MAHLE worldwide / EN

Policy for Related Party Transactions


1. Purpose

The purpose of this Policy for Related Party Transactions (hereby referred to as Policy) is to set forth the rules and procedures to be observed by the company MAHLE Metal Leve S.A. (hereby referred to as MAHLE Metal Leve or just Company) and by its controlled companies in the context of transactions involving related parties (as per the definition of related parties below).

This Policy is aimed, also, at preventing and managing situations of potential conflict of interest in the context of these related party transactions.

2. Principles of this Policy

MAHLE Metal Leve is a company of the MAHLE Group. MAHLE Group is a leading international development partner and supplier to the automotive industry as well as a pioneer for the mobility of the future. Being a part of the MAHLE Group gives the Company a relevant competitive and strategic advantage in its field of business, in light of the technology developed by the Group and its penetration in the main automotive markets in the world, which renders relevant business opportunities for MAHLE Metal Leve.

As part of the MAHLE Group, MAHLE Metal Leve routinely enters into, in the ordinary course of its business, transactions with the other companies of the Group, among which are, necessarily, related parties to the Company, including its controlling shareholder, its controlled companies, its affiliates and other companies under common control with MAHLE Metal Leve.

In light of this context in which the activities of the Company are inserted, this Policy has the following principles:

(a) Preserve the integration of MAHLE Metal Leve to the other companies that are part of the MAHLE Group, an element which is fundamental to perpetuate the success of the Company and of the Group as a whole; and

(b) Ensure that any and all related party transactions of MAHLE Metal Leve are oriented in the best interest of the Company and founded in principles of transparency and fairness.

3. Definitions

Related Party

As per the applicable regulation and for purposes of this Policy, a “related party” is the person or entity which is related to the Company, as set forth below:

(a) A person, or a close member of his/her family, is related to the Company if such person:

(i) has control or joint control over the Company;

(ii) has significant influence over the Company; or

(iii) is a member of the key management personnel of the Company’s or of a parent of the Company.

(b) An entity is related to the Company if any of the conditions below is met (see Schedule I for examples):

(i) the entity and the Company are part of the same economic group (which means that each parent, subsidiary and fellow subsidiary are related among themselves);

(ii) the entity is an associate or joint venture of the Company (or an associate joint venture of an entity part of the Company’s economic group);

(iii) the entity and the Company are joint ventures of the same third party;

(iv) the entity is a joint venture of a third entity and the third entity is an associate of the Company;

(v) the entity is a post-employment benefit plan for the benefit of employees of either the Company or an entity related to the Company;

(vi) the entity is controlled or jointly controlled by a person identified in (a);

(vii) A person identified in (a)(i) has significant influence over the entity, or is a member of the key management personnel of the entity (or of a parent of the entity); or

(viii) the entity, or any member of an economic group of which said entity is a member of, supplies services of the key management personnel to the Company or to its parent.

The definition of Related Party does not include:

(a) Entities which only have an officer, director or other member of the key management personnel in common with the Company, or over which a member of the key management personnel of the Company has significant influence;

(b) Unions, departments and public agencies that do not control, fully or jointly, or have material influence over the Company, simply as a consequence of its regular business with the Company and with entities that:

(i) provide funding;

(ii) provide public services.

(c) Clients, suppliers, franchisors, concessionaires, distributors or general agents with whom the Company holds a relevant volume of business, merely due to the resulting economic dependence.

Close family members of a person

Close family members of a person are those family members who can be expected to exert influence or be influenced by such person in their business with the Company, including:

(a) The person’s children, spouse or partner;

(b) The children of the person’s spouse or partner; or

(c) Dependents of the person or of the person’s spouse or partner.

Key management personnel

Key management personnel are those persons with authority and responsibility for planning, directing and controlling the Company’s activities, directly or indirectly, including any manager (whether executive or otherwise) of such Company.

In the specific context of MAHLE Metal Leve, the members of the Board of Directors as well as people who occupy positions of level EL1, EL2 and EL3 will be considered key management personnel.

Significant influence

Significant influence is the power to take part in the decisions regarding the financial and operational policies of an entity, but without having absolute or joint control over such policies.

Related Party Transaction

Related party transaction is the transfer of products, resources (such as money), services or obligations (such as the provision of a guarantee), directly or indirectly, between the Company and a related party, regardless of a price being charged in return.

