THE CZECH REPUBLIC · Czech Republic (“SEC”), but since April 1, 2006, the Czech National Bank (“CNB”) took over its responsibilities of capital market supervision. There

CORPORATE GOVERNANCE LEGISLATION ASSESSMENT PROJECT

2007 ASSESSMENT

based on legislation in force on 1 November 2007

THE CZECH REPUBLIC

CMS CAMERON MCKENNA V.O.S. Karolíny Světlé 322/25, Praha 1, 110 00

The Czech Republic www.law-now.com

http://www.law-now.com/

TABLE OF CONTENTS

Overall Country Information________________________________________________________________________________________ - 3 -

Principle I: Ensuring the basis for an effective corporate governance framework _____________________________________________ - 6 -

Principle II: The rights of shareholders ______________________________________________________________________________ - 11 -

Principle III: The equitable treatment of shareholders __________________________________________________________________ - 23 -

Principle IV: The role of stakeholders in corporate governance___________________________________________________________ - 27 -

Principle V: Disclosure and Transparency____________________________________________________________________________ - 29 -

Principle VI: The Responsibilities of the Board________________________________________________________________________ - 34 -

- 2 -

Overall Country Information

No. Checklist Brief description

1.

What is the level of dialogue (e.g. conferences, working groups) between the Government (including governmental bodies or other authorities such as Securities Commissions) and the private sector in respect to the need to improve corporate governance in your country?

There is no official dialogue between the government and the private sector focused on the corporate governance issues, however, there are conferences, meetings and seminars held among different subjects of the public and the private sector.

2. Please describe any ongoing process(es) to improve the level of corporate governance in your country?

The Code of Corporate Governance (please se No. 4 bellow) is being discussed not to be only a recommended best practice, but a binding legal requirement instead.

3.

Which bodies in the public and private sectors (both domestic and foreign) have initiated, supported and been active in promoting corporate governance reform? (For example, institutes of directors, centers/institutes of corporate governance, associations of shareholders, chambers of commerce, or IFIs).

The idea of improving corporate governance was initiated by the Securities Commission of the Czech Republic (“SEC”), but since April 1, 2006, the Czech National Bank (“CNB”) took over its responsibilities of capital market supervision. There is the International Chamber of Commerce (with the Czech National Committee involved) where the Corporate Governance Roundtables are held on regular basis.

- 3 -

4. Does a voluntary national code of corporate governance good practice exist? [If yes, please specify the date of enactment, the latest amendments and if it is available on the web and include the link.]

Yes, the Code of Corporate Governance was published in 2001 and it was updated in 2004. http://www.cnb.cz/export/CZ/Kapitalovy_trh_podle_temat/Emitenti_cennych_papiru/Kodex_spravy_a_rizeni_spolecnosti.page?FileId=2609

If the code exists:

a.) was the voluntary code of corporate governance developed by the Government or the private sector?

The Code was developed by the working group established by SEC consisting of representatives of the Prague Stock Exchange (“PSE”), RM-system (another organizer of public market of securities), the Banking Association, the Association of Insurance Companies, the Czech Institute of Internal Auditors, the Association of Pension Funds, the Czech Rating Agency, the Union of Accountants and the Czech Institute of Board Members.

b.) to what extent is the code based on the OECD Principles? The Code is fully based on and structured according to the OECD principles.

c.) is it endorsed by the stock exchange or securities commission?

Since 2002, the former SEC (and since 2006, CNB) have recommended to the companies compliance with the Code through statement in the companies´ annual reports. The Code is not binding legal document, only recommendation. It is not adopted by any formal act.

5.

d.) must companies/listed companies disclose their degree of compliance with the code (“comply or explain”)?

The compliance is recommended but voluntary and cannot be enforced. At this moment, there are only 13 companies which were evidenced as complying. PSE accepts securities for trading without insisting on compliance with the Code. Unfortunately, the principle of “comply or explain“ has its limits in the Czech Republic.

http://www.cnb.cz/export/CZ/Kapitalovy_trh_podle_temat/Emitenti_cennych_papiru/Kodex_spravy_a_rizeni_spolecnosti.page?FileId=2609

http://www.cnb.cz/export/CZ/Kapitalovy_trh_podle_temat/Emitenti_cennych_papiru/Kodex_spravy_a_rizeni_spolecnosti.page?FileId=2609


- 4 -

e.) are compliance statements published and easily accessible by investors? [If yes, please describe. Include, if available, the website where the compliance statements can be found.]

The compliance statements can be found in the annual reports of the companies that have to be enclosed in the public Collection of Documents of the Commercial Register, and with respect to listed companies, also to CNB and PSE and also published in a way enabling remote access. There is no list of entities which have complied available.

To what extent has the Government announced plans for updating and strengthening of:

a.) the legal and court system The judicial system reform to provide faster and better-quality rulings is announced by the Ministry of Justice.

b.) the corporate tax system The corporate tax rate shall be decreased in next few years gradually from 24% in 2007 to 19% in 2010.

c.) the educational system for business and legal professions The reform of justice brings also changes in education of judges and the judicial apparatus.

6.

d.) the application of international accounting and auditing standards?

New Act on Auditors is being prepared in order to comply with the conditions of the EU Directive No. 43/2006 governing the mandatory audit.

7. Which are the main laws and regulations addressing corporate governance in your country? [Please list titles and dates when they came into force.]

Act No. 513/1991 Coll. as amended, in force as of January 1, 1991 (the “Commercial Code”), Act No. 591/1992 Coll. as amended, in force as of January 1, 1993 (the “Securities Act”), Act No. 256/2004 Coll. as amended, in force as of May 1, 2004 (the “Capital Market Act”), Act No. 190/2004 Coll. as amended, in force as of May 1, 2004 (the “Act on Bonds”), Act No. 15/1998 Coll. as amended, in force as of April 1, 1998 (the “Supervision over the Capital Market Act”), Act No. 189/2004 Coll. as amended, in force as of May 1, 2004 (the “Collective Investment Act”), Act No. 328/1991 Coll. as amended, in force as of October 1, 1991 (the “Bankruptcy and Composition Act”), Act No. 563/1991 Coll. as amended, in force as of January 1, 1992 (the “Accounting Act”), Act No. 262/2006 Coll. as amended, in force as of January 1, 2007 (the “Labour Code”), The Listing Rules of the Prague Stock Exchange

8.

Summarize recent significant legal developments affecting corporate governance. [Please indicate whether reviews are planned (and if so, where they stand in the legislative process). If reforms are pending, please provide a schedule of the main proposals which are relevant to corporate governance.]

Most of the recent legalization consisted in transposition of the EU directives into the Czech law. A law on regulation of the financial market entirely by the Ministry of Finance is being prepared. A comprehensive law on financial market supervision is in its early stages. As of January 1, 2008, the Act No. 182/2006 Coll., as the new insolvency legislation, will come into force.

9. Please list the different corporate forms which are allowed under the law (e.g. partnerships, limited liability, joint stock, public limited) and briefly explain the main differences.

