OREANDA-NEWS. July 13, 2010. More than a week already a public debate goes on triggered by the outcome of the Annual General Meeting of Shareholders (AGM) of OJSC MMC Norilsk Nickel (“MMC Norilsk Nickel” or “the Company” or “MMC”) and election of the new Board of Directors, reported the press-centre of Norilsk Nickel.

More often than not, the statements of individual participants of this discussion border, by their nature, on accusations against the Company and its management. In our view, they are damaging to the reputation of MMC Norilsk Nickel, although mostly they are just ungrounded and emotional interpretations. Given the above, the Company believes it necessary to respond to public comments made to its address and expressly state its position regarding the most important issues related both to the AGM and to the principles of corporate governance in general.

The cause of this public discussion lies in the results of election to the Board of Directors, which is composed now of three independent directors, three senior managers of MMC Norilsk Nickel, three representatives of UC RUSAL, and four representatives of Interros Holding Company (Information on the composition of the Board of Directors: http://www.nornik.ru/en/about/governance/directors_board/). At the same time, A.S. Voloshin, the permanent Chairman of the Board of Directors of MMC Norilsk Nickel since December 2008, nominated to the new Board as an independent director by UC RUSAL, was not elected. UC RUSAL in its statement released immediately after the AGM, actually accused MMC Norilsk Nickel and its management of “manipulations with MMC shares held the Company”, which, according to the aluminum company’s representatives, has led to the present results.

In particular, UC RUSAL representatives declare that "the management of the company has transferred quasi-treasury shares to offshore companies" and “contributed to the election of MMC Norilsk Nickel managers who are subordinate to and report to the CEO of Norilsk Nickel".  As a result, this influenced the vote and “disturbed the balance between the shareholders of MMC Norilsk Nickel” (Full version of this statement: http://rusal.ru/en/news_details.aspx?id=6741).

In this regard, we consider it important to emphasize that the Company never made any secret of the fact that its subsidiaries were the holders of MMC Norilsk Nickel voting shares (over 8% of the Company’s share capital). The market is well aware of their provenance: a half of this stake was formed on the basis of agreement with AKB Rosbank on asset management (Press release of September 2008: http://nornik.ru/en/press/news/2325/) and another part was accumulated after share buyback in February 2009 (Press release of February 2009: http://nornik.ru/en/press/news/2369/) and their subsequent transfer to the "daughter companies" of MMC Norilsk Nickel in accordance with the decision of the Board of Directors (Press release of May 2009:  http://nornik.ru/press/news/2386 ), as UC RUSAL is certainly well aware of. Moreover, these shares have already participated in voting, namely at the AGM in June 2009, which is also a known fact. And besides, in terms of the vote allocation procedure, it does not matter which legal entities are the stakeholders as their total size does not change, so UC RUSAL’s accusation of manipulation with these shares remains unclear.

Finally, we find it odd that UC RUSAL maintains the management voted with these shares “against Alexander Voloshin”, since it is possible to vote only “for” during cumulative voting.
At the same time, the Company publicly states that its subsidiaries distributed votes between MMC top management, which is, in our opinion, the important factor of stability and balance of the Board of Directors under current circumstances. Participation of executive directors in the Board is a common practice in the metal and mining industry worldwide and the Company management believes it will contribute to the most reasonable and efficient decision-making.

Therefore, we can not accept UC RUSAL accusations and we call its representatives for meaningful and legitimate dialogue based on solid facts.

The issue of new Board of Directors Chairman elections is worth of separate notice. Setting aside agreements between UC RUSAL and Interros Holding Company that are referred to by their representatives, we are certainly sorry that Alexander Stalievich Voloshin is not a part of the Board anymore. His knowledge and experience have greatly contributed to the Board in particular and the Company in general. MMC management extends its gratitude to Mr. Voloshin.
UC RUSAL representatives did not appear on the first meeting of the new Board of Directors thus boycotting it in practice. The rest of Board of Directors members unanimously voted for V.N. Titov as a new Chairman of the Board. Chairmen of the Committee of the Board were also elected at the meeting. In particular, Budget Committee chairmanship was reserved and offered to Vladislav Soloviev, First Deputy of the General Director, UC RUSAL. Mr. Soloviev later agreed to head the committee.