For purposes of clarification the term “related party transaction” when used in this Policy will make reference to a single transaction, with a specific counterpart, involving a product, resource, service or obligation.

For the avoidance of doubt, a transaction between the Company and one of its related parties involving a product, resource, service or obligation “A” is a different related party transaction from a transaction between the Company and the same related party involving a product, resource, service or obligation “B”, even if both transactions originate from one single contract that encompasses different types of transactions.

Related party transaction involving significant amount

Related party transaction involving significant amount is the transaction with a related party which is expected to reach or effectively reaches, over a (1) one-year period, an amount equal or greater than twenty million reais (R$ 20,000,000.00) or 1% of the total assets of MAHLE Metal Leve as determined in the latest financial statement disclosed by the Company.

Transaction out of the ordinary course of business

Transaction out of the ordinary course business is a related party transaction which is not directly aimed at the performance of the activities comprised in MAHLE Metal Leve’s core business.

For the purposes of this Policy the following transactions between the Company and its related parties will be treated as usual transactions and, thus, will not be considered transactions out of the ordinary course of business:

(a) Reimbursement or cost sharing;

(b) Know-how and technology sharing;

(c) Assignment or sharing of spaces; and

(d) Provision of back office services.

4. General procedures

The procedures set forth in this section are applicable to any and all related party transactions of MAHLE Metal Leve.

In addition to the procedures described in this section, the Board of Directors may approve specific procedures applicable to certain types of related party transactions, in light of their nature, relevance or recurrence.

Eventual specific procedures will be set forth in Appendixes to this Policy which, once approved by the Board of Directors, will be considered as part of this Policy for all purposes.

Identification

The Legal Department will keep a registry with the identification of the related parties of the Company, which shall be consulted by the managers before the conclusion of any transaction, in order to verify whether the transaction being carried out can be considered a related party transaction.

Any person bound by this Policy may, as he/she finds necessary or convenient, submit any potential related party transaction to the analysis of the Legal Department of the Company.

Notwithstanding the above, potential related party transactions involving significant amount or outside of the ordinary course of business shall, necessarily, be informed to the Legal Department of the Company.

Analysis

The Legal Department shall analyze any new potential related party transaction that happens to be reported, in order to assess:

(a) Whether the transaction effectively is a related party transaction subject to the procedures of this Policy; and, in case the answer is affirmative

(b) Categorize the transaction according to:

(i) the nature of the transaction;

(ii) the amount involved; and

(iii) whether it is or not a transaction within the ordinary course of business.

Subject to the specific provisions applicable to certain related party transactions, the Legal Department shall forward its analysis to the body responsible for the approval of the transaction at issue.

Approval

The managers and employees of the Company shall respect the existing ordinary flow for the negotiation, analysis and approval of transactions of the Company, refraining from interfering in such a way as to influence the hiring of related parties in noncompliance with said flow.

The related party transactions of MAHLE Metal Leve involving a significant (as defined before) amount shall be submitted by the Legal Department of the Company to the Management which, in the event it agrees with its terms and conditions, will submit such transaction to the formal approval of the Board of Directors.

Any related party transaction of MAHLE Metal Leve outside of the ordinary course of business, regardless of its purpose or of the amount involved, shall be submitted by the Legal Department of the Company to the Management which, in the event it agrees with its terms and conditions, will submit such transaction to the formal approval of the Board of Directors;

Formalization and disclosure

In any case, the related party transactions of the Company shall observe the following provisions:

(a) The transactions shall comply with this Policy and with the guidelines of the Code of Ethics and of Business of the Company; and

(b) The transactions shall be disclosed clearly and precisely in the financial statements and quarterly statements of the Company, in the Reference Form (Formulário de Referência), in Notices of Material Fact when applicable, and in any other means set forth or that comes to be set forth by the laws and regulations applicable to the Company.

Report

Each semester the Legal Department shall inform to the Management and to the Board of Directors, pursuant to Schedule II of this Policy, the related party transactions entered into by and between MAHLE Metal Leve throughout the year up to the date of the report (year to date).

5. Impediment and conflict of interest

In the situations in which the related party transaction require approval in the terms of this Policy, the person involved in the approval process who has a potential personal advantage or a conflict of interest with the decision to be taken shall declare itself prevented, explaining its involvement in the transaction and providing details on the transaction and on the parties involved. The impediment shall be included in the minutes of the corporate body which resolves on the transaction and the person shall refrain from the discussions and resolutions.