Unlimited partnership (“veřejná obchodní společnost” in Czech) – a company consisting of at least two persons (natural or legal) who bear joint and several liability for the obligations of the partnership with all their property. Limited partnership (“komanditní společnost” in Czech) – an entity in which one or more partners


- 5 -

are liable for the partnership’s obligation up to the amount of the unpaid parts of their contributions (the minimum contribution is CZK 5,000), as entered in the Commercial Register, and one or more partners are liable for the partnership’s obligations with their entire property. Limited liability company (“společnost s ručením omezeným” in Czech) – an entity with the registered capital of at least CZK 200,000, where the shareholders are liable for the company’s obligations until their full payment of their investment contribution in the registered capital, as entered in the Commercial Register. Joint stock company (“akciová společnost” in Czech) – a company whose registered capital of at least CZK 2,000,000 is divided into a certain amount of shares of a specific nominal value. The company is liable for breach of its obligations with its entire property. A shareholder is not liable for the company’s obligations. Cooperative (“Družstvo” in Czech) – an association of an unrestricted number of members which is formed for the purpose of carrying on business activity or meeting economic, social or other needs of its members. The registered capital is at least CZK 50,000. Societas Europea (“Evropská společnost” in Czech) – a company with the minimum registered capital of EUR 120,000 governed primarily by the EC Regulation No. 2157/2001, Directive No. 2001/86/SE and the Act No. 627 2004 Coll. on Societas Europea. European Economic Interest Grouping (“Evropské hospodářské zájmové sdružení” in Czech) - an entity governed by the EC regulation No. 2137/1985 and the Act No. 360/2004 Coll. on the European Economic Interest Grouping. It is aimed for cooperation of small or medium size national companies in order to enable them to take part in big international projects.

Are joint stock companies managed under a(n) [please briefly explain]: a.) Compulsory one-tier system (no supervisory board) No.

b.) Compulsory two tier-system (management board and supervisory board)

In general, there is the board of directors of at least three members and the supervisory board of at least three members. General rule is that the board of director is appointed by the general meeting of shareholders (Section 187 subsection 1 letter d) of the Commercial Code). However, pursuant to the section 194 subsection 1 of the Commercial Code, the company articles of association may determine that the members of the board of directors will be elected by the supervisory board instead of general meeting. The supervisory board is appointed by the general meeting of shareholders (Section 200 of the Commercial Code). General rule is that in a company with more than 50 employees, the employees must elect 1/3 of the members of the Supervisory Board.

10.

c.) Option to choose one-tier/two-tier system No.

Principle I: Ensuring the basis for an effective corporate governance framework

The corporate governance framework should promote transparent and efficient markets, be consistent with the rule of law and clearly articulate the division of responsibilities among different supervisory, regulatory and enforcement authorities.

I.A. Corporate governance framework should be developed with a view to its impact on overall economic performance, market integrity, and the incentives it creates for market participants and promotion of transparent and effective markets.

No. Checklist Yes No Reference to the relevant law

a.) Does your country have a functioning stock exchange? [Please include the stock exchange website, if available.]

The Prague Stock Exchange. www.pse.cz

The regulated market organized by PSE breaks down into two segments: official market and special market with investment instruments that do not belong to securities (e.g. futures). For greater transparency the exchange subdivided the official market into two: Main market and Official free market. The main market is intended for companies that are willing to fulfil the strict conditions and provide information flexibly about their economic management. The placement of issues on this market is a matter of prestige for the issuer where the important condition is the sufficient liquidity of its shares. 11.

b.) Are there different listing segments on the stock exchange? [If yes, please describe, focusing on corporate governance.]

The official free market is intended for other companies that want their securities to be traded at the exchange but that do not yet satisfy the requirements of the prestigious markets or that are not interested in the main market.

PSE may also organize an unregulated free market. By creating the conditions for this market through the expansion of the Exchange Rules, the Exchange is reacting to the existence of demand for a capital market for a segment that is not bound by disclosure requirements and that allows the placement of issues on the Czech market even without a request from the issuer. The legal requirement for trading on the unregulated free market is the publication of a prospectus of the issuer of the securities. The Capital Market Act.

- 6 -

http://www.pse.cz/

http://www.pse.cz/dokument.aspx?k=Main-Market

http://www.pse.cz/dokument.aspx?k=Free-Market


Bonds are issued quite often in the CR. Regulation contains primarily the Act on Bonds 12. Are corporate bonds common in your country?

13. The big banks issue depositary receipts as short-term bonds. Are Depositary Receipts (DRs) common in your country? Does the country have a legislative or regulatory body in charge of assessing the implementation, reviewing and developing corporate governance laws?

14. The Parliament, CNB, the Ministry of Finance

There is no official dialogue between the government and the private sector regarding corporate governance, however, there are conferences, meetings and seminars held among different subjects of the public and the private sector.

Are there effective, ongoing consultations between regulatory authorities, the public and corporations regarding the development of corporate governance laws? Is the decision-making process used in the development of those laws made publicly available?

15. The legislative process is step by step publicly available on the web sites of the Czech Parliament and of the Government.

How transparent is the legal reform process? Does it allow all affected parties to fully understand the new laws and regulations?

All proposed Bills are published on the web sites of the Parliament or of the Government where the public can keep track of the legislation development. 16.

Can the securities market regulator intervene on behalf of shareholders in corporate disputes? 17.

Act No. 216/1994 Coll., as amended, the Act on the Arbitration Proceedings, the Rules of Procedure at the Arbitration Court of the Czech Republic. Does commercial, corporate or securities arbitration exist? If

yes, are arbitration decisions binding and final? 18. The decision is final, binding and enforceable by the courts. However, the parties may agree on the possibility to appeal to different arbiters.

Are state-owned companies subject to exactly the same corporate governance rules as other privately owned companies?

In general yes, with the exception of the state owned companies governed by the Act No. 77/1997 Coll., on the State Enterprise. 19.

I.B The legal and regulatory requirements that affect corporate governance practices in a jurisdiction should be consistent with the rule of law, transparent and enforceable.


Are the legal and regulatory requirements on corporate governance: 20. a.) generally clear and well understood by economic

participants?

- 7 -


b.) sufficiently enforced in an efficient, consistent manner so as to constitute a transparent system?

Most of the corporate cases is in the first instance dealt with at the regional courts, which is higher level than for the first instance proceedings in general. Furthermore, there are specialized civil and commercial sections dealing with corporate cases. a.) Do special court/sections exist in the judiciary for

corporate cases? Section 9 of the Act No. 99/1963 Coll. as amended, the Civil Procedure Code, the Act No. 6/2002 Coll. as amended, the Act on the Courts and Judges. 21.

b.) Is there a significant percentage of corporate governance law that has never been tested in court?

The Collections of the judicial decisions and opinions published by the Supreme Court, the Collections of the judicial decisions and opinions of the Administrative Supreme Court.

c.) Does a comprehensive case law collection exist so that interpretation of corporate governance legislation by courts is reasonably foreseeable?

Do the laws usually specify sanctions and liabilities for breach of corporate governance laws and regulations? 22. The Commercial Code

If yes, are the responsibilities and sanctions for breach of the law with reference to the following subjects, clearly defined:

Sections 191-196 of the Commercial Code, the Penal Code a.) management board

Sections 197-201 of the Commercial Code, the Penal Code b.) supervisory board (if applicable)

c.) corporate registry Section 156 of the Commercial Code, Section 122 of the Capital Market Act 23.

Act No. 254/2000 Coll. as amended, the Act on Auditors, the Penal Code d.) corporate auditors e.) corporate evaluators/assessors (e.g., in case of

contribution in kind) Act No. 36/1967 Coll. as amended, the Act on Experts and Interpreters, the Penal Code

- 8 -

I.C. The division of responsibilities among different authorities in a jurisdiction should be clearly articulated and ensure that public interest is served.


Act No. 6/1993 Coll. as amended, the Act on the Czech National Bank (the ”CNB Act”) – CNB is responsible for integrated supervision over the financial market.

Does the law designate a clear division of responsibilities between different authorities (e.g., banking regulator, securities market regulator, competition authority)?

24. However, the competition authority is separate - Act No. 143/2001 Coll. as amended, the Act on Protection of the Economic Competition.

