AB Kauno Energija, following Article 21 paragraph 3 of the Law on Securities of the Republic of Lithuania and item 20.5 of the Trading Rules of the Vilnius Stock Exchange, discloses its compliance with the Governance Code, approved by the Stock Exchange NASDAQ OMX, Vilnius, for the companies listed on the regulated market, and its specific provisions.

	YES/NO
PRINCIPLES/ RECOMMENDATIONS	/NOT
	APPLIC	COMMENTARY
	ABLE

Principle I: Basic Provisions

Second

The overriding objective of a company should be to operate in common interests of all the shareholders by optimizing over time shareholder value.

1.1. A company should adopt and make public the company's development strategy and objectives by clearly declaring how the company intends to meet the interests of its shareholders and optimize shareholder value.	No	The Company prepares and revises the strategies of production and heat supply system development every year. The provisions of the Company's strategy which contains no confidential information and the decisions- making process, as well as the Company's development policies and objectives of the years 2008, 2009 and 2010 are published in the annual reports and company's website. Periodic reports and notifications are disclosing the directions for Company's growth. Those reports, notification on material event and notifications are presented by the Company's managers and are published in press.
1.2. All management bodies of a company should act in furtherance of the declared strategic objectives in view of the need to optimize shareholder value.	Yes	The Company's board has also created a long-term and short-term Company's development strategic objectives. The management of the Company, the heads of the areas concerned are making their every effort in order to implement those objectives - the structure of the Company and of the subdivision of the Group is optimised.
1.3. A company's supervisory and management bodies should act in close co-operation in order to attain maximum benefit for the company and its shareholders.	Yes	The Supervisory Board and the Management Board are formed. The Management Board adopts the strategic decisions and approves Company's business strategy. All the bodies of the Company (Manager, the Management board and the Supervisory board) aim to implement this recommendation, mutual meetings of the Management board and the Supervisory board are held.
1.4. A company's supervisory and management bodies should ensure that the rights and interests of persons other than the company's shareholders (e.g. creditors, suppliers, clients, local employees, community), participating in or connected with the company's operation, are duly respected.	Yes	The Company's supervisory and managing bodies aim to ensure all interests of the persons concerned. The Company's management and the separate areas managers spend a lot of time communicating with representatives customers, suppliers, of the municipality, in order to find optimal solutions, related to the Company's activities. The specific of the Company ensures that consumers (customers) are periodically invited to attend meetings where the

	relevant issues related to the activity of the Company are

	discussed.

Principle II: The corporate governance framework

The corporate governance framework should ensure the strategic guidance of the company, the effective oversight of the company's management bodies, an appropriate balance and distribution of functions between the company's bodies, protection of the shareholders' interests.

2.1. Besides obligatory bodies provided for in the Law on Companies of the Republic of Lithuania - a general shareholders' meeting and the chief executive officer, it is recommended that a company should set up both a collegial supervisory body and a collegial management body. The setting up of collegial bodies for supervision and management facilitates clear separation of management and supervisory functions in the company, accountability and control on the part of the chief executive officer, which, in its turn, facilitate a more efficient and transparent management process.	Yes	The General Meeting of Shareholders and the Company's general manager are compulsory management bodies of the Company set by the Law on Joint Stock Companies of the Republic of Lithuania. The collegial supervisory body - the Supervisory Board and the collegial management body - the Management Board are also being formed.
2.2. A collegial management body is responsible for the strategic management of the company and performs other key functions of corporate governance. A collegial supervisory body is responsible for the effective supervision of the company's management bodies.	Yes	A collegial management body of the Company – the Management Board is responsible for the strategic management of the Company and also performs other key functions of the Company management. A collegial supervisory body $-$ the Supervisory Board is responsible for the effective supervision of activities of the Company's managing bodies.
2.3. Where a company chooses to form only one collegial body, it is recommended that it should be a supervisory body, i.e. the supervisory board. In such a case, the supervisory board is responsible for the effective monitoring of the functions performed by the company's chief executive officer.	Not applicable	The Supervisory Board and the Management Board is being formed.
2.4. The collegial supervisory body to be elected by the general shareholders' meeting should be set up and should act in the manner defined in Principles III and IV. Where a company should decide not to set up a collegial supervisory body but rather a collegial management body, i.e. the board, Principles III and IV should apply to the board as long as that does not contradict the essence and purpose of this body. ¹	Yes	The Supervisory Board of the Company is elected and it acts partly in compliance with the principles III and IV set out in the procedures and basic principles for the requirements are not violated.

^1 Provisions of Principles III and IV are more applicable to those instances when the general shareholders' meeting elects the supervisory board, i.e. a body that is essentially formed to ensure oversight of the company's board and the chief executive officer and to represent the company's shareholders. However, in case the company does not form the supervisory board but rather the board, most of the recommendations set out in Principles III and IV become important and applicable to the board as well. Furthermore, it should be noted that certain recommendations, which are in their essence and nature applicable exclusively to the supervisory board (e.g. formation of the committees), should not be applied to the board, as the competence and functions of these bodies according to the Law on Companies of the Republic of Lithuania (Official Gazette, 2003, No 123-5574) are different. For instance, item 3.1 of the Code concerning oversight of the management bodies applies to the extent it concerns the oversight of the chief executive officer of the company, but not of the board itself; item 4.1 of the Code concerning recommendations to the management bodies applies to the extent it relates to the provision of recommendations to the company's chief executive officer; item 4.4 of the Code concerning independence of the collegial body elected by the general meeting from the company's management bodies is applied to the extent it concerns independence from the chief executive officer.