Notwithstanding the above, the presence of those who have declared themselves prevented in the process of approval of a certain transaction due to a potential personal advantage or conflict of interests will be considered for the purpose of verifying the quorum for convening the meeting of the corporate body that resolves on such transaction.

Impediment on meetings and discussions

If any manager or employee has potential personal advantage or conflict of interest with a certain transaction, it shall refrain from taking part in any debate or negotiation about such transaction, as well as from taking part in its management and/or administration.

Supervening conflict

If any manager or employee is not prevented in the moment of the negotiation and approval of a certain transaction and a potential personal advantage or conflict of interest of this person with the transaction in question arises later, due to the occurrence of new events:

(a) The acts of such manager or employee until the arising of the potential personal advantage or conflict of interest will remain valid and effective to all intents and purposes; and

(b) Such manager or employee shall step aside from the implementation of the transaction in question.

6. Execution and monitoring

Any alleged breaches to the terms of this Policy shall be examined by the Legal Department of the Company, which shall submit its conclusions to the Management. In the event the Management agrees with the conclusions of the Legal Department of the Company, it shall submit the issue to the Board of Directors, along with a justified opinion regarding the measures to be taken by said body.

If the Board of Directors concludes that a breach of the terms of the Policy was effectively verified, it will undertake the applicable measures, alerting that that some behaviors may represent a crime, subjecting the persons responsible by them to the criminal penalties provided in the applicable law.

Monitoring

The Fiscal Council will be responsible for oversighting the effective compliance to this Policy, being able, for this purpose, to request any documents that it deems necessary to fulfil this duty to the Legal Department of the Company, to the Management and to the Board of Directors.

Within its oversighting of the Policy capacity, the Fiscal Council may recommend to the Legal Department, to the Management, to the Board of Directors or to any other corporate body involved in the execution of the Policy the improvement of the existing procedures or even the adoption of new procedures, provided that the Board of Directors will be the sole responsible for the approval of any modification to this Policy.

7. Code of Ethics

In addition to the provisions of this Policy, the managers and employees of MAHLE Metal Leve and of its controlled companies shall observe the guidelines of the Company’s Code of Ethics and of Business in any Related Party Transactions.

8. Exempt transactions

The following transactions will not be subject to the formal approval procedure set forth in this Policy: (i) the setting of the global and individual compensation of the managers of the Company; (ii) any transactions involving companies which have one hundred per cent (100%) of its capital stock held directly or indirectly by the Company; (iii) the grant of guarantees by MAHLE Metal Leve within rental agreements involving the Management or employees of the Company, or of companies controlled by it or affiliated to it, provided that these transactions are fair and reasonable; and (iv) transactions involving an amount inferior to the significant amount and identical to those already analyzed by the Legal Department of the Company in the twelve (12) months prior to their execution.

9. General Provisions

The Board of Directors is hereby authorized to update this Policy at any time it deems convenient, in order to improve it, as well as, when necessary, due to modifications to the bylaws or the legal or regulatory framework, namely the rules of CVM and B3 S.A. – Brasil, Bolsa, Balcão regarding the Corporate Governance Standards applicable to the Company.

This Policy came into force on January 22, 2019, after the approval of the Company’s Board of Directors.

As of January 22, 2019, this Policy will be applicable to all new related party transaction entered into by and between MAHLE Metal Leve.

Appendix 1

Specific Procedures – Resources, services and obligations

This Appendix 1 of MAHLE Metal Leve Policy for Related Party Transactions provides for the specific procedures applicable to the related party transactions of the Company involving resources, services or obligations.

Identification

Any and all potential related party transaction of MAHLE Metal Leve involving resources, services or obligations shall be reported to the Legal Department of the Company, provided that:

(a) The key management personnel will be instructed and periodically oriented about the duty to inform any potential related party transaction of the Company involving resources, services or obligations to the Legal Department;

(b) The potential related party transactions involving resources, services or obligations reported to the Legal Department shall be accompanied by, at least, the following information (see related ¨Justification Document¨):

(i) name of the related parties;

(ii) type of connection between the related parties and the Company;

(iii) type of transaction (whether it involves resources, services or obligations);

(iv) date of the transaction;

(v) subject of the transaction;

(vi) amount involved in the transaction;

(vii) duration of the transaction /operation and conditions to its termination or extinction;

(viii) main duties and other terms and conditions.