Is there an effective system of cooperation in place between regulators? 25.

Does the law address the issue of potential overlapping responsibilities or gaps in oversight between regulators?

The division of authorities is clear enough, therefore no potential duplication may arise. 26.

Are the key laws perfectly harmonised without major inconsistencies, conflicts and discrepancies?

The CNB Act, the Capital Market Act, the Act on Protection of the Economic Competition. 27.

I.D. Supervisory, regulatory, and enforcement authorities should have the authority, integrity and resources to fulfil their duties in a professional and objective manner. Moreover, their ruling should be timely, transparent, and fully explained.


28. the CNB Act, the Capital Market Act Is the market regulator in charge of corporate governance? Does the law assure the operational independence of the regulator from external political, commercial, or other interest interference when exercising its respective functions and powers?

29. Section 6 of the CNB Act

Is the regulator accountable to the Parliament or any other government body on an ongoing basis? 30. Sections 3 and 3(a) of the CNB Act

The CNB budget is part of its annual reports which are submitted to the Chamber of Deputies on the regular basis and published in a way enabling remote access on the CNB websites.

Is the budget of the regulator published and expenses transparently described? 31.

- 9 -


Does the law require that when developing new legislation, regulatory agencies should: a.) understand in advance the effects, costs and

consequences of such new legislation (e.g., by implementing a Regulatory Impact Analysis - RIA)?

However, the new reform modernizing the regulation of the state apparatus, which should implement RIA in the legislative procedure, is being processed. 32.

b.) take into account the availability of resources for the implementation and enforcement of those laws?

The practise is different in difference regulatory agencies. For example, the Office for Protection of Economic Competition publishes its decision in anonymous version.

a.) Are the rulings of regulatory agencies documented and publicly available?

33. Usually on the websites of the authorities. b.) If so, is that information easily accessible?

After regulatory agencies render their decisions, must they also provide explanations for those decisions? 34. Act No. 500/2004 Coll. as amended (the “Administrative Procedure Act”)

- 10 -

Principle II: The rights of shareholders

The corporate governance framework should protect shareholders’ rights

II.A. Basic shareholder rights include the right to: 1) secure methods of ownership registration; 2) convey or transfer shares; 3) obtain relevant information on the corporation on a timely and regular basis; 4) participate and vote in general shareholder meetings; 5) elect members of the board; and 6) share in the profits of the corporation.


Does the law require maintenance of a central or company share register where the shareholding of investors is recorded?

Section 156 subsection 2 of the Commercial Code; Chapter 7 of the Capital Market Act 35.

Section 156 subsection 2 of the Commercial Code - the register of certificated registered shares shall be maintained by the company, i.e. by the board of directors, but as for a listed company, the articles of association may state that the Central Register of dematerialised shares according to Chapter 7 of the Capital Market Act shall be considered the company register of shareholders.

Does the law require that the relevant share register be maintained by an external and independent organisation? 36.

Section 156 subsection 3 of the Commercial Code - the rights of a shareholder belong to the person enlisted in the register of shareholders unless it is proved that the record in the register is not correct. In such a case it will be the real owner (proved e.g. by submitting a duly endorsed share) of the share who may enforce his shareholder’s rights.

Under the law, does registration of shareholding in the central or company share register constitute proof of ownership? [If not, please explain what is the legal evidence of share ownership.]

37.

Section 156 subsection 7 of the Commercial Code – the right attached to a dematerialised share belong to the person stated in the Central Register.

Under the law, can the parties (purchaser, seller or third parties) of shares require amendment of the register to record the change in shares' ownership? [Please explain.]

38. Section 156 of the Commercial Code, section 95 of the Capital Market Act.

a.) Does the law require that all the shares be fully paid before they can be transferred? Section 176 subsection 3 of the Commercial Code. 39.

b.) Are shares of listed/public companies freely transferable? Section 44 subsection 2 letter g) of the Capital Market Act

- 11 -


Section 156 subsection 4 of the Commercial Code - the free transferability of registered shares can be restricted, nevertheless not avoided by the articles of association. The transfer that is not in compliance with the company articles shall be invalid unless the transferee acted with a good faith.

c.) Can the free transferability of shares be restricted by specific provisions in company articles or by private contractual agreements?

Section 156 subsection 7 of the Commercial Code – the bearer shares are transferable without limitation. Section 180 of the Commercial Code – a shareholder is entitled to inquire and receive information regarding the company matters at the general meeting. a.) Is the law providing shareholders the right to obtain

information about the company at no costs and without undue delay? [If applicable, please state the time limit for providing information.]

Section 156 subsection 2 of the Commercial Code - the company is obliged upon a written request of a shareholder to submit to him/her a copy of the company register of shareholders within 7 days from the request for the price of the costs incurred.

40.

b.) Does the law provide for sanctions in case such information is not provided by the company in due time?

Under the law, is the shareholders' meeting the only body authorised to:

Section 187 subsection 1 letter d) of the Commercial Code a.) elect/appoint members of the board? [Please

distinguish in case a two-tier system is in place.] However, pursuant to the section 194 subsection 1 of the Commercial Code, the company articles of association may determine that the members of the board of directors will be elected by the supervisory board.

Section 187 subsection 1 letter d) of the Commercial Code b.) dismiss members of the board? [Please distinguish in

case there is a two-tier system in place.] However, pursuant to the section 194 subsection 1 of the Commercial Code, the company articles of association may determine that the members of the board of directors will be dismissed by the supervisory board.

41.

c.) approve the company's audited annual report? Section 187 subsection 1 letter f) of the Commercial Code

Section 187 subsection 1 letter f) of the Commercial Code d.) approve dividends?

Section 178 subsection 7 of the Commercial Code - the time frame could be determined by the company articles or by the general meeting resolution, failing which the law states that the payment of dividend is due within 3 months from the holding of the general meeting

e.) decide on the time frame within which approved dividends are paid out?

Are minority shareholders able to pool their votes for certain board candidates (for example, through cumulative voting)? 42.

- 12 -


Does the law give the shareholders' meeting the exclusive power to [Please specify if the power can be delegated to the board by the charter]:

According to Section 187 of the Commercial Code the power to appoint auditors is not on the list of powers given to general meeting and the body entitled to appoint auditors would be the board of directors (under Section 191 (1) of the Commercial Code). However, the statutes can stipulate (under Section 187 of the Commercial Code), that this power is given exclusively to shareholders meeting.

a.) appoint auditors;

b.) approve the auditors' remuneration; Section 187 of the Commercial Code Section 191 subsection 1 of the Commercial Code – the board of directors

43.

According to Section 187 of the Commercial Code, this would be the responsibility of the board of directors (according to general rule that the board of directors is entitled to deal with any issues, which are not given to the shareholders meeting or to supervisory board (by law or by the statutes)).

c.) request additional information regarding the auditors' report?

d.) approve remuneration of (supervisory/management) board members Section 187 subsection 1 letter g) of the Commercial Code

Pursuant to the section 178 subsection 2 of the Commercial Code, the dividends may be only distributed when the amount of the company equity capital complies with the calculation stated herein. Does the law impose any conditions on a company to

declare dividends? 44. Pursuant to the section 178 subsection 6 of the Commercial Code, the dividends may be only paid out of distributable profits defined herein. However, pursuant to the section 178 subsection 1 of the Commercial Code, there may be an exception related to preference shares stated in the company articles.

Does the law require the distribution of dividends among holders of shares in proportion to their shareholding? 45.

However, pursuant to the section 220 subsection 1 together with section 159 subsection 1 of the Commercial Code, there may be an exception related to preference shares stated in the company articles.

