Corporate Governance for the corporations in the stock exchange in Turkey is regulated by the Communiqué on Corporate Governance as published in the Official Gazette dated January 2014 and numbered 288871 (“Communiqué”) regulates the principles of corporate governance and principles and procedures on related party transactions which shall be applied by the corporations whose shares of which are offered to public or are deemed to be offered to public.

Corporations set forth below shall not be subject to the provisions in the Communiqué regarding principles of corporate governance:

1. Publicly held corporations whose shares are not traded on the stock exchange,
2. Corporations whose shares are traded on markets, market places or platforms other than National Market, Second National Market or Collective Products Market.
3. Corporations whose shares will be traded on markets, market places or platforms other than National Market, Second National Market or Collective Products Market, from among those which have applied to the Capital Markets Board  (“Board”)for offering their shares to public and/or being admitted to the trading on the exchange for the first time.
4. Corporations deemed to be residing abroad in accordance with the Decree numbered 32 regarding Protection of the Value of Turkish Currency come into force by the Cabinet Decree dated 7 August 1989 and numbered 89/14391.

The Communiqué is based on Article 17 of the Capital Markets Law dated 6 December 2012 and numbered 6362 (“Law”).

Obligatory Principles of Corporate Governance

Corporations are liable to implement the principles of corporate governance as follows;

Regarding the General Assembly of the Corporations, as stated in the Annex 1.3.1 of the Communiqué;

Following information shall be announced conspicuously in the corporate website of the corporation and at Public Disclosure Platform (“PDP”), at least three weeks before the general assembly meeting excluding the days of announcement and the meeting, together with the documentation which shall be submitted to the shareholders for their examination as per Article 437 of the Turkish Commercial Code dated 13 January 2011 and numbered 6102 and with the notifications and explanations that the corporation shall make in accordance with the relevant legislation:

1. Total number of shares and voting rights reflecting the current corporate structure as of the date that the announcement and should the corporation have privileged shares, number of privileged shares and voting rights for each privileged share group and information on the feature of the privileges;
2. Changes in the management and activities of the corporation and subsidiaries thereof that took place in the past accounting period or that are planned for future accounting periods, which may affect the activities of the corporation significantly and information on the reasons for such changes.
3. In case the general assembly meeting agenda includes dismissal, change or election of board of directors members, the grounds for their dismissal and change and with respect to the persons whose candidacy has been declared to the corporation; their curricula vitae, duties that they have conducted in the last ten years and reasons for their resignation, feature and materiality level of their relation with the corporation and its related parties, whether they are independent or not, and information on similar issues which may affect the activities of the corporation should these persons are elected as members of board of directors.
4. Written requests of shareholders submitted to the Investor Relations Department for inclusion of an item into the agenda and should the board of directors have not accepted the proposals, such proposals which have not been accepted and grounds for their refusal;
5. In case the agenda includes amendment of articles of association, relevant resolution of the board of directors and former and new versions of the articles of association.

As laid down the Annex 1.3.1 of the Communiqué; The chairman of the meeting shall be attentive in the general assembly meeting that the agenda items should be expressed in an objective and detailed manner with a clear and comprehensible method. Shareholders should be provided with equal opportunities to express their opinions, and raise questions. The chairman of the meeting shall ensure that each question imposed by the shareholders and which is not a commercial secret is responded directly in the general assembly. In case the question posed is not related to the agenda or is too complicated to be responded during the meeting, then the question shall be responded in writing within 15 days by the Investor Relations Department. All questions posed in the general assembly meeting and all responses to these questions shall be announced to public via the corporation’s website by the Investor Relations Department within 30 days at the latest following the date of the general assembly meeting.