(c) The report of potential related party transactions involving resources, services or obligations shall include, besides the information mentioned on item (b) above, a detailed explanation of the reasons why one understands that such transaction conditions’ are fair or that compensatory payment provided in it is adequate, informing:

(i) whether any proposals were requested, any procedures of price quotation were carried out, or whether any attempts to hold the transaction with third parties were carried out, mentioning, in case the answer is negative, the reasons why those were not carried out, or, if the answer is positive, the procedures carried out and their results;

(ii) the reasons to enter into the transaction with the related party instead of with third parties;

(iii) the detailed description of the measures undertaken and procedures adopted to ensure the fairness of the transaction; and

(iv) the comparative analysis of prices where applicable, terms and conditions available in the market and of similar transactions entered into before by and between the Company or the counterparty.

Any person bound by this Policy who becomes aware of a related party transaction involving resources, services or obligations which was not reported to the Legal Department shall immediately communicate this fact to said area. Any omissions in this regard will be considered a breach of this Policy, subject to eventual sanctioning measures, to be applied by the Board of Directors.

Approval

Subject to the general provisions of the Policy, any and all related party transactions of MAHLE Metal Leve involving resources, services or obligations shall be formally approved by the Legal Department of the Company.

Formalization

The related party transactions involving resources, services or obligations shall be entered into in written form, specifying its main characteristics and conditions, such as: overall price, unitary price, term, etc.

Validity

As of January 22, 2019, this Appendix 1 will be applicable to all new related party transaction entered into by and between MAHLE Metal Leve involving resources, services or obligations.

Appendix 2

Specific Procedures – Products

This Appendix 2 of MAHLE Metal Leve Policy for Related Party Transactions provides for the specific procedures applicable to the related party transactions of the Company involving products.

Two types of procedures are provided for in this Appendix:

(a) Section “A” describes the procedures applicable to related party transactions of MAHLE Metal Leve involving the sale of products;

(b) Section “B” describes the procedures applicable to related party transactions of MAHLE Metal Leve involving the purchase of products.

The existence of two different procedures derives from the particularities and the recurrence of each type of transaction.

A. Sale of products 

The procedures described in this section will be applicable to any and all related party transaction of MAHLE Metal Leve involving the sale of products.

Quotation

Any and all potential related party transaction of MAHLE Metal Leve involving the sale of products will be subject to a price quotation procedure, pursuant to the following provisions:

(a) the cost of the products to be sold to the Company’s related parties shall be determined based on the guidelines set forth in the “Guideline for product calculation” of the MAHLE Group;

(b) the final price of the products to be sold to the Company’s related parties shall be set in accordance with the guidelines set forth in the “Transfer pricing guideline” of the MAHLE Group; and

For the purpose of this Appendix 2, the “Guideline for product calculations” andthe “Transfer pricing guideline shall be referred together as “Internal Policies”.

In any event the quotation procedure of the products to be sold to related parties of the Company shall be duly documented and filed with the Company.

The following minimum information shall be included in the registration of each of the quotation procedures carried out by the Company:

(ix) name of the related parties;
(x) type of relationship between the related parties and the Company;
(xi) date of the transaction;
(xii) scope of the transaction;
(xiii) average annual amount involved in the transaction, in reais (R$); and
(xiv) the margin of the transaction, calculated by means of subtracting the standard variable manufacturing costs, (including the effects of inflation), and the standard fixed manufacturing costs from the net revenue of the transaction (for the purpose of this Appendix 2, this margin will be referred as “CM2 Margin”), in percentage (%).

Deviations from the guidelines of the Internal Policies

Subject to certain specific procedures, the price set in a quotation may, exceptionally, be inferior to the minimum price determined in accordance with theInternal Policies.

The quotations from which the resulting price set is inferior to the minimum price determined in accordance with the Internal Policies shall be reported by the Controlling Department to the Legal Department of MAHLE Metal Leve.

The report of the quotations in accordance with the paragraph above shall include a detailed explanation of the reasons why the price set is considered adequate.

The Legal Department of MAHLE Metal Leve shall:

(a) Report to the Management, within one (1) month of its holding, the quotation referring to a related party transaction which is expected to reach, on average, an amount inferior to five million reais (R$ 5,000,000.00) per year; and

(b) Submit to previous approval by the Chief Financial Officer the quotation which refers to a related party transaction which is expected to reach, on average, an amount equal or greater than five million reais (R$ 5,000,000.00) per year.