Does the law require the distribution of liquidated proceeds among holders of shares in proportion to their shareholding? 46.

- 13 -

II.B Shareholders have the right to participate in, and to be sufficiently informed on, decisions concerning fundamental corporate changes such as: 1) amendments to the statutes, or articles of incorporation or similar governing documents of the company; 2) the authorisation of additional shares; and 3) extraordinary transactions that in effect result in the sale of the company.


Does the law provide that shareholders should be notified of, and have the exclusive power to vote with respect to: [Please specify if the power can be delegated to the board by the charter.]:

Section 187 subsection 1 letter a) of the Commercial Code a.) amendments to the company charter? Section 187 subsection 1 letter b) and sections 202-210 of the Commercial Code According to 210 of the Commercial Code, the shareholder meeting can decide, that the board of directors is entitled to approve the increase of the share capital in limited extent. This requires specific authorization from the shareholders meeting.

b.) issuance of additional shares?

c.) merger, take-over or reorganisation of the company? Section 187 subsection 1 letter j) and sections 220a-220zc of the Commercial Code. No delegation possible.

47.

Section 187 subsection 1 letter i) and sections 218-219 of the Commercial Code. No delegation possible. d.) winding up or voluntary liquidation of the company?

e.) waiver of pre-emptive rights (in the event of capital increase)?

According to Section 204a subsection 7 of the Commercial Code, only the shareholder can waive his pre-emptive rights.

f.) the amendment of the specific rights attached to any class of shares?

Section 187 subsection 1 letter n) together with the section 186 subsections 3-6 of the Commercial Code. No delegation possible.

Does the law provide that existing shareholders have pre-emption rights to subscribe to newly issued shares in proportion to their relevant shareholding?

48. Section 204a subsection 1 of the Commercial Code

Section 204a subsections 5 and 6 of the Commercial Code - the general meeting resolution may restrict or cancel the pre-emption rights only for the important interest of the company, provided the restriction or cancellation apply to all shareholders.

a.) Does the law allow exceptions/restrictions to these pre-emption rights described in Question 48 above?

49. b.) If yes, are these restrictions required to be approved on

a case by case basis and by a super-majority vote of the shareholders (e.g. 75%)?

Section 186 subsection 4, section 203 subsection 2 letters c) and d) and section 204a subsection 6 of the Commercial Code

Section 210 subsection 5 of the Commercial Code - the general meeting may authorize the board of directors to decide on the capital increase by means of a share subscription or from the company’s own funds up to the amount of 1/3 of the company registered capital.

Can shareholders delegate to boards the issuance of capital up to an authorized limit and within a specified time-frame? 50.

- 14 -


Does the law enable a shareholder who voted against any of the corporate changes in the company as referred to in Question 47 above to sell its shares to the company for not less than a price determined by an independent valuation entity (or the market)?

Only for certain matters related to restrictions on transferability of shares and mergers. Sections 186a and 220u of the Commercial Code 51.

II.C Shareholders should have the opportunity to participate effectively and vote in general shareholder meetings and should be informed of the rules, including voting procedures that govern general shareholder meetings.


Does the law require a shareholder meeting to be held annually, and within a specified time frame (e.g., 6 months) of the end of the company’s fiscal year?

52. Section 184 subsection 3 of the Commercial Code

Does the law empower the following people to request extraordinary shareholders' meetings: In the circumstances where convening of the general meeting is required by the law. Section 184, subsection 3 of the Commercial Code. a.) the chairman of the board of directors; or

Please see above. b.) any member of the board of directors/supervisory

board [Please specify]; or Section 199 of the Commercial Code - the supervisory board is empowered to convene the general meeting where the company interests require so. This must be an act of the board as a whole.

53. Section 181 of the Commercial Code - shareholders who have shares with a total value of more than 3% of the registered shared capital of the company which is exceeding CZK 100,000,000 or shareholders who have shares with a total value of more than 5% of the registered shared capital of the company which amounts to CZK 100,000,000 or less, are entitled to ask the board of directors to convene an extraordinary general meeting, failing which the competent court will decide that the shareholders themselves are entitled to convene the general meeting.

c.) one or more shareholders whose aggregate shareholding represents at least 10% of the Company’s issued shares? [Please specify the required shareholding.]

- 15 -


Does the law enable shareholders to participate in the shareholders' meeting not only in person, but also:

However, the company articles may allow so. a.) by post Section 184 subsection 1 of the Commercial Code - a shareholder may be represented on the basis of a special power of attorney.

54. b.) by voting instructions in writing or by substitutes other than directors on the basis of a power of attorney? If yes, should the power of attorney be notarised?

The power of attorney has to be notarised in cases where notarial deed of the minutes is required by the law. A member of the board of directors or a member of the supervisory board must not be empowered to act as a shareholder’s attorney at the general meeting. Section 185 subsection 1 of the Commercial Code - a general meeting has a quorum if it is attended by shareholders whose shares have a total nominal value exceeding 30% of the registered share capital, unless the statutes require a higher attendance.

Does the law require that a shareholders' meeting be attended by a quorum of shareholders (presence quorum) representing an aggregate of at least 50% + 1 of the company’s issued and outstanding common and preferred shares at the first call? [Please specify the quorum for the first, second and third call.]

55. Section 185 subsection 3 of the Commercial Code - if a general meeting falls short of a quorum, a substitute general meeting with the same agenda shall be convened with no requirement for a quorum.

Does the law require the adoption of ordinary resolutions by an affirmative vote of a majority (of 50% + 1) of all of the company’s issued and outstanding voting shares (decision quorum)? [Please specify the quorum for the first, second and third call.]

Section 186 subsection 1 of the Commercial Code - the quorum for ordinary resolutions is a simple majority of votes of the shareholders present at the general meeting.

56.

Does the law require a super-majority vote of at least 75% of all the company’s issued and outstanding voting shares regarding resolutions for the following matters: 57.

a.) any amendment to the company’s charter [Please specify the quorum required at the second and third call.]

Section 186 subsection 2 of the Commercial Code - the required quorum for both calls is at least 2/3 of the votes of the present shareholders.

Section 220e subsection 10 of the Commercial Code - the required quorum is at least ¾ of the votes of the present shareholders unless the company articles requires higher quorum. If the company issued more classes of shares, the resolution must be adopted by ¾ of the votes of each class of shares.

b.) any merger or reorganisation of the company [Please specify the quorum required at the second and third call.]

The quorum will be the same also at the second call of the general meeting. c.) the winding up or voluntary liquidation of the company

[Please specify the quorum required at the second and third call.]

Section 186 subsection 2 of the Commercial Code - the required quorum for both calls is at least 2/3 of the votes of the present shareholders.

- 16 -


Section 186 subsection 4 of the Commercial Code - the required quorum is at least ¾ of the votes of the present shareholders unless the company articles requires higher quorum. If the company issued more classes of shares, the resolution must by adopted by ¾ of the votes of each class of shares.

d.) a waiver of shareholders’ tender rights in case of voluntary redemption [Please specify the quorum required at the second and third call.]; and

The quorum will be the same also at the second call of the general meeting. Section 196a subsection 3 of the Commercial Code requires approval of the general meeting of such a transaction only in case the transaction occurs in the first three years of the company existence (simple will majority suffice). However, an expert appointed by the court is required to determine the value of the property.

e.) any single transaction or series of transactions involving at least 25% of the company's assets? [Please specify the quorum required at the second and third call.]

Section 193 subsection 2 of the Commercial Code requires an approval of a transaction of a value exceeding 1/3 of the company equity capital by the general meeting (simple will majority suffice).

