommend to both the Supervisory and Management Boards the engagement |
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and discharge of the firm of external auditors which performs the annual audit |
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of the Company financial statements.</p> |
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<p><b>(b)</b> Meet with the external auditors to review the proposed scope and |
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nature of the annual audit, and to review the results of the audit engagement.</p> |
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<p><b>(c)</b> Consider the amount and relationship of the audit fees.</p> |
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<p><b>(d)</b> Discuss with the external and internal auditors the results of the |
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audit(s) from the preceding year, including:</p> |
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<ul> |
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<li>A review of the audited financial statements;</li> |
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<li>A review of any memorandum containing recommendations for improving accounting |
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procedures and internal controls;</li> |
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<li> The extent to which major recommendations made by the external auditors |
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and the Company Internal Audit department have been implemented;</li> |
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<li>The adequacy of the Company's accounting principles and policies when compared |
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to the industry in general;</li> |
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<li>A determination that the Company's financial statements constitute a full |
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and meaningful report to the shareholders and creditors.</li> |
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</ul> |
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<p><b>(e)</b> Review with management and the external auditors all significant |
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issues concerning litigation, contingencies, claims, assessments and all material |
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accounting issues that require disclosure in the financial statements.</p> |
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<p><b>(f)</b> Review the services provided by the Company's Internal Audit department |
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including: The planned scope of the internal audit programme, its objectives |
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and the staff required to attain these objectives; The activities of the Company |
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Internal Audit department during the preceding period which should be accompanied |
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by a brief summary report in writing; The working relationship between the Company |
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Internal Audit department and external auditors.</p> |
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<p><b>(g)</b> If requested either by members of the Audit Committee or the Company |
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Internal Audit Manager, meet with the Company Internal Audit Manager; and</p> |
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<p><b>(h)</b> Provide a report of Audit Committee activities and findings to the |
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subsequent Supervisory Board.</p> |
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<p><i>Authority</i></p> |
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<p>The Committee shall:</p> |
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<p><b>(a)</b> Oversee any investigation of activities which are within its terms |
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of reference.</p> |
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<p><b>(b)</b> Have the right to seek any necessary information to fulfil its responsibilities.</p> |
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<p><b>(c)</b> Have the right to obtain outside legal help and any professional |
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advice, at the Company's expense, which might be necessary for the fulfilment |
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of its duties.</p> |
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<p><b>(d)</b> Have the power to call any member of staff to be questioned at a |
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meeting of the Committee as and when required.</p> |
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<p> <i>Quorum</i></p> |
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<p>A quorum should consist of two members. All actions of the committee should |
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be subject to a majority vote with the chairman having the deciding vote. Voting |
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should be conducted verbally and the results should be recorded in the minutes. |
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Copies of the minutes of the Audit Committee shall be available to the Management |
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and Supervisory Board at the subsequent Supervisory Board.</p> |
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<p><i>Meetings</i></p> |
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<p>The Audit Committee shall meet at least twice annually, at least two weeks |
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prior to the meetings of the Supervisory Board which consider the half year |
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and full year accounts. At the meeting prior to the full year accounts, it is |
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mandatory for the external Auditors to be present in person. It is anticipated |
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that the meeting to consider the annual accounts will be the principal occasion |
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for the Committee to discharge its responsibilities. The President of the Management |
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Board, the Finance Director and the Company Internal Audit Manager shall be |
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invited to attend meetings.</p> |
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<p>The Audit Committee may meet at other times at the request of its Chairman.</p> |
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<p><i>Secretary</i></p> |
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<p>The Company Secretary will be the secretary to the Audit Committee and shall |
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keep the appropriate minutes of issues discussed.</p> |
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<p><b>Remuneration Committee</b></p> |
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<p> As a matter of good practice, the Management Board members should not be responsible |
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for determining their own remuneration.</p> |
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<p>The Company's Remuneration Committee is comprised of two members of the Supervisory |
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Board and the president of the Management Board. Other persons may attend upon |
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invitation by the president or the members of the Remuneration Committee. The |
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Company Secretary or their nominee shall be the Secretary of the Committee.</p> |
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<p>The Remuneration Committee shall make recommendations to the Supervisory Board |
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on the Company's framework of Management Board remuneration and its cost, as |
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well as specific remuneration packages for each of the members of the Management |
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Board, including pension rights and any compensation payments in the event of |
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early termination.</p> |
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<p>The Remuneration Committee should ensure that performance-related elements |
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of remuneration from a significant proportion of the total remuneration of Management |
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Board members in order to keep their interests aligned with those of shareholders, |
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giving incentives for high performance levels.</p> |
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<p><i>Meetings and quorum</i></p> |
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<p>A meeting of the Remuneration Committee may be called by any member of the |
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Committee or by the Secretary.</p> |
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<p>Notice of each meeting confirming the venue, time and date together with an |
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agenda of items to be discussed shall be forwarded to each member of the Committee |
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not fewer than five working days prior to the date of the meeting. The quorum |