In respect of the transactions of the Corporations; as indicated under Annex 1.3.9 of the Communiqué;

In transactions i.e. asset and service purchase and obligation transfer transactions, the rate of the transaction amount comparing to the total asset amount as per the latest financial statements disclosed to public or to the revenue amount as per the latest financial statements disclosed to public or to the value of the corporation to be calculated on the basis of the average of the daily corrected weighted average prices of the six-month term prior to the board of directors resolution date,

In transactions i.e. asset and service sale, the rate of the transaction amount (in case the net book value of the asset is higher, the rate of the net book value) comparing to the total asset amount as per the latest financial statements disclosed to public or to the revenue amount (in cases that the asset is transferred, leased out or right in rem is established thereon, the rate of the profit earned from the asset comparing to the profit of the corporation before the taxation on its ongoing operations as per the latest financial statements) (except for establishment of right in rem arising from ordinary activities of the banks and financial institutions) as per the latest financial statements disclosed to public or to the value of the corporation to be calculated on the basis of the average of the daily corrected weighted average prices of the six-month term prior to the board of directors resolution date, exceed 10% or an activity is ceased; approval of the majority independent members shall be required in order to execute the board of directors resolution in relation to such transactions. In case that the board of directors resolution has not been taken with the unanimity of the attending members, the signed board of directors resolution and the dissenting opinions shall be disclosed at PDP.

In lease transactions and/or other transactions in which cash flows may be certainly dissociated, net present value of the total annual gross lease income/expense and/or other income/expense calculated in accordance with the reduced cash flow method shall be taken into consideration as the transaction amount.

In case that the majority of the independent board members do not approve the transaction, this situation shall be disclosed at PDP in a manner including a satisfactory explanation and the transaction shall be submitted to the approval of the general assembly. In general assembly meetings, the principles in the sixth paragraph of Article 29 of the Law shall apply.

In case that, the rates calculated within the framework of the principles are negative or non-applicable for the reasons such as obtaining unreasonably high results, such rates shall not be taken into consideration during assessment and this situation shall be disclosed at PDP in a manner including a satisfactory explanation. In case where the amount corresponding to 10% of the revenue is lower than the amount corresponding to two per thousand of the total shareholders’ equity; rate based on the revenue shall not be deemed applicable.

In respect of the Structure of the Board of Directors; as indicated under Annex 4.3 of the Communiqué;

The number of members of the board of directors, provided that the number is not less than five in any case, shall be determined in order to ensure that the board members conduct productive and constructive activities, make rapid and rational decisions and efficiently organize the formation and activities of the committees.

Majority of the members of the board of directors shall consist of members who do not have an executive duty. A Non-executive member of the board of directors shall be the person who does not have any administrative duty other than being a board member or any executive unit subsidiaries to himself/herself and is not involved in the daily work routine or ordinary activities of the corporation.

There shall be independent members from among the non-executive board members who have the ability to fulfill their duties impartially. The number of independent board members cannot be less than one third of the total number of board of directors. In calculation of the number of independent board members, fractions shall be considered as the following whole number. In any case, the number of independent board member shall not be less than two.

The term of office of the independent members of the board of directors shall be up to three years and it shall be possible to nominated as a candidate and elected again. A member of the board of directors who meet the following criteria shall be referred to as an “independent member”:

1. Not to have a relationship in terms of employment at an administrative level to take upon significant duty and responsibilities within the last five years, not to own more than 5% of the capital or voting rights or privileged shares either jointly or solely or not to have established a significant commercial relation between the corporations on which the corporation hold control of management or significant effect and shareholders who hold control of management of the corporation or have significant effect in the corporation and legal entities on which these shareholders hold control of management and himself/herself, his/her spouse and his/her relatives by blood or marriage up to second degree,
2. Not to have been a shareholder (5% and more), an employee at an administrative level to take upon significant duty and responsibilities or member of board of directors within the last five years in companies that the corporation purchases or sells goods or service at a significant level within the framework of the contracts executed, especially on audit (including tax audit, statutory audit, internal audit), rating and consulting of the corporation, at the time period when the corporation purchases or sells services or goods,
3. To have professional education, knowledge and experience in order to duly fulfill the duties assigned for being an independent board member.
4. Not to be a full time employee at public authorities and institutions after being elected, except being an academic member at university provided that is in compliance with the relevant legislation.
5. To be residing in Turkey in accordance with the Income Tax Law (I.T.L) dated 31 December 1960 and numbered 193.
6. To be capable to contribute positively to the operations of the corporation, to maintain his/her objectivity in conflicts of interests between the corporation and the shareholders, to have strong ethical standards, professional reputation and experience to freely take decisions by considering the rights of the stakeholders.
7. To be able to allocate time for the corporation’s business in order to follow up the activities of the corporation and duly fulfill the allocated duties.
8. Not to have conducted membership of board of directors more than a term of six years in the last ten years.
9. Same person shall not be the independent member of the board of directors in more than three of the corporations as such; the corporation or the controlling shareholders of the corporation who hold the control of management corporations and in more than five corporations in total which are admitted to the trading on the exchange.
10. Not to be registered and announced as a board member representing a legal entity.