2.5. Company's management and supervisory bodies should comprise such number of board (executive directors) and supervisory (non-executive directors) board members that no individual or small group of individuals can dominate decision-making on the part of these bodies. ²	Yes	According to the Statute of the Company the Supervisory Board of 7 (seven) members is elected and the Supervisory Board elects the Management Board. It also is formed of 7 (seven) members.
2.6. Non-executive directors or members of the supervisory board should be appointed for specified terms subject to individual re-election, at maximum intervals provided for in the Lithuanian legislation with a view to ensuring necessary development of professional experience and sufficiently frequent reconfirmation of their status. A possibility to remove them should also be stipulated however this procedure should not be easier than the removal procedure for an executive director or a member of the management board.	Yes	The Supervisory Board of the Company is elected for the 4 (four) years and according to the Statute of the Company and to the practice it is not forbidden to re- elect the members of the Supervisory Board for the new term (Supervisory Board member's number of terms of office is not limited).
2.7. Chairman of the collegial body elected by the general shareholders' meeting may be a person whose current or past office constitutes no obstacle to conduct independent and impartial supervision. Where a company should decide not to set up a supervisory board but rather the board, it is recommended that the chairman of the board and chief executive officer of the company should be a different person. Former company's chief executive officer should not be immediately nominated as the chairman of the collegial body elected by the general shareholders' meeting. When a company chooses to departure from these recommendations, it should furnish information on the measures it has taken to ensure impartiality of the supervision.	Yes	The Chairman of the Company's Supervisory Board hasn't been the General Manager of the Company. His current or past position is not an obstacle for independent and impartial supervision.

Principle III: The order of the formation of a collegial body to be elected by a general shareholders' meeting

The order of the formation a collegial body to be elected by a general shareholders' meeting should ensure representation of minority shareholders, accountability of this body to the shareholders and objective monitoring of the company's operation and its management bodies.³

3.1. The mechanism of the formation of a collegial $\vert$ Yes	The mechanism of forming of the Supervisory Board,
body to be elected by a general shareholders' meeting	which corresponds to the requirements of the Law on
(hereinafter in this Principle referred to as the	Joint Stock Companies of the Republic of Lithuania,
'collegial body') should ensure objective and fair	ensures the objective supervision of the collegial
monitoring of the company's management bodies as	body.
well as representation of minority shareholders.

^2 Definitions 'executive director' and 'non-executive director' are used in cases when a company has only one collegial body.

^3 Attention should be drawn to the fact that in the situation where the collegial body elected by the general shareholders' meeting is the board, it is natural that being a management body it should ensure oversight not of all management bodies of the company, but only of the single-person body of management, i.e. the company's chief executive officer. This note shall apply in respect of item 3.1 as well.

3.2. Names and surnames of the candidates to become members of a collegial body, information about their education, qualification, professional background, positions taken and potential conflicts of interest should be disclosed early enough before the general shareholders' meeting so that the shareholders would have sufficient time to make an informed voting decision. All factors affecting the candidate's independence, the sample list of which is set out in Recommendation 3.7, should be also disclosed. The collegial body should also be informed on any subsequent changes in the provided information. The collegial body should, on yearly basis, collect data provided in this item on its members and disclose this in the company's annual report.	Yes	In the work regulations of the Supervisory Board it is foreseen that every member of the body has to inform the Chairman of the Supervisory Board about his data change and this data is presented in the Company's annual reports. Information about the candidates to the members of the Supervisory Board can be disclosed to the shareholders before the general meeting of shareholders.
3.3. Should a person be nominated for members of a	Not	The shareholders of the Company by offering
collegial body, such nomination should be followed	applicable	candidates for the collegial body must ensure that
by the disclosure of information on candidate's		these members have the required competence. The
particular competences relevant to his/her service on		Company publishes only the information which is
the collegial body. In order shareholders and investors are able to ascertain whether member's competence is		provided by the members of the collegial body and which is presented in the annual report (data on
further relevant, the collegial body should, in its		participation of the issuer's statute capital, data on
annual report, disclose the information on its		participation in other undertakings, bodies and
composition and particular competences of individual		organisations (company, institution or organization
members which are relevant to their service on the		name and title), information on more than 5% of other
collegial body.		companies' capital and votes, in %).
3.4 In order to maintain a proper balance in terms of	Yes	According to the Company's structure and activities,
the current qualifications possessed by its members,		the main shareholder of the Company introduces
the desired composition of the collegial body shall be		candidates for members of the collegial body with
determined with regard to the company's structure and activities, and have this periodically evaluated.		relevant qualification, but the assessment of skills balance is not made. Collegial body as a whole has a
The collegial body should ensure that it is composed		broad knowledge, opinions and experience to perform
of members who, as a whole, have the required		their tasks properly. Audit Committee members as a
diversity of knowledge, judgment and experience to		whole, have up-to-date knowledge and relevant
complete their tasks properly. The members of the		experience in finance, accounting, and (or) auditing.
audit committee, collectively, should have a recent
knowledge and relevant experience in the fields of
finance, accounting and/or audit for the stock
exchange listed companies. At least one of the
members of the remuneration committee should have knowledge of and experience in the field of
remuneration policy.
3.5. All new members of the collegial body should be	No	Up to now in the practice of the Company all new
offered a tailored program focused on introducing a		members of the Supervisory Board were introduced to
member with his/her duties, corporate organization		the Company and its activity were introduced jointly
and activities. The collegial body should conduct an		and there were no any annual verification of the
annual review to identify fields where its members		members of Supervisory Board, as there was no such
need to update their skills and knowledge.		need.

3.6. In order to ensure that all material conflicts of interest related with a member of the collegial body are resolved properly, the collegial body should comprise a sufficient ⁴ number of independent ⁵ members.	No	The Company does not make any influence on the composition of the collegial body because the candidates to the members of the Company's collegial body are offered by the main shareholder. Because of that reason we didn't followed the recommendations.
3.7. A member of the collegial body should be considered to be independent only if he is free of any business, family or other relationship with the company, its controlling shareholder or the management of either, that creates a conflict of interest such as to impair his judgment. Since all cases when member of the collegial body is likely to become dependant are impossible to list, moreover, relationships and circumstances associated with the determination of independence may vary amongst companies and the best practices of solving this problem are yet to evolve in the course of time, assessment of independence of a member of the collegial body should be based on the contents of the relationship and circumstances rather than their form. The key criteria for identifying whether a member of the collegial body can be considered to be independent are the following: 1) He/she is not an executive director or member of the board (if a collegial body elected by the general shareholders' meeting is the supervisory board) of the company or any associated company and has not been such during the last five years; 2) He/she is not an employee of the company or some any company and has not been such during the last three years, except for cases when a member of the collegial body does not belong to the senior management and was elected to the collegial body as a representative of the employees; 3) He/she is not receiving or has been not receiving significant additional remuneration from the company or associated company other than remuneration for the office in the collegial body. Such additional remuneration includes participation in share options or some other performance based pay systems; it does not include compensation payments for the previous	No	The Company does not follow this recommendation because the majority of the Supervisory Board members (six members) represent the controlling shareholder (the members of the board of the Kaunas municipality) having 92.82% of votes except Mrs J.Bartaškienė.