In the case of any proposed restriction(s) on, or any amendment of, the specific rights attached to any class of shares, does the law require: Section 186 subsections 3 and 4 of the Commercial Code - the required quorum is ¾ of the votes of the present shareholders. a.) the 50 % + 1 presence quorum and

58. b.) a super-majority vote of at least 75% of the company's issued and outstanding voting shares within each such class of shares which may be affected by the proposed restriction or amendment?

Section 186 subsections 3 and 4 of the Commercial Code - the required quorum is ¾ of the votes of the present shareholders within each class of shares.

Section 185 subsection 3 of the Commercial Code - the second call of the general meeting has to be convened in the same manner as the original general meeting. The invitation has to be dispatched or the announcement has to be published within 15 days from the original general meeting holding and there has to be term of at least 15 days before the substitute general meeting is held.

Is there a certain amount of time that must elapse between a first and second call? 59.

Section 183 together with section 131 of the Commercial Code - every shareholder (no percentage required) has a right to file a petition to nullify a resolution of the general meeting, where this resolution is contrary to the statutory provisions, memorandum of association or the articles of association.

In cases where the rules relating to the holding of shareholders’ meetings have been violated, does the law provide for the right of shareholders to bring an action in order to set aside a shareholder's resolution? [If yes, please specify what is the percentage required for such action.]

60.

- 17 -

II.C.1 Shareholders should be furnished with sufficient and timely information concerning the date, location and agenda of general meetings, as well as full and timely information regarding the issues to be decided at the meeting.


a.) Does the law require that the company notify the shareholders of the agenda for a shareholders' meeting at least 20 calendar days in advance of the scheduled shareholders' meeting?

Section 184 subsection 4 of the Commercial Code. The period may be shorter according to the section 181 subsection 2 of the Commercial Code.

Section 184 subsection 4 of the Commercial Code - if the company issued registered shares, a written invitation to individual shareholders has to be delivered at their addresses stated in the company register of shareholders.

61. b.) Does the law allow that the notification of the general meeting be published in a newspaper or official gazette, without the need for individual notification to each shareholder? [If yes, please specify if it is required that the newspaper must have national distribution.]

If the company issued bearer shares, it shall publish a notice of the general meeting holding in the Commercial Bulletin (“Obchodní Věstník“ in Czech) and in another daily newspaper distributed nationally.

Does the law require a power of attorney proxy form to be sent out at the same time when the notice convening the meeting is sent out?

62.

Only in specified circumstances. Section 184 subsection 8 of the Commercial Code. Special provisions (section 220d of the Commercial Register) regarding mergers, de-mergers and takeovers (where a super-majority quorum is required) sets a duty to provide shareholders with the necessary information and documents at least 30 days before the general meeting. All relevant documents shall be enclosed in the public Collection of Documents of the Commercial Register and also kept in the seat of the company for the review of shareholders. The copies of the documents shall be made upon the shareholder’s request.

In case of a proposed shareholders' meeting where any of the proposed resolutions require super-majority approval, does the law require that the company send a copy of the agenda, including any valuation reports and proposed resolutions and charter amendments to the shareholders?

63.

- 18 -

II.C.2. Opportunity should be provided for shareholders to ask questions to the board and to place items on the agenda at general meetings, subject to reasonable limitations.


Section 184 subsections 4 and 5 and section 181 subsection 2 of the Commercial Code - it is the board of directors convening the general meeting and putting the agenda on it.

Does the law require the agenda for a shareholders' meeting to be adopted by the board of directors? 64.

Does the law provide for additional items to be added to the agenda at the request of:

a.) the chairman of the board of directors;

b.) any 2 directors; or

Section 182 subsection 1 letter a) together with the section 181 subsection 1 of the Commercial Code - shareholders who have shares with a total value of more than 3% of the registered shared capital of the company which is exceeding CZK 100,000,000 or shareholders who have shares with a total value of more than 5% of the registered shared capital of the company which amounts to CZK 100,000,000 or less, are entitled to ask the board of directors to add matters on agenda of the general meeting.

65.

c.) any one or more shareholders whose aggregate shareholding represents at least 10% of the company’s issued and outstanding shares?

a.) Does the law allow shareholders to submit questions in advance of a shareholders' meeting to which management and board members are required to reply at such shareholders' meeting?

b.) Does the law impose any penalties for not replying to such a shareholder request?

66.

c.) Does the law allow shareholders to ask questions at the shareholder meeting?

Section 180 subsections 1 and 3 of the Commercial Code.

- 19 -

II.D Capital structures and arrangements that enable certain shareholders to obtain a degree of control disproportionate to their equity ownership should be disclosed.


With the exception of acquisition of shares by the controlled party - section 161(f) of the Commercial Code a.) Does the law regulate cross-shareholdings1?

b.) Is there a voting cap limiting the number of votes that a shareholder, who holds a cross-shareholding in another company, may exercise in dealings with that company (for example a voting cap of 10%)? [If so, please specify the voting cap.]

67.

a.) Are there rules that govern the disclosure by shareholders of ultimate beneficial ownership? If yes, please specify the thresholds for disclosure of ownership.

The concept of beneficial ownership is not known in the Czech legal system

68. b.) Do ownership disclosure rules enable shareholders to obtain a clear picture of a company’s ultimate ownership and the identity of intermediaries?

Does the law impose restrictions on transactions involving shareholders with a conflict of interest regarding the transaction in order to avoid disadvantageous transaction terms for the company?

69. Section 196(a) and section 186(c) of the Commercial Code

Are shareholders required to disclose shareholder agreements to the company, the authorities and/or to other shareholders?

70.

1

- 20 - A cross-shareholding is where the company owns shares in another company which is also one of its own shareholders.

II.E Changes of corporate control should be allowed to function in an efficient and transparent manner.

II.E.1. The rules and procedures governing the acquisition of corporate control in the capital markets, and extraordinary transactions such as mergers and sales of substantial portions of corporate assets, should be clearly articulated and disclosed so that investors understand their rights and recourse. Transactions should occur at transparent prices and under fair conditions that protect the rights of all shareholders according to their class.


Section 122 of the Capital Market Act which applies only to the listed shares. Does the law require notification to the company, the other shareholders, the securities commission, the stock exchange or anti-monopoly office if a shareholder builds up a significant shareholding in the company? [Please briefly describe how the law define significant shareholding.]

There is no definition of significant shareholding. Shareholders have to notify when their share exceeds 3% of the voting rights in a company with registered capital of more than CZK 100,000,000 or exceeds 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50% or 75% of the company voting rights.

71.

Does the law impose any penalties for non-notification (e.g. a shareholder not being allowed to exercise the voting rights attached to the shares)?

72. Section 122 subsection 4 of the Capital Market Act

Section 155 subsection 7 of the Commercial Code, section 120 of the Capital Market Act. Are shareholders of the same class treated equally during

changes of control? Is there a provision that minorities receive the same price as the controlling owner?

73. Sections 220(a), 220(k), 220(n), 220(p), 220(s), 220(u), 220(za), 220(zb) and 220(zc) of the Commercial Code.

Does the law include a provision allowing an offeror to require the holders of the remaining securities to sell their securities at a fair price (the so-called minority squeezed out)? If yes, please specify the shareholding threshold.

Section 183(i) –183(n) of the Commercial Code. 74. The shareholding threshold is 90% of the company registered capital.

As for the listed shares, pursuant to the section 183b of the Commercial Code, there is an obligation of the controlling person to make a mandatory tender offer on acquiring control.

Does the law include a provision allowing the holders of remaining securities to require the offeror to buy their securities at a fair price (the so-called minority buy-out)?