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for the Committee meeting shall be a majority of its members.</p> |
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<p>In the absence of the Committee Chairman, the remaining members present shall |
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elect one of their number to chair the meeting.</p> |
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<p>The Secretary shall keep appropriate records of all meetings of the Committees |
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with appropriate minutes of the proceedings and resolutions.</p> |
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<p><i>Authority</i></p> |
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<p>The Remuneration Committee shall:</p> |
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<ul> |
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<li>oversee any investigation of activities which are within its terms of reference |
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and act as a court of the last resort;</li> |
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<li>have the right to seek any necessary information to fulfil the above duty;</li> |
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<li>have the right to obtain legal help and any professional advice which might |
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be necessary for the fulfilment of its duties;</li> |
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<li> have the power to call any member of staff to be questioned at a meeting |
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of the Committee as and when requested.</li> |
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</ul> |
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<p>The Remuneration Committee should account directly to the Supervisory Board |
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for the decisions the committee reaches.</p> |
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<p> <b>General Assembly</b></p> |
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<p>The approval of the annual financial results and the policy of the Management |
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Board as well as the Supervisory Board's supervising function are separate items |
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on the agenda of the General Assembly.</p> |
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<p>Members of the Management Board and the Supervisory Board report to the General |
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Assembly. Shareholders' confidence in the Management Board and the Supervisory |
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Board is one of the essential prerequisites of the Company's successful performance.</p> |
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<p>The General Assembly of shareholders is convened in compliance with Croatian |
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law.</p> |
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<p>The General Assembly can pass valid resolutions only when shareholders or their |
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proxies holding shares of a nominal value exceeding 50% of the Company's total |
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share capital are present at its meeting.</p> |
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<p>If there is a lack of quorum, the subsequent General Assembly can pass valid |
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decisions regardless of the number of shareholders present.</p> |
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<p>Shareholders who represent at least one-twentieth of the share capital have |
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a right to request a General Assembly meeting to be convened by the Management |
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Board.</p> |
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<p><b>General</b></p> |
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<p>One of the most important characteristics of a successful company aiming to |
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generate value for its shareholders is its intention to elect experienced and |
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independent persons as members of the Supervisory Board, as well as skilful |
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members of the Management Board in order to protect the best interest of the |
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shareholders and achieve the long-term objectives of the Company.</p> |
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<p>The work of the Management Board and the Supervisory Board is regulated by |
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the Company's corporate by-laws.</p> |
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<p>The Management and Supervisory Boards (each in its own capacity) are responsible |
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for ensuring that the Company is run with integrity, complies with legal and |
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regulatory requirements and best practice and conducts its business in accordance |
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with high ethical standards.</p> |
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<p>Members of the Management and Supervisory Board will not disclose confidential |
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information about the business activities of PLIVA to third parties (other than |
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to PLIVA's legal or financial advisers).</p> |
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<p>PLIVA has adopted a Code on Share Dealings in line with the Model Code contained |
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in the Listing Rules of the London Stock Exchange.</p> |
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<p>The Company complies with its Zagreb and London Stock Exchanges requirements |
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to notify shareholders or obtain their consent in relation to material transactions |
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of the Company or its subsidiaries and transactions with related parties.</p> |
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<p>All shareholders will be treated on an equal basis. The Company's policy is |
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to enter into dialogue with its shareholders based on a mutual understanding |
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of objectives.</p> |
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<p>The Company has established a strong system of regular internal control to |
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safeguard the shareholders' investment and the Company's assets involving the |
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ultimate reporting to the president of the Management Board. If there is a risk |
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of material fraud or comparable problems, the president of the Management Board |
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is obliged to notify the Supervisory Board without delay.</p> |
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<p>The shareholdings and options held by members of the Supervisory Board and |
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the Management Board have been conceived as long-term investments, and the data |
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on the aggregate shares and options held by each is contained in the Company's |
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Annual Report. Supervisory Board and the Management Board members must report |
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to the Company Secretary on any share acquisitions or disposals by them.</p> |
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<p>The remuneration of the members of the Supervisory Board is not related to |
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the financial results of the Company.</p> |
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<p>The Company will maintain an objective and professional relationship with its |
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auditors.</p> |
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<p>In conformity with the rules of the Zagreb and London Stock Exchanges, the |
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Company has undertaken to report on its results to shareholders and investors |
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on a half-year basis.</p> |
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<p>The Company has a system of disclosure of information which includes regular |
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reporting on events having a significant influence on the price of the Company's |
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shares in Croatia or the United Kingdom.</p> |
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<p>There should be a formal and transparent management remuneration policy.</p> |
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<p>An employee stock option plan was introduced to motivate employees to increase |
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the Company's market value.</p> |
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<p>The main principles of Corporate Governance in the Company will be stated in |
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the Annual Report.</p> |