^4 The Code does not provide for a concrete number of independent members to comprise a collegial body. Many codes in foreign countries fix a concrete number of independent members (e.g. at least 1/3 or 1/2 of the members of the collegial body) to comprise the collegial body. However, having regard to the novelty of the institution of independent members in Lithuania and potential problems in finding and electing a concrete number of independent members, the Code provides for a more flexible wording and allows the companies themselves to decide what number of independent members is sufficient. Of course, a larger number of independent members in a collegial body is encouraged and will constitute an example of more suitable corporate governance.

^5 It is notable that in some companies all members of the collegial body may, due to a very small number of minority shareholders, be elected by the votes of the majority shareholder or a few major shareholders. But even a member of the collegial body elected by the majority shareholders may be considered independent if he/she meets the independence criteria set out in the Code.

office in the company (provided that such payment is no way related with later position) as per pension plans (inclusive of deferred compensations);

4) He/she is not a controlling shareholder or representative of such shareholder (control as defined in the Council Directive 83/349/EEC Article 1 Part 1);
5) He/she does not have and did not have any material business relations with the company or associated company within the past year directly or as a partner, shareholder, director or superior employee of the subject having such relationship. A subject is considered to have business relations when it is a major supplier or service provider (inclusive of financial, legal, counseling and consulting services), major client or organization receiving significant payments from the company or its group;
6) He/she is not and has not been, during the last three years, partner or employee of the current or former external audit company of the company or associated company:
7) He/she is not an executive director or member of the board in some other company where executive director of the company or member of the board (if a collegial body elected by the general shareholders' meeting is the supervisory board) is non-executive director or member of the supervisory board, he/she may not also have any other material relationships with executive directors of the company that arise from their participation in activities of other companies or bodies;
8) He/she has not been in the position of a member of the collegial body for over than 12 years;
9) He/she is not a close relative to an executive director or member of the board (if a collegial body elected by the general shareholders' meeting is the supervisory board) or to any person listed in above items 1 to 8. Close relative is considered to be a spouse (commonlaw spouse), children and parents.

$3.8.$ The determination of what constitutes independence is fundamentally an issue for the collegial body itself to determine. The collegial body may decide that, despite a particular member meets all the criteria of independence laid down in this Code, he cannot be considered independent due to special personal or company-related circumstances.

3.9. Necessary information on conclusions the collegial body has come to in its determination of whether a particular member of the body should be considered to be independent should be disclosed. When a person is nominated to become a member of the collegial body, the company should disclose whether it considers the person to be independent. When a particular member of the collegial body does not meet one or more criteria of independence set out in this Code, the company should disclose its reasons for nevertheless considering the member to be independent. In addition, the company should annually disclose which members of the collegial body it considers to be independent.	No	Up to now there was no practice of independence consideration of the Supervisory board members and announcement. In the future the Company will strive to realize this provision.
3.10. When one or more criteria of independence set out in this Code has not been met throughout the year, the company should disclose its reasons for considering a particular member of the collegial body to be independent. To ensure accuracy of the information disclosed relation in with the independence of the members of the collegial body, the company should require independent members to have their independence periodically re-confirmed.	No	Up to now in the practice of the Company there was no evaluation of independence of the members of Supervisory Board and that is why there was no practice for the independent members to approve regularly their independence. In the future the Company will strive to realize this provision.
3.11. In order to remunerate members of a collegial body for their work and participation in the meetings of the collegial body, they may be remunerated from the company's funds. ⁶ . The general shareholders' meeting should approve the amount of such remuneration.	Not applicable	The members of the Supervisory Board are not remunerated from the Company's funds. So, this provision is not relevant for the Company.

Principle IV: The duties and liabilities of a collegial body elected by the general shareholders' meeting

The corporate governance framework should ensure proper and effective functioning of the collegial body elected by the general shareholders' meeting, and the powers granted to the collegial body should ensure effective monitoring⁷ of the company's management bodies and protection of interests of all the company's shareholders.

4.1. The collegial body elected by the general Yes	The Supervisory Board presents to the general
shareholders' meeting (hereinafter in this Principle	shareholders meeting their opinions and proposals about
referred to as the 'collegial body') should ensure	the set of the Company's annual financial statements,
integrity and transparency of the company's financial	profit allocation project, the Company's annual report,
statements and the control system. The collegial body	the activity of the Company's general manager and the
should issue recommendations to the company's	Management Board, and also carries out other functions
management bodies and monitor and control the	allotted to the Supervisory Board competence regarding
company's management performance. ⁸	the Company's and it's managing bodies activity

^6 It is notable that currently it is not yet completely clear, in what form members of the supervisory board or the board may be remunerated for their work in these bodies. The Law on Companies of the Republic of Lithuania (Official Gazette, 2003, No 123-5574) provides that members of the supervisory board or the board may be remunerated for their work in the supervisory board or the board by payment of annual bonuses (tantiems) in the manner prescribed by Article 59 of this Law, i.e. from the company's profit. The current wording, contrary to the wording effective before 1 January 2004, eliminates the exclusive requirement that annual bonuses (tantiems) should be the only form of the company's compensation to members of the supervisory board or the board. So it seems that the Law contains no prohibition to remunerate members of the supervisory board or the board for their work in other forms, besides bonuses, although this possibility is not expressly stated either.

See Footnote 3.

⁸ See Footnote 3. In the event the collegial body elected by the general shareholders' meeting is the board, it should provide recommendations to the company's single-person body of management, i.e. the company's chief executive officer.