75.

- 21 -

II.E.2. Anti-takeover devices should not be used to shield management from accountability.


In certain cases. Pursuant to the section 220e subsection 10, section 220n subsection 1, section 220p subsection 6, section 220t subsection 1, section 220za subsection 3, section 220zb subsection 1 and section 220zc subsection 1 of the Commercial Code, every merger, de-merger, takeover or conversion of legal form shall be approved by the super-majority of the general meeting. Where different kinds of shares have been issued, the super-majority is required separately in every kind of shareholders.

Does the law require an authorisation by a shareholders' resolution with a majority of 75% of the company's issued shares, before the board of directors is entitled to enter into any transaction other than for full and valid consideration as a measure to prevent a change of control in the company?

76.

- 22 -

Principle III: The equitable treatment of shareholders

The corporate governance framework should ensure the equitable treatment of all shareholders, including minority and foreign shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights.

III.A. All shareholders of the same class should be treated equally.

III.A.1 Within any class, all shareholders should have the same voting rights. All investors should be able to obtain information about the voting rights attached to all classes of shares before they purchase. Any changes in voting rights should be subject to shareholder vote.


Section 155 subsection 7 of the Commercial Code - identical rights must be attached to the same class of shares.

Does the law require that within any class of shareholders all shareholders have the same voting rights? If yes, does the law implement the principle “one share-one vote”?

Section 180 subsection 2 of the Commercial Code - the statutes must specify the number of votes connected with a share equally according to its nominal value. The statutes may restrict the maximum number of votes per shareholder, provided such restriction shall apply to every shareholder.

77.

Does the law allow investors to have access to information about the voting rights attached to all classes of shares before they purchase? If yes, where is this information available?

Section 164 subsection 4 of the Commercial Code, sections 25-36l of the Capital Market Act 78.

III.A.2 Minority shareholders should be protected from abusive actions by, or in the interest of, controlling shareholders acting either directly or indirectly, and should have effective means of redress


Does the law provide for specific sanctions and/or liabilities in case of: 79. Resolutions adopted on such general meeting may be in compliance with the section 183 in conjunction with the section 131 of the Commercial Code set aside by the court and the injured parties are entitled to be reimbursed by the company.

a.) violation of the rules on notification of shareholder meetings

- 23 -


b.) violation of rules allowing shareholders to place items on the agenda for the annual meeting

Pursuant to the section 182 subsection 2 of the Commercial Code, the shareholder may claim a right for damages.

c.) delays or failure to pay dividends authorized by shareholder meetings

There is no specific sanction, however the entitled shareholders may sue the company for the payment of dividends.

d.) failure to allow inspection of books and records

III.A.3 Votes should be cast by custodians or nominees in a manner agreed upon with the beneficial owner of the shares


Are financial institutions, holding shares in custody for investors, required by law to provide shareholders with information concerning their options in the use of their voting rights?

80.

III.A.4 Processes and procedures for general shareholder meetings should allow for equitable treatment of all shareholders. Company procedures should not make it unduly difficult or expensive to cast votes.


Section 184 subsection 6 of the Commercial Code - the venue, date and hour must be determined in a manner as not to restrict the possibility of shareholders´ attendance.

Can the general meeting be held abroad or in a place other than the company headquarters? 81.

- 24 -

III.B. Insider trading and abusive self-dealing should be prohibited.


Does the law require company disclosure of information likely to affect stock exchange prices (in order to prevent insider dealing of shares), without undue delay?

Section 120 of the Act No. 256/2004 Coll. together with the Listing Rules of the Stock Market – applies only to the listed companies. 82.

Sections 124-126 of the Capital Market Act Are there any laws in place which prevent or punish insider trading? 83. Section 128 of the Act No. 140/1961 Coll., the Penal Code Are board members, senior managers or controlling shareholders required to disclose transactions involving their company’s shares?

84. Section 125 of the Capital Market Act

III.C. Members of the board and managers should be required to disclose any material interests in transactions or matters affecting the corporation.


Under the law, is a shareholder, director, officer or employee of the company who has conflicting interests in a deal between the company and another party, required to disclose such interests to the company?

85. Section 196 in conjunction with the section 65 of the Commercial Code.

Under the law, must the Board of Directors / Supervisory Board [please specify] ensure that the company pay a fair price for assets or services purchased from or sold to any shareholder, director, officer, employee, agent or representative or related entities of the company?

Section 196(a) subsection 3 of the Commercial Code – upon the petition of the company (board of directors) an expert has to be appointed by the court to determine the value of the property. 86.

However, the value has to exceed 10% of the company’s registered capital.

Can directors, officers or shareholders of a company who have conflicts of interests with the company, be legally prevented from voting at the meetings where those interest-related issues are discussed?

In specific cases. Section 186(c) of the Commercial Code defines limited number of situations when a shareholder is prevented from voting at the general meeting.

87.

The law does not prohibit this, however, in respect of publicly traded companies it must comply with general regulation governing the trade, including insider trading restrictions.

a.) Does the law allow the company to give people including the company’s directors, officers and employees the right to buy shares?

88.

- 25 -


b.) Are there any restrictions imposed on such acts? See above.

Does the law require that all related party transactions be:

According to the section 66(a) subsection 10, the report on relationships between the related parties (please see 88b below) has to be approved by the supervisory board.

a.) specifically approved by the board (supervisory/management please specify)?

Pursuant to the section 66(a) subsection 9 of the Commercial Code, where a controlling agreement has not been concluded, the company has to work out a report on relationships between related parties that is part of the company annual report and has to be approved by the general meeting

b.) disclosed to shareholders? 89.

Pursuant to the section 66(a) subsection 9 of the Commercial Code, where a controlling agreement has not been concluded, the company has to work out a report on relationships between related parties that is part of the company annual report and has to be approved by the general meeting. c.) registered in the company financial statement?

Further, they should be disclosed in the company’s financial statement in line with “AS 24: Related Party Disclosures”.

Does the law require disclosure of loans made by the company to related parties (e.g. parent companies, subsidiaries, directors, employees, their spouses, children or relatives of the company or related companies)?

90. Section 66(a) subsection 9, 10, 11 of the Commercial Code

Sections 15 and 16 of the Bankruptcy and Composition Act, sections 39 and 42(a) of the Civil Code, section 194 subsection 5, 6 and section 265 of the Commercial Code.

Under the law, can transactions made by companies, which are not based on fair market values, be invalidated and action be taken against the relevant parties?

91.

- 26 -

Principle IV: The role of stakeholders in corporate governance

The corporate governance framework should recognise the rights of the stakeholders as established by law and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.

IV.A. The corporate governance framework should assure that the rights of stakeholders (i.e. employees, suppliers, creditors) protected by law are respected.


Does the law contain clear provisions on:

Part 5tha.) safety at work for employees? of the Labour Code

b.) protection of suppliers as stakeholders?

c.) protection of creditors as stakeholders? The Bankruptcy and Composition Act 92. d.) environmental protection (e.g., implementation of the

“polluter must pay” principle)? Act No. 17/1992 Coll. as amended (“the Environment Act”)

IV.B. Where stakeholder interests are protected by law, stakeholders should have the opportunity to obtain effective redress for violation of their rights.


Does the law incorporate effective and easily workable remedies for violations of:

The Labour Code a.) employees rights?

b.) suppliers rights? The Commercial Code

c.) creditors rights? The Commercial Code, the Bankruptcy and Composition Act

93.

The Environment Act, the Penal Code d.) environmental regulations?

