Corporate Governance Code 2019

CORPORATE GOVERNANCE CODE

This Code was created with the assistance of the European Bank for Reconstruction and Development (EBRD) and a consortium of experts as part of the project “Review and Implementation of the Croatian Corporate Governance Code”, carried out with the support of the EBRD.

TABLE OF CONTENTS
Introductory Provisions 7

• Purpose of the Code 7
• Application of the Code 8
• Reporting on the Application of the Code 8
  Chapter 1: Leadership 10
  Chapter 2: Duties of Members of the Management Board and Supervisory Board 12
  Chapter 3: Appointment of Members of the Management Board and Supervisory Board 14
  Chapter 4: Supervisory Board and its Committees 16
  Chapter 5: Management Board 20
  Chapter 6: Remuneration of Members of the Management Board and Supervisory Board 22
  Chapter 7: Risks, Internal Control and Audit 24
  Chapter 8: Disclosure and Transparency 27
  Chapter 9: Shareholders and the General Meeting 29
  Chapter 10: Shareholders and Corporate Social Responsibility 31
  Appendices:
  A. Definitions 32
  B. Application of the Code to Companies with a Monistic Structure 33

Dear Readers,

Before you is the new Corporate Governance Code, which replaces the old code, last updated in 2010, since which time numerous and significant changes have occurred in the European, and consequently Croatian, regulatory framework. The new Code is aligned with the latest and best international corporate governance practices, which will encourage companies whose shares are listed on the regulated market of the Zagreb Stock Exchange to apply significantly better corporate governance practices. In the creation of the Code, domestic and foreign investors, companies to which the Code will apply, and other stakeholders also participated with their comments and advice, to whom we sincerely thank and invite them to continue contributing to the development of corporate governance in the Republic of Croatia.

Transparency of information and adherence to the principles of good corporate governance play a key role in ensuring investor protection. A good corporate reputation is built over the long term, easily lost, and difficult to rebuild, taking even longer to restore. Hanfa therefore hopes that companies will recognize the importance of adopting high corporate governance standards and accept the spirit of the new Code, which we are convinced will, in the long run, bring numerous benefits to the companies themselves, as well as to the market and the economy of the Republic of Croatia as a whole.

Ultimately, good corporate governance depends on people. Their values, attitudes, professional skills and behavior, as well as their understanding and respect for other stakeholders, determine the long-term success of the company. Hanfa expects that the new Code and the purposes and principles set forth in it will provide an important foundation for all those responsible for the success and sustainable development of companies.

Good corporate governance is much more than formal compliance with laws and regulations - it means sustainable business in accordance with good practices, risk minimization, efficient decision-making processes, and transparent flow of information, as well as protection of shareholders' rights and clearly divided roles between management bodies, which requires participation from all participants in the business process - including shareholders, management and supervisory structures, and other stakeholders - in creating an environment that encourages excellence and the highest ethical standards of business.

The environment in which business entities operate is becoming increasingly challenging, and establishing a healthy corporate culture represents one of the key elements in achieving an optimal balance between the company's need for competitiveness, growth and development on the one hand, and the interests of all stakeholders on the other, and in this sense, the Code's guidelines certainly facilitate adherence to the highest standards of corporate governance and transparency.

We believe that this revision of the Code marks a new chapter in the development of corporate governance in Croatia and that we, together with companies, the regulator, investors, and all other interested parties and stakeholders directly and indirectly, will continue to work on raising the quality level of management of listed companies and thus increasing their value, and thereby the value of the economy as a whole.

dr. sc. Ante Žigman
President of the Management Board of Hanfa
Ivana Gažić
President of the Management Board of Zagreb Stock Exchange d.d.