4.2. Members of the collegial body should act in good faith, with care and responsibility for the benefit and in the interests of the company and its shareholders with due regard to the interests of employees and public welfare. Independent members of the collegial body should (a) under all circumstances maintain independence of their analysis, decision-making and actions (b) do not seek and accept any unjustified privileges that might compromise their independence, and (c) clearly express their objections should a member consider that decision of the collegial body is against the interests of the company. Should a collegial body have passed decisions independent member has serious doubts about, the member should make adequate conclusions. Should an independent member resign from his office, he should explain the reasons in a letter addressed to the collegial body or audit committee and, if necessary, respective company-not-pertaining body (institution). 4.3. Each member should devote sufficient time and attention to perform his duties as a member of the collegial body. Each member of the collegial body should limit other professional obligations of his (in particular any directorships held in other companies) in such a manner they do not interfere with proper performance of duties of a member of the collegial body. In the event a member of the collegial body should be present in less than a half ^$\theta$ of the meetings of the collegial body throughout the financial year of the company, shareholders of the company should be notified. 4.4. Where decisions of a collegial body may have a different effect on the company's shareholders, the collegial body should treat all shareholders impartially and fairly. It should ensure that shareholders are properly informed on the affairs. company's strategies, risk management and resolution of conflicts of interest. The company should have a clearly established role of members of the collegial body when communicating with and committing to shareholders. ⁹ It is notable that companies can make this requireme to participate at the meetings of the collegial body if, f the meetings. Such measures, which ensure active part an example of more suitable corporate governance.

The members of the Company's Supervisory Board
enough time and pay enough devote attention individually and collectively for the functions assigned to the competence of the Supervisory Board to carry properly.
The Company's Supervisory Board in its work aim to behave honestly and impartially with all of the Company's shareholders and by the knowledge of the Company, there was no such kind of the contrary case. The Chairman of the Company's Supervisory Board and the Chairman of the Management Board communicate with shareholders, inform the shareholders about the Company's strategy, activity and other essential questions.

The members of the Company's Supervisory Board

enough time and pay enough
devote
attention
individually and collectively for the functions assigned
to the competence of the Supervisory Board to carry
properly.

The Company's Supervisory Board in its work aim to
behave honestly and impartially with all of the
Company's shareholders and by the knowledge of the
Company, there was no such kind of the contrary case.
The Chairman of the Company's Supervisory Board and
the Chairman of the Management Board communicate
with shareholders, inform the shareholders about the
Company's strategy, activity and other
essential
questions.

supervision. The Chairman of the Supervisory Board regularly meets the Chairman of the Management Board and the General Manager to discuss the events or changes of the Company that have taken place, also the

According to the knowledge of the Company all the

members of the Supervisory Board are acting in good

faith in the interests of the Company following the

Company's but not the own interests or interests of the

essential questions of the Company's activity.

Yes

third persons.

is requirement more stringent and provide that shareholders should be informed about failure ial body if, for instance, a member of the collegial body participated at less than 2/3 or 3/4 of e active participation in the meetings of the collegial body, are encouraged and will constitute ernance.

4.5. It is recommended that transactions (except insignificant ones due to their low value or concluded when carrying out routine operations in the company under usual conditions), concluded between the company and its shareholders, members of the supervisory or managing bodies or other natural or legal persons that exert or may exert influence on the company's management should be subject to approval of the collegial body. The decision concerning approval of such transactions should be deemed adopted only provided the majority of the independent members of the collegial body voted for such a decision.	Yes
4.6. The collegial body should be independent in passing decisions that are significant for the company's operations and strategy. Taken separately, the collegial body should be independent of the company's management bodies ¹⁰ . Members of the collegial body should act and pass decisions without an outside influence from the persons who have elected it. Companies should ensure that the collegial body and its committees are provided with sufficient administrative and financial resources to discharge their duties, including the right to obtain, in particular from employees of the company, all the necessary information or to seek independent legal, accounting or any other advice on issues pertaining to the competence of the collegial body and its committees. When using the services of a consultant with a view to obtaining information on market standards for remuneration systems, the remuneration committee should ensure that the consultant concerned does not at the same time advice the human resources department, executive directors collegial or management organs of the company concerned.	No	Six members of the Company's Supervisory Board are representatives of the main shareholder – members of the Kaunas City Council. Based on the Company's opinion, the collegial management body and the Audit Committee are provided with sufficient resources, including their right to get all the necessary information, especially from the employees of the Company. Salary committee is not set up in the Company because the salaries of the managers of the Company, their deputies and of the chief accountant are determined according to the schedule approved by Kaunas municipality used in the municipality enterprises. In the annex of the Company's collective job agreement, there are statutes, which describe the determination of the salary of the Company's executive heads and their deputies and the fixed part of salary of the specialists and workers.

$\ddot{w}$

$\qquad \qquad$

^10 In the event the collegial body elected by the general shareholders' meeting is the board, the recommendation concerning its independence from the company's management bodies applies to the extent it relates to the in executive officer.

4.7. Activities of the collegial body should be organized in a manner that independent members of the collegial body could have major influence in relevant areas where chances of occurrence of conflicts of interest are very high. Such areas to be considered as highly relevant are issues of nomination of company's directors, determination of directors' remuneration and control and assessment of company's audit. Therefore when the mentioned issues are attributable to the competence of the collegial body, it is recommended that the collegial body should establish nomination, remuneration, and audit committees ¹¹ . Companies should ensure that the functions attributable to the nomination. remuneration, and audit committees are carried out. However they may decide to merge these functions and set up less than three committees. In such case a company should explain in detail reasons behind the selection of alternative approach and how the selected approach complies with the objectives set forth for the three different committees. Should the collegial body of the company comprise small number of members, the functions assigned to the three committees may be performed by the collegial body itself, provided that it meets composition requirements advocated for the committees and that adequate information is provided in this respect. In such case provisions of this Code relating to the committees of the collegial body (in particular with respect to their role, operation, and transparency) should apply, where relevant, to the	No	As of 31 March 2009 the Supervisory Board formed an Audit Committee which has three members. The Nomination and the Remuneration Committees are not formed in the Company. The Remuneration Committee is not formed according to the circumstances shown in the article No. 4.6. In the future, the Company will seek to implement this provision.
collegial body as a whole.
4.8. The key objective of the committees is to increase efficiency of the activities of the collegial body by ensuring decisions that are based on due consideration, and to help organize its work with a view to ensuring that the decisions it takes are free of material conflicts of interest. Committees should exercise independent judgement and integrity when exercising its functions as well as present the collegial body with recommendations concerning the decisions of the collegial body. Nevertheless the final decision shall be adopted by the collegial body. The recommendation on creation of committees is not intended, in principle, to constrict the competence of the collegial body or to remove the matters considered from the purview of the collegial body itself, which remains fully responsible for the decisions taken in its field of competence.	Yes	Audit committee is formed in the Company. One member of this Committee is independent. The Committee acts independently and principally.