- 27 -

IV.C. The corporate governance framework should permit performance-enhancing mechanisms for stakeholder participation.


Section 200 subsection 1 of the Commercial Code – in a company with more than 50 employees, 1/3 of the members of the supervisory board is elected by the employees.

Does the law require employee representation on boards (supervisory/management- please specify)? 94.

Does the law permit employee stock ownership plans or other profit sharing mechanisms? 95. Section 158 of the Commercial Code.

Does the law permit creditor involvement during insolvency proceedings? 96. The Bankruptcy and Composition Act

IV.D. Where stakeholders participate in the corporate governance process, they should have access to relevant, sufficient and reliable information on a timely and regular basis.


Do stakeholders have special access to corporate information?

The Bankruptcy and Composition Act - creditors in the bankruptcy proceeding have access to corporate information. 97.

IV.E. Stakeholders, including individual employees and their representative bodies, should be able to freely communicate their concerns about illegal or unethical practices to the board and their rights should not be compromised for doing this.


Are there any provisions protecting “whistleblowers” (employees and other stakeholders that file complaints/voice concerns regarding unethical or illegal practices by corporate officers)?

98.

- 28 -

Principle V: Disclosure and Transparency

The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership, and governance of the company.

Timely and accurate disclosure allows all potential investors and market participants to review publicly available information based on

which investment decisions are made.

V.A. Disclosure should include but not be limited to, material information on:

V.A.1 The financial and operating results of the company.


Does the law require all joint stock companies to prepare annual audited financial statements?

Section 39 subsection 1 of the Commercial Code and section 20 of the Accounting Act. 99.

The Capital Market Act only requires semi-annual report, although for publicly traded securities listed on PSE, Article 8 section 7 letter b) of the Listing Rules of PSE requires quarterly reports.

Does the law require all joint stock companies to prepare quarterly financial reports? 100.

Does the law require joint stock companies to prepare group accounts on consolidated basis? 101. Section 22 of the Accounting Act

Do laws or regulations to include in their annual reports to shareholders that: a.) The financial statements are their (board’s)

responsibility. However, the auditor report, which includes such a statement, is a mandatory part of the annual report – section 21 of the Accounting Act.

b.) The auditor is responsible for reporting on the financial statements. However, the auditor report, which includes such a statement, is a mandatory

part of the annual report – section 21 of the Accounting Act. 102.

c.) The financial statements fairly present the state of company affairs.

However, the auditor report, which includes such a statement, is a mandatory part of the annual report – section 21 of the Accounting Act.

- 29 -

V.A.2 Members of the board and key executives, and their remuneration.


Is the company required by law to disclose board positions in other companies of individual board members and key executives?

The EC Commission regulation No. 809/2004 - in the Prospectus of publicly listed companies 103.

Does the law require the company to disclose the compensation of board members and key executives? [Please specify if the disclosure is on individual or aggregate basis.]


Under the law, do shareholders determine the remuneration of the board? 105. Section 187 subsection 1 letter g) of the Commercial Code.

V.A.3 Material foreseeable risk factors


Is the company required by law to disclose to users of financial information and market participants information on reasonably foreseeable material risk such as the following:

The EC Commission regulation No. 809/2004 - in the Prospectus of publicly listed companies a.) risks specific to the industry or geographic area;

The EC Commission regulation No. 809/2004 - in the Prospectus of publicly listed companies b.) dependence on commodities;

c.) financial market risk, including interest rate or currency risk; The EC Commission regulation No. 809/2004 - in the Prospectus of publicly

listed companies

106.

The EC Commission regulation No. 809/2004 - in the Prospectus of publicly listed companies d.) risk related to derivatives and off-shore;

The EC Commission regulation No. 809/2004 - in the Prospectus of publicly listed companies e.) environmental liabilities?

- 30 -

V.A.4. Material issues regarding employees and other stakeholders.


Does the law require the company to disclose key issues relevant to employees and stakeholders that may materially affect the performance of the company (such as management/employee relations and relations with creditors suppliers and local communities)?


V.A.5. Governance structures and policies.


Does the law require the company to appoint a responsible body/officer in charge of corporate governance issues (e.g., company secretary)?

108.

Does the law require the company to disclose (e.g. in its annual report or a similar document) its corporate governance structures and policies, (for example, by providing information on the division of authority between shareholders, management and board members)?

109. However, it is recommended by CNB.

V.B. Information should be prepared, audited, and disclosed in accordance with high quality standards of accounting, financial and non-financial disclosure, and audit.


Since January 1, 2006 the publicly listed companies are required to produce and publish their consolidated account in compliance with the International Financial Reporting Standards.

Does the law require the company to prepare and disclose financial and operating data in accordance with internationally recognised accounting standards?

110.

- 31 -

V.C. An annual audit should be conducted by an independent auditor in order to provide an external and objective assurance on the way in which financial statements have been prepared and presented.


Does the law require financial results to be annually audited by an independent auditor? Is the independence of the external auditor defined?

Section 39 subsection 1 of the Commercial Code. Independence is defined in the Code of Ethics of auditors. 111.

Does the law provide a test to ensure that the auditor is truly independent from the influence of management?

However, in the new Bill which is being prepared, the change of auditor every certain period will be obligatory. 112.

V.D. Channels for disseminating information should provide for fair, timely and cost-efficient access to relevant information by users.


How often is the company required by law to disseminate information to shareholders? Section 192 subsection 2 of the Commercial Code, section 21 of the Accounting Act a.) annually?

b.) quarterly?

c.) monthly?

113.

Section 184 subsection 4 of the Commercial Code, Section 181 subsection 2 of the Commercial Code. d.) upon certain events (e.g. before the general meeting)?

How often is the company required by law to disseminate information to the securities commission and the stock exchange?

Section 118 of the Capital Market Act, the Listing Rules of the PSE. a.) annually? Pursuant to the Listing Rules of the PSE, publicly listed companies are required to submit their quarter accounts. b.) quarterly?? 114.

c.) monthly?

Section 120 of the Capital Market Act, the Listing Rules of the PSE d.) upon certain events (e.g. before the general meeting)?

Does the law require the company to make publicly available [Please describe how the law requires these documents to be made available/disclosed] 115. Section 38(i) of the Commercial Code - enclosing the minutes to the public Collection of Documents of the Commercial Register, submitting to the Prague Stock Exchange

a.) minutes of the shareholders meetings;

- 32 -


b.) audited financial statements of the company, as approved by the shareholders' meeting;

Section 38(i) subsection 1 letter c) of the Commercial Code - enclosing the documents to the public Collection of Documents of the Commercial Register

c.) any amendments to the company charter or other constitutional documents of similar nature (e.g., articles of association);

Section 38(i) subsection 1 letter a) of the Commercial Code - enclosing the documents to the public Collection of Documents of the Commercial Register

d.) the names of any resigning or removed directors and of newly elected directors;

Section 38(i) subsection 1 letter b) of the Commercial Code - enclosing the documents to the public Collection of Documents of the Commercial Register

In the report auditing the financial statements which is enclosed with the financial statement in the public Collection of Documents of the Commercial Register - section 38i subsection 1 letter c) of the Commercial Code

e.) the name of the statutory auditor;

Information available in the Commercial Register. f.) information on bankruptcy proceedings?

Does the law require that the following documentation be made available for shareholder inspection at the offices of the company: a.) the company's charter or other constitutional

documents of similar nature including all amendments; Not expressly stated.