Corporate Governance Code Introductory Provisions 7 INTRODUCTORY PROVISIONS Purpose of the Code The purpose of the Code is to promote effective management and accountability in companies whose shares are listed on the regulated market of the Zagreb Stock Exchange. Management includes conducting business affairs, but management and conducting business affairs are not synonymous. Conducting business affairs refers to day-to-day decision-making, while the purpose of management includes establishing a vision and standards that influence those decisions. Management includes issues such as the purpose of the company, relationships with other persons, and expected behavior of managers and employees of the company. Companies with high management standards and transparency attract capital more easily due to greater investor confidence. The benefit arises not only for individual companies but for the market and the state's economy as a whole. Companies with good management have a higher chance of long-term success, from which those who invest in the company, those who work for the company, and the state's economy benefit. Companies that behave ethically and have constructive relationships with stakeholders develop a good reputation, which contributes to their success. The Code reflects changes in Croatian law and European Union law and significant progress achieved in understanding the factors and practices that contribute to good management. The Code replaces the previous edition of the Code published in 2010. The new Code seeks to align the standards expected of listed companies with standards in other European countries with similar capital markets, while reflecting the specific circumstances in the Republic of Croatia. The adoption of standards from the Code by companies should show investors that they can confidently invest in the Croatian market. The company's approach to management is an integral part of how decisions are made and how risks and opportunities are assessed. The management approach therefore has great importance for the company's strategy and the way it conducts its business. Corporate governance is not limited to the responsibility companies have towards their shareholders but also to responsibility towards other stakeholders and society as a whole. The inability to retain their support, whether because the company behaves improperly or due to the impression that the company neglects stakeholder interests, can be just as damaging to the company's reputation, long-term progress, and shareholders' interests as failures of strategy or business model. Higher standards of corporate governance can be achieved if companies accept the spirit of the Code and the new reporting framework. The Code represents an incentive for all listed companies to recognize it as an opportunity to improve long-term results and to show their investors and other stakeholders that, as a company, they are committed to high standards of corporate governance and
willing to engage in meaningful dialogue with the aim of increasing the value of the company itself and achieving benefits for the company, as well as for the community and the economy as a whole.

8 Introductory Provisions Corporate Governance Code Application of the Code The Code applies to all companies whose shares are listed on the regulated market of the Zagreb Stock Exchange, except for shares of closed-end investment funds.
Each chapter of the Code consists of a purpose, principles, and provisions.

• The purpose describes why the issues in that chapter are important for effective management. It is stated only for clarification, and companies are not required to act in accordance with them or report on them.
• Principles describe the general goals that companies must achieve. Companies should ensure that their management measures meet these goals.
• Provisions define good practices that enable companies to meet the goals established in the principles. Companies must comply with the provisions of the Code or explain the reasons for non-compliance.
  In this Code, expressions with gender significance are used in a gender-neutral way and apply equally to the female and male sex.
  Relationship with the Law and the Rules of the Zagreb Stock Exchange Some parts of the Code overlap with mandatory legal provisions and the Rules of the Zagreb Stock Exchange. In most cases, the provisions in the Code are more detailed or set higher standards than such mandatory legal provisions or Zagreb Stock Exchange requirements; therefore, compliance with the law or the Rules of the Zagreb Stock Exchange, although necessary, may not be sufficient on its own for compliance with the provisions of this Code. Also, compliance with the provisions of the Code does not exempt companies from the obligation to comply with the law or the Rules of the Zagreb Stock Exchange. Application of the Code to Companies with a Monistic Structure The Code is intended for companies with a dualistic structure - that is, companies that have a supervisory board and a management board, given that such a management structure is most common among companies listed on the Zagreb Stock Exchange. Companies with a monistic structure are required to report on their actions in accordance with the provisions of the Code. Appendix B contains a smaller number of provisions specifically directed at these companies and which replace the corresponding provisions intended for companies with a dualistic structure. The appendix also contains guidelines on how companies with a management board must interpret other provisions of the Code. Reporting on the Application of the Code Companies must fill out two questionnaires annually: one in which they declare whether the company has complied with each provision of the Code (compliance questionnaire) and another in which they provide more detailed data on their corporate governance practices (management practices questionnaire). Both questionnaires are submitted to Hanfa, and the compliance questionnaire is published.