^11The Law of the Republic of Lithuania on Audit (Official Gazette, 2008, No 82-53233) determines that an Audit Committee shall be formed in each public interest entity (including, but not limited to public companies whose securities are traded in the regulated market of the Republic of Lithuania and/or any other member state).

4.9. Committees established by the collegial body should normally be composed of at least three members. In companies with small number of members of the collegial body, they could exceptionally be composed of two members. Majority of the members of each committee should be constituted from independent members of the collegial body. In cases when the company chooses not to set up a supervisory board, remuneration and audit committees should be entirely comprised of non- executive directors. Chairmanship and membership of the committees should be decided with due regard to the need to ensure that committee membership is refreshed and that undue reliance is not placed on particular individuals. Chairmanship and membership of the committees should be decided with due regard to the need to ensure that committee membership is refreshed and that undue reliance is not placed on particular individuals.	Yes	Audit Committee of three members is formed in the Company. Term of office of this Committee coincides with the term of office of the Company's Supervisory Board.
4.10. Authority of each of the committees should be determined by the collegial body. Committees should perform their duties in line with authority delegated to them and inform the collegial body on their activities and performance on regular basis. Authority of every committee stipulating the role and rights and duties of the committee should be made public at least once a year (as part of the information disclosed by the company annually on its corporate governance structures and practices). Companies should also make public annually a statement by existing committees on their composition, number of meetings and attendance over the year, and their main activities. Audit committee should confirm that it is satisfied with the independence of the audit process and describe briefly the actions it has taken to reach this conclusion.	No	The Company does not follow this recommendation partly because there are no Committees of Nomination and Remuneration at the Company. The Remuneration Committee is not formed according to the circumstances shown in the article No 4.6. Other recommended disclosures are also not published in this annual report. The Company will seek to implement this provision in the future. Also the information about the composition of the Audit Committee, the number of meetings and attendance in the year 2010 is being published in the Annual Report.
4.11. In order to ensure independence and impartiality of the committees, members of the collegial body that are not members of the committee should commonly have a right to participate in the meetings of the committee only if invited by the committee. A committee may invite or demand participation in the meeting of particular officers or experts. Chairman of each of the committees should have a possibility to maintain direct communication with the shareholders. Events when such are to be performed should be specified in the regulations for committee activities.	No	The Company does not follow this recommendation partly because there are no Committees of Nomination and Remuneration at the Company. The Remuneration Committee is not formed according to the circumstances shown in the article No 4.6. The Company will seek to implement this provision in the future.

4.12. Nomination Committee.	No	The Company does not form the committee which
4.12.1. Key functions of the nomination committee		would be obligated to perform all of the tasks that were
should be the following:		designated for the Nomination Committee.

• Identify and recommend, for the approval of the
collegial body, candidates to fill board vacancies. The
nomination committee should evaluate the balance of
skills, knowledge and experience on the management
body, prepare a description of the roles and
capabilities required to assume a particular office, and
assess the time commitment expected. Nomination
committee can also consider candidates to members of
the collegial body delegated by the shareholders of the
company;
• Assess on regular basis the structure, size,
composition and performance of the supervisory and
management bodies, and make recommendations to
the collegial body regarding the means of achieving

necessary changes;
• Assess on regular basis the skills, knowledge and
experience of individual directors and report on this to
the collegial body;
• Properly consider issues related to succession
planning;
• Review the policy of the management bodies for
selection and appointment of senior management.
4.12.2. Nomination committee should consider
proposals by other parties, including management and
shareholders. When dealing with issues related to
executive directors or members of the board (if a
collegial body elected by the general shareholders'
meeting is the supervisory board) and senior
management, chief executive officer of the company

should be consulted by, and entitled to submit
proposals to the nomination committee.
4.13. Remuneration Committee.	Not	The Committee of Remuneration is not formed
4.13.1. Key functions of the remuneration committee	applicable	according to the circumstances shown in the article No
should be the following:		4.6.
• Make proposals, for the approval of the collegial
body, on the remuneration policy for members of
management bodies and executive directors. Such

policy should address all forms of compensation,
including the fixed remuneration, performance-based
remuneration schemes, pension arrangements, and
termination Proposals payments. considering
performance-based remuneration schemes should be
accompanied with recommendations on the related
objectives and evaluation criteria, with a view to
properly aligning the pay of executive director and
members of the management bodies with the long-

term interests of the shareholders and the objectives
set by the collegial body;
• Make proposals to the collegial body on the
individual remuneration for executive directors and
member of management bodies in order their
remunerations are consistent with company's
remuneration policy and the evaluation of the

performance of these persons concerned. In doing so, the committee should be properly informed on the total compensation obtained by executive directors and members of the management bodies from the affiliated companies:

• Ensure that remuneration of individual executive directors or members of management body is proportionate to the remuneration of other executive directors or members of management body and other staff members of the company;

• Periodically review the remuneration policy for executive directors or members of management body, including the policy regarding share-based remuneration, and its implementation;

• Make proposals to the collegial body on suitable forms of contracts for executive directors and members of the management bodies;

• Assist the collegial body in overseeing how the company complies with applicable provisions the remuneration-related information regarding disclosure (in particular the remuneration policy applied and individual remuneration of directors);

• Make general recommendations to the executive directors and members of the management bodies on the level and structure of remuneration for senior management (as defined by the collegial body) with regard to the respective information provided by the executive directors and members of the management bodies.

4.13.2. With respect to stock options and other sharebased incentives which may be granted to directors or other employees, the committee should:

• Consider general policy regarding the granting of the above mentioned schemes, in particular stock options, and make any related proposals to the collegial body;

• Examine the related information that is given in the company's annual report and documents intended for the use during the shareholders meeting;

• Make proposals to the collegial body regarding the choice between granting options to subscribe shares or granting options to purchase shares, specifying the reasons for its choice as well as the consequences that this choice has.

4.13.3. Upon resolution of the issues attributable to the competence of the remuneration committee, the committee should at least address the chairman of the collegial body and/or chief executive officer of the company for their opinion on the remuneration of other executive directors or members of the management bodies.