The refusal of A.S. Voloshin, who presided at the annual meeting of the shareholders, to sign the minutes of the meeting requires additional clarification. According to Alexander Stalievich, there were certain contraventions at the meeting, namely at announcing the quorum and at voting for one of the interested party transactions. Let us consider those issues in more detail:

1) Quorum:
As A.S. Voloshin writes in his letter (Letter to O.V. Surikov, Secretary of MMC Norilsk Nickel, and V.I. Strjalkovsky, General Director of MMC Norilsk Nickel, from 02.07.2010) referring to p.20 of MMC Regulations on General Shareholders Meeting, “the quorum at the meeting is announced once after registration and is valid throughout the meeting”. At the same time, Mr. Voloshin maintains that the quorum figures are not the same at the beginning of the meeting and at its end: “When you look at the voting results in the documents presented, you find out that the meeting participants had around 92,85% placed voting shares. Moreover, the shareholders present were not informed of this fact".

In response to this the following can be noted: indeed, pursuant to the aforementioned Regulations the quorum is determined once after the registration of shareholders is closed and if it is determined it cannot be changed afterwards. Alongside with that, pursuant to p. 4.9 of the Regulations on the additional requirements to the procedure of preparation, convening and holding of the general meeting of shareholders registration of shareholders shall be closed not earlier than the last item of AGM agenda is discussed.

The difference in figures that A. S. Voloshin resorts to is explained in the following way: the registrar that performs the functions of the Counting Commission shall announce the current quorum at the beginning of the AGM so as to provide the ground for opening the meeting. If the quorum constitutes less than 50% of the voting shares, the meeting shall be deferred for two hours. By the beginning of the AGM (3 p.m, Moscow time) the number of registered shareholders reached 75.7%, which was announced and the meeting started. Accordingly, the registration of AGM participants continued until the end of the meeting, that is approximately 1 hour and a half and finally, the number of shareholders registered totaled 92.85%.

It should be added that, neither the Company, nor the registrar or the representatives of the Counting Commission are not required by the law to inform the meeting on the shareholders newly arriving to the AGM. Furthermore, it is not required by the Procedure of AGM conducting approved unanimously by the Board of Directors (including its Chairman). Besides, as is known, the Company doesn’t have shares withdrawn from circulation, therefore, while distributing his/her votes at the AGM, each shareholder shall consider the possibility of 100% quorum. Therefore, the shareholders shall vote so as to get the desired result but not blame the Company for the quorum not meeting their expectations as UC RUSAL does.

To sum it up, we believe that the procedure of conducting the AGM and in particular, determining the quorum was in strict compliance with the Russian Law and the internal documents of MMC Norilsk Nickel (Federal Law On Joint Stock Companies No. 208-FZ of  26.12.95., Regulations on the additional requirements to the procedure of preparation, convening and holding of the general meeting of shareholders (approved by  the ruling of FCSM of 31.05.2002. No.17/ps), MMC  Norilsk Nickel Charter (version 6, approved by the resolution of the AGM, protocol of 03.07.09), Regulations on the annual  general meeting of MMC Norilsk Nickel shareholders, protocol of 12.01.07), and there were no violations on the part of the Company.

2) Voting on the approval of interested party transaction with CJSC Normetimpex:
The second remark of A.S. Voloshin is related to the fact that UC RUSAL was excluded from the list of voting on this item (item 13 in the AGM agenda), whereas Interros Group companies were not excluded from it, which is the violation of arm’s length principle.

CJSC Normetimpex is a 100% subsidiary of MMC Norilsk Nickel that has been in charge of selling NN’s products on the domestic market and exporting them via regional distribution offices for more than 15 years. Therefore, the Company’s sales and revenues depend on the work of CJSC Normetimpex.