Corporate Governance Code Introductory Provisions 9 The questionnaires, instructions on how to fill them out, information on when and how they should be submitted to Hanfa, and, regarding the compliance questionnaire, published, are available on the websites of Hanfa and the Zagreb Stock Exchange in the corporate governance section. If a company does not comply with a provision of the Code, it must:

• explain in which part the company does not comply with the provision of the Code and for what reason, indicating special circumstances concerning that company
• describe the measures it has taken instead of complying with the provision of the Code to meet the goals established in the corresponding principle of the Code, and
• if the company intends to comply with the provision of the Code in the future, indicate when it will start acting accordingly.
  The Management Board is responsible for overseeing the fulfillment of annual questionnaires, which in the case of the compliance questionnaire includes explanations for all cases of non-compliance with the Code. Completed questionnaires must be approved by the company's supervisory board before their submission to Hanfa, and in the case of the compliance questionnaire, before publication. Date of Entry into Force Companies apply this Code from January 1, 2020. Regardless of that date, companies must report on their corporate governance practices for the year beginning on January 1, 2019, via the new questionnaires to establish existing practices, to monitor progress in the years following the start of the Code's application. This Code was adopted by Hanfa and the Zagreb Stock Exchange.

10 Leadership Corporate Governance Code
CHAPTER 1
LEADERSHIP
Purpose
The Supervisory Board and the Management Board have different roles, but they share responsibility for the long-term success of the company and ensuring that the company's policies, people, and processes are directed towards that goal. This shared responsibility can only be achieved through direct cooperation.
The role of the Supervisory Board consists not only of appointing and supervising the Management Board but should be closely involved in setting the strategic direction of the company and be a source of guidance and constructive questioning for the Management Board.
Members of the Supervisory Board will often have the necessary knowledge and experience that complements the expertise of the Management Board and can ensure an objective insight into how the Management Board can promote the best interests of the company. The Management Board must view the Supervisory Board as an important ally, not as a body whose influence it wants to limit or from which it must hide information. On the other hand, the Supervisory Board must be willing to provide the Management Board with all necessary support while refraining from interfering in the day-to-day management of the company. It must also ensure that close cooperation with the Management Board does not diminish the objectivity with which the Supervisory Board performs its guiding and supervisory functions. Members of the Management Board and the Supervisory Board have a special responsibility for establishing the culture and values of the company; therefore, they must set clear expectations for themselves and for employees regarding behavior towards colleagues and external stakeholders. Principles A. The Supervisory Board and the Management Board will ensure that the established company strategy, resources, risk management and internal control systems, and shareholder relations support the long-term success of the company and sustainable development. B. The Supervisory Board and the Management Board will ensure appropriate systems that enable them to cooperate effectively in the best interests of the company.
C. Members of the Supervisory Board and the Management Board will act with integrity and in accordance with the law and the company's internal code of conduct, and their behavior will set an example for all employees.

Corporate Governance Code Leadership 11
Provisions
Cooperation

1. The company's Statute and other internal acts must clearly determine the competencies of the Supervisory Board and the Management Board, in accordance with applicable laws and arrangements according to which the Management Board and the Supervisory Board cooperate. The company's Statute must be available free of charge on the company's website.
2. The Management Board and the Supervisory Board will agree on categories of decisions and legal transactions for which prior consent of the Supervisory Board is required and those regarding which the Management Board must consult with the Supervisory Board before making a decision. The Supervisory Board must adopt a decision listing these categories of decisions, and a summary of them must be available free of charge on the company's website. For important decisions affecting the company's strategy, expenses, risk exposure, and reputation, prior consent of the Supervisory Board must be sought.
3. The Management Board must ensure that the Supervisory Board and its committees have timely access to the company's buildings and premises, as well as senior management and employees when necessary for the performance of their duties, and all documents necessary for these purposes. These procedures must be established in the company's internal acts with the consent of the Supervisory Board.
4. In addition to reports required by law, the Management Board must report to the Supervisory Board at regular intervals on the company's operational results, financial situation, significant financial and non-financial risks, and results of interactions with shareholders and other stakeholders. The Management Board and the Supervisory Board will agree on the form and frequency of these reports.
5. The President of the Management Board must immediately notify the Supervisory Board if an event arises or is likely to arise that could potentially significantly affect the results, financial position, or reputation of the company.
   Code of Conduct
6. The Supervisory Board and the Management Board will agree on a code of conduct that must be followed by members of the Management Board and Supervisory Board, employees, and others acting on behalf of the company. The rules and measures to be taken in case of their violation must be established in the code of conduct or another internal act and must be available free of charge on the company's website. The Supervisory Board gives consent to the code of conduct or another internal act and will supervise its implementation and monitor its effectiveness.