4.13.4. The remuneration committee should report on the exercise of its functions to the shareholders and be present at the annual general meeting for this purpose.

4.14. Audit Committee.

4.14.1. Key functions of the audit committee should be the following:

• Observe the integrity of the financial information provided by the company, in particular by reviewing the relevance and consistency of the accounting methods used by the company and its group (including the criteria for the consolidation of the accounts of companies in the group);

• At least once a year review the systems of internal control and risk management to ensure that the key risks (inclusive of the risks in relation with compliance with existing laws and regulations) are properly identified, managed and reflected in the information provided;

• Ensure the efficiency of the internal audit function. among other things, by making recommendations on the selection, appointment, reappointment and removal of the head of the internal audit department and on the budget of the department, and by monitoring the responsiveness of the management to its findings and recommendations. Should there be no internal audit authority in the company, the need for one should be reviewed at least annually;

• Make recommendations to the collegial body related with selection, appointment, reappointment and removal of the external auditor (to be done by the general shareholders' meeting) and with the terms and conditions of his engagement. The committee should investigate situations that lead to a resignation of the audit company or auditor and make recommendations on required actions in such situations;

• Monitor independence and impartiality of the external auditor, in particular by reviewing the audit company's compliance with applicable guidance relating to the rotation of audit partners, the level of fees paid by the company, and similar issues. In order to prevent occurrence of material conflicts of interest, the committee, based on the auditor's disclosed inter alia data on all remunerations paid by the company to the auditor and network, should at all times monitor nature and extent of the non-audit services. Having regard to the principals and guidelines established in the 16 May 2002 Commission Recommendation 2002/590/EC, the committee should determine and apply a formal policy establishing types of non-audit services that are (a) excluded, (b) permissible only after review by the committee, and (c) permissible without referral to the committee;

• Review efficiency of the external audit process and responsiveness of management to recommendations made in the external auditor's management letter.

Till 2009, the Audit Committee was not formed in the Company which would be obligated to perform all functions designated for the Audit Committee. However, as of 31 March 2009 the Audit Committee of three members was formed by the Supervisory Board. The term of office of this committee coincides with the term of office of the Company's Supervisory Board. This committee will seek to fully implement functions assigned to it by this recommendation.

4.14.2. All members of the committee should be furnished with complete information on particulars of accounting, financial and other operations of the company. Company's management should inform the audit committee of the methods used to account for significant and unusual transactions where the accounting treatment may be open to different approaches. In such case a special consideration should be given to company's operations in offshore centers and/or activities carried out through special purpose vehicles (organizations) and justification of such operations.

4.14.3. The audit committee should decide whether participation of the chairman of the collegial body, chief executive officer of the company, chief financial officer (or superior employees in charge of finances, treasury and accounting), or internal and external auditors in the meetings of the committee is required (if required, when). The committee should be entitled, when needed, to meet with any relevant person without executive directors and members of the management bodies present.

4.14.4. Internal and external auditors should be secured with not only effective working relationship with management, but also with free access to the collegial body. For this purpose the audit committee should act as the principal contact person for the internal and external auditors.

4.14.5. The audit committee should be informed of the internal auditor's work program, and should be furnished with internal audit's reports or periodic summaries. The audit committee should also be informed of the work program of the external auditor and should be furnished with report disclosing all relationships between the independent auditor and the company and its group. The committee should be timely furnished information on all issues arising from the audit.

4.14.6. The audit committee should examine whether the company is following applicable provisions regarding the possibility for employees to report alleged significant irregularities in the company, by way of complaints or through anonymous submissions (normally to an independent member of the collegial body), and should ensure that there is a procedure established for proportionate and independent investigation of these issues and for appropriate follow-up action.

4.14.7. The audit committee should report on its

activities to the collegial body at least once in every six months, at the time the yearly and half-yearly statements are approved.
4.15. Every year the collegial body should conduct the assessment of its activities. The assessment should include evaluation of collegial body's structure, work organization and ability to act as a group, evaluation of each of the collegial body member's and committee's competence and work efficiency and assessment whether the collegial body has achieved its objectives. The collegial body should, at least once a year, make public (as part of the information the company annually discloses on its management structures and practices) respective information on its internal organization and working procedures, and specify what material changes were made as a result of the assessment of the collegial body of its own activities.	No	There was no practice of assessment of the activity of Supervisory Board at the Company and of informing shareholders about that up to now because the controlling shareholder who proposes candidates to the Supervisory Board exhaustively knows the experiences and competences of each member. The Company will seek to implement this provision in the future.

Principle V: The working procedure of the company's collegial bodies

The working procedure of supervisory and management bodies established in the company should ensure efficient operation of these bodies and decision-making and encourage active co-operation between the company's bodies.

5.1. The company's supervisory and management	Yes	The Company fully implements this recommendation.
bodies (hereinafter in this Principle the concept		The Company's Supervisory Board and Management
'collegial bodies' covers both the collegial bodies of		Board are run by the Chairman de jure and de facto. In
supervision and the collegial bodies of management)		accordance with the work regulations of the Supervisory
should be chaired by chairpersons of these bodies.		Board the Chairman convokes meetings of the
The chairperson of a collegial body is responsible for		Supervisory Board, organises the work of the
proper convocation of the collegial body meetings.		This Board. recommendation Supervisory is
The chairperson should ensure that information about		implemented by the Supervisory Board and by the
the meeting being convened and its agenda are		Management Board.
communicated to all members of the body. The
chairperson of a collegial body should ensure
appropriate conducting of the meetings of the
collegial body. The chairperson should ensure order
and working atmosphere during the meeting.
5.2. It is recommended that meetings of the	Yes	recommendation is This implemented by the
company's collegial bodies should be carried out		Supervisory Board and by the Management Board.
according to the schedule approved in advance at
certain intervals of time. Each company is free to
decide how often to convene meetings of the collegial
bodies, but it is recommended that these meetings
should be convened at such intervals, which would
guarantee an interrupted resolution of the essential
corporate governance issues. Meetings of the
company's supervisory board should be convened at
least once in a quarter, and the company's board
should meet at least once a month ¹² .