Section 192 subsection 1 of the Commercial Register b.) financial statements and statutory auditor reports; c.) any report of an independent evaluation expert

prepared in connection with a shareholders' meeting; Sections 67(a), 220(c), 220(d), 220(e), 220(p) subsection 3, 220(t) subsection 1, 220(za) subsection 3 of the Commercial Code

d.) minutes of each shareholder meeting and of each board meeting and any sub-committee; Section 189 of the Commercial Code

116.

e.) a list of shareholders owning 1% or more of the company's issued shares; Section 156 subsection 2 of the Commercial Code

f.) a list of shareholders who have not fully paid for their shares and the amounts due?

Is the company required by law to provide an annual report and/or monthly/quarterly reports to third parties upon request?

117.

- 33 -

Principle VI: The Responsibilities of the Board

The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders.

VI.A Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and the shareholders.


Section 194 subsections 4, 5 and 6, section 200 subsection 3 of the Commercial Code – members of the board of directors and the supervisory board have a duty to act with due care and a duty of confidentiality and they are liable to the company for damages.

Does the law require the management/supervisory board [please specify] to act in the best interest of the company and its shareholders?

118.

Shareholders who have shares with a total value of more than 3% of the registered shared capital of the company which is exceeding CZK 100,000,000 or shareholders who have shares with a total value of more than 5% of the registered shared capital of the company which amounts to CZK 100,000,000 or less, are entitled to file action for damages against the board members in compliance with the section 182 of the Commercial Code.

Does the law provide for shareholders to bring actions on behalf of the company against the board? (i.e., derivative suit) [If yes, please specify the shareholding necessary to start such action.]

119.

a.) In discharging their duties, are board members personally liable for breaches of the law while they are in office?

Section 194 subsections 4, 5 and 6, section 200 subsection 3 of the Commercial Code

120. Section 36b together with section 36 subsection 5 of the Act No. 256/2004 Coll.

b.) Are executives who sign the annual report and prospectus personally liable for the accuracy of information included therein?

Sections 192 and 194 of the Commercial Code.

- 34 -

VI.B. The board should fulfil certain key functions, including:

VI.B.1. Reviewing and guiding corporate strategy, major plans of action, risk policy, annual budgets and business plans; setting performance objectives; monitoring implementation and corporate performance; and overseeing major capital expenditures, acquisitions and divestitures.


Under the law, do the responsibilities of the board [in case of a two tier system, please specify if it is the responsibility of the management or supervisory board]include: a.) reviewing and guiding corporate strategy, major plans

of action, risk policy, annual budgets and business plans;

Section 191 subsection 1 of the Commercial Code - board of directors

b.) setting performance objectives; Section 191 subsection 1 of the Commercial Code - board of directors 121.

Section 197 of the Commercial Code – the supervisory board c.) monitoring implementation and corporate performance; and Section 191 subsection 1 of the Commercial Code - board of directors.

d.) overseeing major capital expenditures, acquisitions and divestitures? Section 197 of the Commercial Code – the supervisory board

VI.B.2. Selecting, compensating, monitoring and, when necessary, replacing key executives and overseeing succession planning.


Under the law, do the responsibilities of the board [in case of a two tier system, please specify if it is the responsibility of the management or supervisory board]include:

Section 191 subsection 1 of the Commercial Code - board of directors. a.) selecting, compensating, monitoring key executives

b.) replacing key executives, and Section 191 subsection 1 of the Commercial Code - board of directors. 122.

Section 191 subsection 1 of the Commercial Code - board of directors. c.) overseeing succession planning?

- 35 -

VI.B.3. Reviewing key executive and board remuneration, and ensuring a formal and transparent board nomination process.


Under the law, do the responsibilities of the board [in case of a two tier system, please specify if it is the responsibility of the management or supervisory board] include:

Pursuant to the section 191 subsection 1, it is the board of directors reviewing the remuneration of key executives.

a.) reviewing key executive and board remuneration, and Pursuant to the section 187 subsection 1 letter d), the general meeting decides and reviews the remuneration of the board members.

123.

b.) ensuring a formal and transparent nomination process for board members?

Sections 184, 185, 186 and section 187 subsection 1 letter d) – the general meeting

VI.B.4. Monitoring and managing potential conflicts of interest of management, board members and shareholders, including misuse of corporate assets and abuse in related party transactions.


Under the law, do the responsibilities of the board (in the case of a two tier system, please specify if it is the responsibility of the management or supervisory board) include functions such as monitoring and managing potential conflicts of interest involving management, board members and shareholders, including misuse of corporate assets and abuse in related party transactions?

Section 197 of the Commercial Code – the supervisory board 124.

- 36 -

VI.B.5. Ensuring the integrity of the corporation’s accounting and financial reporting systems, including the independent audit, and that appropriate systems of control are in place, in particular, systems for monitoring risk, financial control, and compliance with the law.


Under the law, do the responsibilities of the board [in case of a two tier system, please specify if it is the responsibility of the management or supervisory board] include:

Section 192 subsection 1 of the Commercial Code - board of directors. a.) ensuring the integrity of the corporation’s accounting and financial reporting systems, including the independent audit, and

The company articles to the general meeting often delegate the appointment of auditor. 125.

b.) ensuring that appropriate systems of control are in place, in particular, systems for monitoring risk, financial control, and compliance with the law?

Section 197 of the Commercial Code – the supervisory board. Section 191 subsection 1 of the Commercial Code - board of directors.

VI.B.6. Monitoring the effectiveness of the governance practices under which it operates and making changes as needed.


Does the law require that the responsibilities of the board include functions such as monitoring the effectiveness of the governance practices under which it operates and making changes as needed?

Section 191 subsection 1 of the Commercial Code – the board of directors administers and acts on behalf of the company. It decides on all the matters that are not entrusted in the general meeting.

126.

VI.B.7. Overseeing the process of disclosure and communications.


Does the law require that the responsibilities of the board include functions such as overseeing the process of disclosure and communications?

127. Section 191 subsection 1 of the Commercial Code – the board of directors

Does the law require the board to review the annual report prior to submission to the shareholders’ meeting for final approval?

128. Section 198 of the Commercial Code - the supervisory board

- 37 -


Does the law require the board to make recommendations regarding issues to be voted on at the shareholders’ meetings?

Section 184 subsection 4, sections 193 and 199 of the Commercial Code - both the board of directors and the supervisory board 129.

VI.C. The board should be able to exercise objective judgement on corporate affairs independent, in particular, from management.

VI.C.1. Boards should consider assigning a sufficient number of non-executive board members capable of exercising independent judgement to tasks where there is a potential for conflict of interest. Examples of such key responsibilities are financial reporting, nomination of executive, board and auditors’ remuneration.


Does the law require that the board include a sufficient number of non-executive and independent directors? 130.

Does the law determine board independence? [If yes, please include the definition.] 131.

Does the law require the board (management/supervisory – please specify) to have separate committees for dealing with:

a.) Auditing and financial reporting?

b.) Executive and board remuneration?

c.) Board nominations? 132.

d.) Corporate governance (i.e., to oversee compliance with company governance standards)?

Are the board committees required to have a minimum number of non-executive board members or independent board members?

133.

- 38 -

VI.C.2. Board members should devote sufficient time to their responsibilities.


Are there limitations imposed by law as to the number of board directorships that a director can hold? [Please specify.]

However, there is a non-competition clause governed by the section 196 of the Commercial Code. 134.

This Assessment does not constitute legal advice. Readers are advised to seek appropriate legal advice before entering into any transaction, making any determination or taking any action related to matters discussed herein. The contents of this Assessment are copyrighted. For further information or eventual comments please contact Gian Piero Cigna at [email protected]

To see the complete list of published assessments, please visit: www.ebrd.com/law

- 39 -

mailto:[email protected]

http://www.ebrd.com/law