12 Duties of Members of the Management Board and Supervisory Board Corporate Governance Code
CHAPTER 2
DUTIES OF MEMBERS OF THE MANAGEMENT BOARD
AND SUPERVISORY BOARD
Purpose
For a company to achieve long-term success, its leadership must be dedicated to achieving that goal. Success could be jeopardized if members of the Management Board and Supervisory Board instead decide to follow their own goals, which sometimes may conflict with the best long-term interests of the company.
Therefore, it is necessary that all members of the Management Board and Supervisory Board have a common duty to always place the interests of the company first and resolve all conflicts of interest. This applies to both members of the Supervisory Board and members of the Management Board, regardless of whether they were appointed by the General Meeting, majority shareholders, or employees. Principles D. Members of the Supervisory Board and Management Board will act in the best long-term interest of the company, not in their own interest or the interest of individual shareholders or other parties. In assessing the interests of the company, members of the Management Board and Supervisory Board will take into account the interests of employees, shareholders (including minority shareholders), and other stakeholders. Provisions Conflict of Interest
7. Members of the Management Board and Supervisory Board should not be allowed to make decisions based on personal interests or the interests of persons associated with them, nor should they participate in decisions regarding which they are in a conflict of interest. The Supervisory Board must give prior consent to the conflict of interest management policy, which must be available free of charge on the company's website.
8. If a member of the Management Board or Supervisory Board considers that they are in a potential conflict of interest regarding a specific decision, they must notify other members of the Management Board or Supervisory Board. Members of the Management Board must also notify the President of the Supervisory Board. The Supervisory Board must keep a record of all notifications regarding conflicts of interest.
9. If a member of the Management Board or Supervisory Board has reason to believe that another member of the Management Board or Supervisory Board has not reported an existing or potential conflict of interest, they must notify the President of the Supervisory Board. If anyone considers that the President of the Supervisory Board is in a conflict of interest, they must notify the Deputy President.
Non-Compete Clause
10. Members of the Supervisory Board and Management Board must not engage in activities that compete with the company's business, either for their own or for others' accounts. They must not be members of the Management Board or Supervisory Board of companies that conduct such activities, nor hold significant shares in such companies. Members of the Management Board and Supervisory Board must notify the company secretary of all shares in such companies. Details of these shares must be available free of charge on the company's website.

Corporate Governance Code Duties of Members of the Management Board and Supervisory Board 13 Transactions with Related Parties
11. No transaction between members of the Management Board or Supervisory Board and the company (or persons associated with either party) may be concluded without prior consent of the Supervisory Board. The fair value of each material transaction, as defined by law, must be confirmed by an independent expert prior to the transaction, and their report must be available free of charge on the company's website.
12. The Supervisory Board must ensure that procedures for approving and publishing such transactions are adopted, which will be in accordance with legal provisions and financial reporting standards. The Audit Committee must assess the effectiveness of these procedures at least once a year.