Nomination Committee shall evaluate the candidate proposals for independent membership, including those of the management and the investors, by considering as to whether the candidate meets the independence criteria and shall report its evaluations and submit its report to the approval of the board of directors.

Candidate independent member of the board of directors shall submit a written declaration to the Nomination Committee at the time of his/her nomination, stating that he/she is independent within the framework of relevant legislation, articles of association and the criteria indicated above.

The Board of directors shall compile a list of candidate independent members within the framework of the report of nomination committee and send this list to the Board together with the report of the nomination committee and the resolution of the board of directors at least 60 days in advance from the general assembly meeting. In case the Board has an adverse opinion as a result of its evaluations within the framework of the principle numbered 4.3.6., it shall notify the corporation its adverse opinion regarding the list within 30 days. A person who has been subject to the adverse opinion of the Board cannot be submitted as a candidate independent member in the general assembly meeting. The corporation shall disclose at PDP the list of the candidate independent members and of the candidates who have not been accepted as candidate independent member, at the latest with the announcement of the general assembly meeting. Resolution of the general assembly of shareholders with regard to the nomination of independent members of the board of directors shall be announced together with the opposing votes and the grounds thereof, via the corporate website of the corporation.

In case of a situation which revokes independence arises, this situation and the grounds thereof shall be immediately notified to the board of directors by the independent board member in order to be disclosed at PDP. Such a member shall simultaneously notify in writing this situation and the grounds thereof to the Board. In principle, the member who lost his/her independence shall resign. In order to reinstate the minimum number of members of the board of directors, the nomination committee shall make an evaluation for election of independent members to the vacant positions in order to be on duty until the earliest general assembly meeting and notify the result of its evaluation to the board of directors. The Board of directors shall elect the independent members from among the candidates in the report of the nomination committee.

The Board of directors shall send to the Board the candidate list determined within the framework of the nomination committee within 30 days as of the date that the independent membership becomes vacant. If the Board has an adverse opinion, it shall notify its adverse opinion to the corporation within 20 days. A Person who has been subject to the adverse opinion of the Board cannot be nominated as an independent member. The members elected by the board of directors within this framework shall be on duty until the earliest general assembly.

Committees Formed within the Structure of the Board of Directors

As indicated under Annex 4.5.1 of the Communiqué, board of directors shall form an “Audit Committee” (except for banks), “Early Detection of Risk Committee” (except for banks), “Corporate Governance Committee”, “Nomination Committee, Compensation Committee” (except for banks) in order to fulfill its duties and responsibilities in a reliable way. However, in case that a separate nomination committee and compensation committee cannot be established due to the structure of the board of directors, corporate governance committee shall fulfill the duties of such committees. Duties, working principles and the members of the committee shall be determined by the board of directors and disclosed at PDP. Committees shall be composed of at least two members. In case there are two members, both of them, and in case there are more than two members, the majority of them shall be comprised of non-executive members of the board of directors. The Chairman of each committee shall be elected from among the independent members of the board of directors. All members of the audit committee shall comprise of the independent members of board of directors. Specialists who are not a member of the board of directors may become a member of the committees except for the audit committee. Chief executive officer/general manager shall not have a duty in the committees. It shall be noted that any member of the board of directors shall not have a duty in more than one committee.

The Audit committee shall be in charge of the supervision of the corporation’s accounting system, public disclosure of the financial information, independent auditing and the operation and efficiency of internal control and internal audit system. Election of the independent audit institution, initiation of the independent audit process by preparing the contracts of independent audit and the work of the independent audit institution at all levels shall be conducted under the supervision of the audit committee. The independent audit institution and the service to be purchased from this institution shall be determined by the audit committee and submitted for the approval of the board of directors. The Audit committee shall designate the applicable method and criteria with regard to the review of the complaints regarding the accounting and internal control system of the corporations and the independent audit, settling thereof, evaluation of the notifications of the employees of the corporation with regard to matters on accounting and independent audit of the corporation within the framework of the confidentiality principle. The Audit committee shall notify its evaluations with regard to the veridicality and accuracy of the annual and interim period financial statements to be disclosed to the public and accounting principles followed by the corporation to the board of directors in writing, together with the opinions of the responsible executives and independent auditors of the corporation. The Audit Committee shall convene at least four times a year, provided that it is once in three months, record meeting minutes and submit the resolutions to the board of directors. There shall be an explanation in the annual report with regard to the activities and meeting results of the audit committee. The Number of written notifications of the audit committee to the board of directors within the term of the account period shall also be set forth in the annual report. The Audit committee shall notify its findings relevant to its own duty and responsibilities and evaluations relevant thereto immediately in writing to the board of directors.