^12 The frequency of meetings of the collegial body provided for in the recommendation must be applied in those cases when both additional collegial bodies are formed at the company, the board and the supervisory board. In the event only one additional collegial

5.3. Members of a collegial body should be notified about the meeting being convened in advance in order to allow sufficient time for proper preparation for the issues on the agenda of the meeting and to ensure fruitful discussion and adoption of appropriate decisions. Alongside with the notice about the	Yes	The Company follows the order foreseen in the work regulations of the Supervisory Board and the Management Board and the information about the convened meeting is presented in advance together with all the information related to the meeting agenda. The Supervisory Board and the Board meeting agenda
meeting being convened, all the documents relevant to the issues on the agenda of the meeting should be submitted to the members of the collegial body. The agenda of the meeting should not be changed or supplemented during the meeting, unless all members of the collegial body are present or certain issues of		may be changed or added during the meeting, in the presence of all members of the collegial body, or when there is an urgent need to deal with Company's certain key issues.
great importance to the company require immediate resolution.
5.4. In order to co-ordinate operation of the company's collegial bodies and ensure effective decision-making process, chairpersons of the company's collegial bodies of supervision and management should closely co-operate by co- coordinating dates of the meetings, their agendas and resolving other issues of corporate governance. Members of the company's board should be free to attend meetings of the company's supervisory board, especially where issues concerning removal of the board members, their liability or remuneration are	Yes	of Company's The chairmen supervisory and management bodies coordinate dates of the meetings, their agendas and cooperate in solving other issues of corporate governance.
discussed.

Principle VI: The equitable treatment of shareholders and shareholder rights

The corporate governance framework should ensure the equitable treatment of all shareholders, including minority and foreign shareholders. The corporate governance framework should protect the rights of the shareholders.

6.1. It is recommended that the company's capital should consist only of the shares that grant the same rights to voting, ownership, dividend and other rights to all their holders.	Yes	The ordinary registered shares which make the authorized capital of the Company give the equal rights for all share owners.
6.2. It is recommended that investors should have access to the information concerning the rights attached to the shares of the new issue or those issued earlier in advance, i.e. before they purchase shares.	Yes
6.3. Transactions that are important to the company and its shareholders, such as transfer, investment, and pledge of the company's assets or any other type of encumbrance should be subject to approval of the general shareholders' meeting. ¹³ All shareholders	No	In compliance with the Law on the Joint Stock Companies and the Company's statutes the transactions confirmation issues foreseen in this recommendation are ascribed to the competence of the Management Board but in individual cases for the asset disposal transactions

body is formed in the company, the frequency of its meetings may be as established for the supervisory board, i.e. at least once in a quarter.
$13 \text{ T}$

The Law on Companies of the Republic of Lithuania (Official Gazette, 2003, No 123-5574) no longer assigns resolutions concerning the investment, transfer, lease, mortgage or acquisition of the long-terms assets accounting for more than 1/20 of the company's authorised capital to the competence of the general shareholders' meeting. However, transactions that are important and material for the company's activity should be considered and approved by the general shareholders' meeting. The Law on Companies contains no prohibition to this effect either. Yet, in order not to encumber the company's activity and escape an unreasonably frequent consideration of transactions at the meetings, companies are free to establish their own criteria of material transactions, which are subject to the approval of the meeting. While establishing these criteria of material transactions, companies may follow the criteria set

should be furnished with equal opportunity to familiarize with and participate in the decision- making process when significant corporate issues, including approval of transactions referred to above, are discussed.		the Company applies to the shareholders meeting.
6.4. Procedures of convening and conducting a general shareholders' meeting should ensure equal opportunities for the shareholders to effectively participate at the meetings and should not prejudice the rights and interests of the shareholders. The venue, date, and time of the shareholders' meeting should not hinder wide attendance of the shareholders.	Yes	There is a possibility for shareholders to vote in advance by filling up a general vote bulletin.
6.5. If is possible, in order to ensure shareholders living abroad the right to access to the information, it is recommended that documents on the course of the general shareholders' meeting should be placed on the publicly accessible website of the company not only in Lithuanian language, but in English and /or other foreign languages in advance. It is recommended that the minutes of the general shareholders' meeting after signing them and/or adopted resolutions should be also placed on the publicly accessible website of the company. Seeking to ensure the right of foreigners to familiarize with the information, whenever feasible, documents referred to in this recommendation should be published in Lithuanian, English and/or other foreign languages. Documents referred to in this recommendation may be published on the publicly accessible website of the company to the extent that publishing of these documents is not detrimental to the company or the company's commercial secrets are not revealed.	Yes	Information about the draft shareholders decisions and the decisions taken by the shareholders meeting the Company publicly places on the Company's website and disseminates it through the Stock Exchange NASDAQ OMX, Vilnius GlobeNewswire used information dissemination system, as it is foreseen in the Law on the Joint Stock Companies not only in Lithuanian, but also in English.
6.6. Shareholders should be furnished with the opportunity to vote in the general shareholders' meeting in person and in absentia. Shareholders should not be prevented from voting in writing in advance by completing the general voting ballot.	Yes	The shareholders of the Company can implement the right to participate in the general shareholders meeting personally or through their representatives if the person has a proper authorization or the voting right delegation agreement is made with him in compliance with the legal acts order. The Company also makes conditions for the shareholders to vote by completing the general voting bulletin as it is foreseen by the Law on the Joint Stock Companies.

out in items 3, 4, 5 and 6 of paragraph 4 of Article 34 of the Law on Companies or derogate from them in view of the specific nature of
their operation and their attempt to ensure uninterrupted, efficient functioning of th

6.7. With a view to increasing the shareholders'	Not	According to the order of the Company's shareholders
opportunities effectively participate to at	applicable	meetings and the lists of shareholders, there was no need
shareholders' meetings, the companies are		to implement this recommendation in the Company up
recommended to expand use of modern technologies		to now.
by allowing the shareholders to participate and vote in
meetings via electronic general means of
communication. In such cases security of transmitted
information and a possibility to identify the identity of
the participating and voting person should be
guaranteed. Moreover, companies could furnish its
shareholders, especially shareholders living abroad,
with the opportunity to watch shareholder meetings by
means of modern technologies.

Principle VII: The avoidance of conflicts of interest and their disclosure

The corporate governance framework should encourage members of the corporate bodies to avoid conflicts of interest and assure transparent and effective mechanism of disclosure of conflicts of interest regarding members of the corporate bodies.