14 Appointment of Members of the Management Board and Supervisory Board Corporate Governance Code
CHAPTER 3
APPOINTMENT OF MEMBERS OF THE MANAGEMENT BOARD AND SUPERVISORY BOARD Purpose It is crucial to select the right people for specific roles, as well as to ensure that the overall composition and balance of the Management Board and Supervisory Board correspond to the company's circumstances. It is necessary to very carefully specify the characteristics required for each appointment and the purpose it serves, and finally, to select the right person. The company's needs will inevitably change over time, as well as the environment in which companies operate. It is important to look to the future with the aim of recognizing significant changes in time, so that the Management Board and Supervisory Board can be restructured as needed to be ready for upcoming challenges. A Management Board assembled to handle yesterday's problems may not know how to handle tomorrow's problems. Principles E. The Supervisory Board will ensure the establishment of formal and transparent procedures for the appointment of members of the Management Board and Supervisory Board, as well as the existence of a quality succession plan for the Management Board and Supervisory Board. Provisions Role of the Supervisory Board
13. The Supervisory Board is responsible for the appointment and dismissal of members of the Management Board and for recommending candidates for the Supervisory Board to the General Meeting. It must also ensure the existence of formal and transparent procedures for appointment to the Management Board and Supervisory Board.
14. The Supervisory Board must set as a goal every five years the percentage of female members of the Supervisory Board and Management Board that must be achieved in the following five years. Each goal must be published in the annual report along with an explanation of why it was chosen and an implementation plan. Progress towards the plan must be published every year.
Role of the Nomination Committee
15. The main responsibilities of the Nomination Committee:

• overseeing the appointment process in the Supervisory Board and Management Board to ensure it is fair and transparent
• developing role descriptions and candidates for each vacant position in accordance with the profile of the Management Board or Supervisory Board (as necessary, in consultation with the President of the Management Board or Supervisory Board) and identifying and recommending appropriate candidates to the Supervisory Board
• when seeking independent candidates for the Supervisory Board, determining that candidates are independent (according to the definition in Appendix A)

Corporate Governance Code Appointment of Members of the Management Board and Supervisory Board 15

• negotiating appointment terms with potential new members of the Management Board or Supervisory Board, including the expected time required to perform their functions
• preparing a succession plan for the reappointment or replacement of members of the Supervisory Board and Management Board, in consultation with the President of the Supervisory Board or Management Board
• overseeing progress in achieving the target percentage of female members of the Management Board and Supervisory Board
• overseeing the Management Board's policy in the selection and appointment of senior management.
  Selection of Supervisory Board Members at the General Meeting

16. When proposing candidates for the Supervisory Board to the General Meeting, the company will make the following information available free of charge on the company's website among the materials for the General Meeting:

• the candidate's curriculum vitae, listing the skills, knowledge, education, and experience that will enable them to effectively perform the role of a Supervisory Board member
• an explanation of how the candidate contributes to the profile of the Supervisory Board
• any relationships between the candidate and the company or persons associated with the company
• whether the candidate is proposed as an independent member of the Supervisory Board and, if so, why the Supervisory Board considers the candidate to be independent, and
• other activities of the candidate, including membership in the Supervisory Board or Management Board of other companies.

17. In the case that a current member of the Supervisory Board is proposed, the materials for the General Meeting must include information on the attendance of that member at Supervisory Board and its committee meetings during the previous term, as well as the conclusions of the last assessment of their performance.
18. The aforementioned data must also be available free of charge on the company's website when a representative of employees or another member of the Supervisory Board not elected by shareholders at the General Meeting is appointed.

16 Supervisory Board and its Committees Corporate Governance Code
CHAPTER 4
SUPERVISORY BOARD
AND ITS COMMITTEES
Purpose
Supervising the Management Board and its performance of duties is only one part of the role of an effective Supervisory Board. The Supervisory Board must also be involved in determining and supervising the company's strategy and culture and ensuring that the Management Board understands the risks and opportunities and the environment in which it operates. The Supervisory Board must be able to make an objective and informed judgment in both capacities; therefore, it is important to have an adequate composition of the Supervisory Board and to evaluate it in accordance with changes in the circumstances in which the company operates. The Supervisory Board must have the necessary expertise

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