Analysis

The Controlling Department shall annually analyze all of the related party transactions involving the sale of products entered into by and between MAHLE Metal Leve.

Such analysis shall occur on the month of February of each year, covering the information regarding the related party transactions related to the sale of products entered into by and between MAHLE Metal Leve throughout the previous year.

The analysis referred above shall aim at verifying, from the perspective of each of MAHLE Metal Leve’s related parties, the adherence of the related party transactions of the Company involving the sale of products to the annual budget approved by the Board of Directors.

In this context, the Controlling Department shall analyze the following information with regard to each of the related parties to which the Company has sold products:

(i) Related party;
(ii) Annual amount of the sales in reais (R$);
(iii) Amount of the sales, in reais (R$), compared to the amount of the sales, in reais (R$), planned for the relevant related party in the annual budget approved by the Board of Directors;
(iv) CM2 Margin of the sales in percentage (%);
(v) CM2 Margin of the sales in percentage (%), compared to the CM2 Margin, in percentage, planned for the relevant related party in the annual budget approved by the Board of Directors; and
(vi) Additional comments made by the areas.

Once the analysis referred above is completed it shall be filed with the Company.

Subject to the general provisions of the Policy, the Controlling Department will also be responsible for referring the transactions held with a given related party, the CM2 Margin of which presents a reduction of more than ten (10) percentage points in comparison to the CM2 Margin percentage planned for the given related party in the annual budget approved by the Board of Directors, to the Management. In the event the aggregate amount of the transactions with the given related party is equal or superior to twenty million reais (R$ 20,000,00.00) they shall be referred by the Management to the Board of Directors.

Ratification and additional measures

The members of the Management or of the Board of Directors (as applicable) shall analyze and discuss all the related party transactions involving the sale of products submitted to them.

In the event the members of the Management or the Board of Directors (as applicable) agree with the terms and conditions of the transactions submitted to them, they shall formally ratify them.

In the event the members of the Management or the Board of Directors (as applicable) disagree with the terms and conditions of the transactions submitted to them, they will be entitled to cause the Company to take the applicable measures.

B. Purchase of products

The procedures described in this section will be applicable to any and all related party transaction of MAHLE Metal Leve involving the purchase of products.

Subject to the general provisions of the Policy, the following minimum information shall be collected and filed with the Company referring to the related party transactions involving the purchase of products:

(i) name of the related parties;
(ii) type of relationship between the related parties and the Company;
(iii) date of the transaction;
(iv) scope of the transaction;
(v) consolidated annual amount involved in the transaction, in reais (R$);
(vi) price set per product purchased;
(vii) additional comments made by the areas.

The information referred above shall be equally collected and filed with the Company in the event of changes to the price set per product purchased in a certain related party transaction involving the purchase of products.

In February of every year the Purchasing Department of the Company shall present to the Management the average price, subtracting the effects of eventual exchange variations, of the main products purchased by MAHLE Metal Leve from its related parties.

C. General Provisions

Transactions involving significant amount

For the purpose of the general procedure provided for in item 4 of the Policy for Related Party Transactions of the Company the related party transactions entered into by and between the Company involving products which involve a significant amount shall be annually submitted by the Management for the formal approval or ratification by the Board of Directors, provided that both potential transactions as well as existing transactions may be submitted to the Board.

Validity

As of June 1st, 2019, this Appendix 2 will be applicable to all new related party transaction entered into by and between MAHLE Metal Leve involving products.

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Schedule I

This annex includes examples for each of the conditions listed in item (b) of the definition of related parties of this Policy.

The entity and the Company are part of the same economic group (which means that each parent, subsidiary and fellow subsidiary are related among themselves).

The entity is an associate or joint venture of the Company (or an associate joint venture of an entity part of the Company’s economic group).

The entity and the Company are joint ventures of the same third party.

The entity is a joint venture of a third entity and the third entity is an associate of the Company.

The entity is a post-employment benefit plan for the benefit of employees of either the Company or an entity related to the Company.

The entity is controlled or jointly controlled by a person identified in (a).

A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

The entity, or any member of an economic group of which said entity is a member of, supplies services of the key management personnel to the Company or to its parent.

 

Schedule II