The Corporate governance committee shall determine as to whether principles of corporate governance apply, if not applied its grounds and state the conflict of interest which arises for not complying with these principles and give advice to the board of directors in order to enhance the implementation of corporate governance and supervise the work of the investor relations department.

The Nomination committee shall;

1. Be in charge of forming a transparent system on determination, evaluation and training of the candidates suitable for the positions of the board of directors and executives and to determine policies and strategies with this regard,
2. Evaluate regularly the structure and productivity of the board of directors and submit its advices to the board of directors regarding possible amendments in this respect.

The Committee of early detection of risk shall be responsible for early detection of the risks which poses a threat to the existence, development and continuation of the corporation, taking the necessary measures with respect to detected risks and working on risk management. The Committee of early detection of risk shall review the risk management systems at least once a year.

The Remuneration committee shall;

1. Be in charge of designations of the principles, criteria and implementations to be used in the remuneration of the members of the board of directors and the executives, considering the long term targets of the corporation and supervision thereof,
2. Submit its advices with respect to the remuneration of the board of directors and the executive managers, considering the achievement level to the criteria used in remuneration.

Financial Rights Provided for Members of the Board of Directors and Executives

The Board of directors shall be responsible for the corporation’s achievement of its targets on operational and financial performance designated and disclosed to the public. Evaluation as to whether the corporation has achieved its targets on operational and financial performance disclosed to public or not, and if not achieved, reasoning thereof shall be included in the annual report. The board of directors shall undertake self-criticism and performance evaluation on the basis of both the board, the member and the executive. Members of the board of director and executives shall be either awarded or discharged subject to these evaluations.

Principles on remuneration of members of the board of directors and executives shall be in written form and submitted to the shareholders as a separate agenda item at the general assembly meeting and the shareholders shall be enabled to express opinion on this matter. The remuneration policy issued with this objective shall be set forth in the corporate website of the corporation.

In remuneration of the independent members of the board of directors, payment plans such as dividend, stock options or payment options based on the corporation’s performance shall not apply. In so far, remuneration of the independent members of the board of directors shall be at a level to protect their independence.

Measures to be taken upon breach of the obligation to comply with the principles of corporate governance

Under Article 7 of the Communiqué, measures to be taken upon breach of the obligation to comply with the principles of the corporate governance is indicated. Accordingly;

In cases where the compliance obligation is not performed as set forth in the Communiqué or within the term granted by the Board, the Board shall be authorized to take decisions providing fulfillment of the compliance liability and fulfill the relevant transactions ex officio.

Even if a specific time period is not designated or granted for fulfillment of the compliance obligation, the Board shall be authorized to request cautionary injunction exempt from all kinds of guarantee, to file a lawsuit for determination of the legal violation by activities breaching the compliance obligations or for cancellation of these activities, to request for a court decision that will result in the way that lead to the fulfillment of the compliance. A compliance proposal involving the transactions required for compliance to the principles of corporate governance shall be added to the request to be submitted to the court.

In cases where, despite corporations have the required number of board members, the board of directors or the general assembly does not fulfill the required transactions or take required resolutions in order to provide the compliance to the mandatory principles of corporate governance, the Board shall grant a term of 30 days to these corporations. In case the transactions required for compliance have not been fulfilled within this time period granted, the Board shall appoint ex officio independent members of board of directors in required number that is necessary for the board of directors to convene and to take resolution in accordance with Article 17 of the Law and to provide the independence criterion. Upon affirmative opinion of the Board, the new board of directors shall fulfill the required amendments at the articles of association to provide the compliance to the mandatory principles of corporate governance and shall register these amendments with the trade registry and have them announced.