For our part, we would like to clarify the following. Firstly, indeed, the parties that hold 20 and more percent of shares of a legal entity being the party to a transaction are acknowledged to be the interested parties to the transaction (Art. 81 of the Federal Law On Joint Stock Companies). Such shareholders shall inform the Board of Directors of legal entities, in which they own the relevant stock of shares solely or jointly with their affiliates (Art. 82 of the Federal Law On Joint Stock Companies).

In other words, the day before the AGM, the shareholders by themselves are to notify the Company that they are interested parties to the transaction, while the Company is to transfer this information to the Registrar. Having regard to this information and based on the Register records, the Registrar excludes the interested parties from the voting list. Taking into account the obtained information (according to the Registrar’s data on the nominal shareholders as of May 21, 2010), the Company notified the Registrar that UC RUSAL Investment Management LLC was an interested party to the transaction specified in agenda item No.13. By the day of the AGM, the Company had no legal information on any other interested parties (mass media reports being an insufficient legal ground for this purpose). Accordingly, in this situation the Company acted in strict compliance with the legislation of the Russian Federation.

All the aforementioned reasons and detailed information were submitted to A.S.Voloshin, and we trust that taking everything into account, Mr. Voloshin will deem it possible to review the AGM protocol once again and to sign it. With unsigned Minutes of the meeting, the Company will not have enough documents to execute some other resolutions adopted at the AGM, e.g. the resolution on 2009 dividends payout, as the order of dividend payment is subject to the tax legislation.

Furthermore, if the presented explanations are considered to be unsatisfactory, the Company will consider appealing to the Federal Financial Markets Service with a request to verify voting results produced by the Counting Commission and give an assessment of the AGM outcome.

In addition to the aforesaid, the Company deems it necessary to express its own opinion on the following matters related to the corporate governance in MMC Norilsk Nickel:

1. Despite harsh statements from UC RUSAL, the management intends to continue acting in the interest of all shareholders as it did before. We perfectly realize that this is not a simple task and current debates around the results of the AGM-2010 are good proof for it. It is obvious that interests and approach of different shareholder groups often differ and in such cases the aim of the management is to help finding a compromise solution – a solution that would not inflict damage to the interests of the Company. One should also keep in mind that MMC Norilsk Nickel being a private public and one of the most profitable companies in the industry remains a strategic enterprise for the state. Three single-company cities and one town depend on its work. It plays a key role for the budgets of Krasnoyarsk Territory and Murmansk region and, last but not least, for the federal budget. It is the obligation of the management to take this factor into account and to encourage the shareholders of MMC Norilsk Nickel to do the same. Otherwise the foundations of the Company’s well-being could be shaken, which does not serve the interests of any shareholders.

2. The management has always been and will continue to be independent in its decision-making with regards to the Company’s development. In a situation where tensions between the major shareholders of MMC Norilsk Nickel are obvious we will not support any of the parties, because any conflict is to the detriment of the Company. Under current circumstances the management considers that creating conditions for more active involvement of minority shareholders in activities of MMC Norilsk Nickel is the most efficient method to ensure the Company’s durability and to prevent escalation of the conflict. This is already underway: in May 2010 the management presented its vision of the Company’s long-term development prospects to international investors and shareholders.

Then, in advance of the AGM, the management held a road show for international holders of the Company’s ADRs with the participation of both Bradford Mills and Gerard Holden who were recommended by ISS/RiskMetrics independent service as independent candidates for the election to the Board of Directors. During the meetings the parties discussed different ways of approach to the Company’s management. The management of MMC Norilsk Nickel took the suggestions of the minority shareholders into account. The minority shareholders in their turn had the opportunity to ask their representatives in the Board of Directors of MMC Norilsk Nickel questions in face-to-face discussion.

We believe the AGM voting results demonstrate that the management and minority shareholders generally agree on the ways of the Company’s development. The fact that both Bradford Mills and Gerard Holden were elected to the Board of Directors exclusively thanks to the support of the minority shareholders and received the majority of votes compared to all other candidates is unique in the history of the Company and verifies the truly independent status of these directors. Our hope is that the two major shareholders – Interros and UC RUSAL will make terms and establish a meaningful dialogue – something all shareholders and the management strive for, thus helping to resolve the current situation to the best interests of the Company.