7.1. Any member of the company's supervisory and management body should avoid a situation, in which his/her personal interests are in conflict or may be in conflict with the company's interests. In case such a situation did occur, a member of the company's supervisory and management body should, within	Yes	The members of the Company's Supervisory and of the managing bodies act in according with the interests of the Company and their competences and individual features suggest that they behave so as to avoid conflicts of interests and they were not observed in practice. The members of the Company's Supervisory and of the
him/her, or to the company's shareholders about a situation of a conflict of interest, indicate the nature of		not standard conditions.
the conflict and value, where possible. 7.2. Any member of the company's supervisory and	Yes
management body may not mix the company's assets, the use of which has not been mutually agreed upon,
with his/her personal assets or use them or the
information which he/she learns by virtue of his/her position as a member of a corporate body for his/her
personal benefit or for the benefit of any third person
without a prior agreement of the general shareholders' meeting or any other corporate body authorized by the
meeting.

7.3. Any member of the company's supervisory and management body may conclude a transaction with the company, a member of a corporate body of which he/she is. Such a transaction (except insignificant ones due to their low value or concluded when carrying out routine operations in the company under usual conditions) must be immediately reported in writing or orally, by recording this in the minutes of the meeting, to other members of the same corporate body or to the corporate body that has elected him/her or to the company's shareholders. Transactions specified in this recommendation subject also are to recommendation 4.5.	Yes	The members of the Company's supervisory and management body are not entered into transactions with the Company, including those consisting of high value or non-standard conditions.
7.4. Any member of the company's supervisory and management body should abstain from voting when decisions concerning transactions or other issues of personal or business interest are voted on.	Yes	In accordance with the provisions of the Law on Joint Stock companies of the Republic of Lithuania, the members of the Company's Supervisory and of the managing bodies must abstain from voting when decisions on deals or other questions in which they have a personal or professional interest.

Principle VIII: Company's remuneration policy

Remuneration policy and procedure for approval, revision and disclosure of directors' remuneration established in the company should prevent potential conflicts of interest and abuse in determining remuneration of directors, in addition it should ensure publicity and transparency both of company's remuneration policy and remuneration of directors.

8.1. A company should make a public statement of the company's remuneration policy (hereinafter the remuneration statement) which should be clear and easily understandable. This remuneration statement should be published as a part of the company's annual statement as well as posted on the company's website.	Not applicable	The Company does not announce the report on the Company's remuneration policy. The remuneration policy as provided in this recommendation is not confirmed in the Company because this is not demanded by the legal acts. The remuneration for the Supervisory Board and the Management Board of the Company is determined by the shareholders meeting and there were no payments up to now. The remuneration of the managing director is determined by the Management Board in compliance with the Lithuanian Republic Government decision "For the state enterprises and joint stock, closed-end companies controlled by the state administration managers, their deputies and chief accountants' remuneration". According to this there was no need to prepare separate remuneration policy. Nevertheless in compliance with the legal acts orders, the Company publicly announces the information on the termination payments and loans for the members of the Supervisory Board, the Management Board and administration (General Manager, Chief accountant) in the annual report.

8.2. Remuneration statement should mainly focus on directors' remuneration policy for the following year and, if appropriate, the subsequent years. The statement should contain a summary of the implementation of the remuneration policy in the previous financial year. Special attention should be given to any significant changes in company's remuneration policy as compared to the previous financial year.	Not applicable	of Because the foreseen reasons in the recommendation No. 8.1. the remuneration policy according to which the report on remuneration would be prepared is not approved by the Company.
8.3. Remuneration statement should leastwise include	Not	of Because the foreseen reasons in the
the following information:	applicable	recommendation No. 8.1. the remuneration policy
· Explanation of the relative importance of the		according to which the report on remuneration would
variable and non-variable components of directors' remuneration;		be prepared is not approved by the Company.
· Sufficient information on performance criteria that
entitles directors to share options, shares or variable
components of remuneration;
• An explanation how the choice of performance
criteria contributes to the long-term interests of the company;
• An explanation of the methods, applied in order to
determine whether performance criteria have been
fulfilled;
· Sufficient information on deferment periods with
regard to variable components of remuneration;
• Sufficient information on the linkage between the remuneration and performance;
• The main parameters and rationale for any annual
bonus scheme and any other non-cash benefits;
· Sufficient information on the policy regarding
termination payments;
• Sufficient information with regard to vesting periods
for share-based remuneration, as referred to in point 8.13 of this Code;
· Sufficient information on the policy regarding
retention of shares after vesting, as referred to in point
8.15 of this Code;
· Sufficient information on the composition of peer
groups of companies the remuneration policy of
which has been examined in relation to the
establishment of the remuneration policy of the company concerned;
• A description of the main characteristics of
supplementary pension or early retirement schemes
for directors;
• Remuneration statement should not include
commercially sensitive information.

8.4. Remuneration statement should also summarize	Not	of the Because foreseen reasons in the
and explain company's policy regarding the terms of	applicable	recommendation No. 8.1. the remuneration policy
the contracts executed with executive directors and		according to which the report on remuneration would
members of the management bodies. It should		be prepared is not approved by the Company, but the
include, inter alia, information on the duration of		information on the termination and other payments is
contracts with executive directors and members of the		publicly announced in the Company's annual report.
management bodies, the applicable notice periods and
details of provisions for termination payments linked
to early termination under contracts for executive
directors and members of the management bodies.
8.5. Remuneration statement should also contain	Not	of the Because reasons foreseen in the
detailed information on the entire amount of	applicable	recommendation No. 8.1. the remuneration policy
remuneration, inclusive of other benefits, that was		according to which the report on remuneration would
paid to individual directors over the relevant financial		be prepared is not approved by the Company.
year. This document should list at least the
information set out in items 8.5.1 to 8.5.4 for each
person who has served as a director of the company at
any time during the relevant financial year.
following 8.5.1. The remuneration and/or
emoluments-related information should be disclosed:
• The total amount of remuneration paid or due to the
director for services performed during the relevant
financial year, inclusive of, where relevant, attendance
fees fixed by the annual general shareholders meeting;
• The remuneration and advantages received from any
undertaking belonging to the same group;
• The remuneration paid in the form of profit sharing
and/or bonus payments and the reasons why such
bonus payments and/or profit sharing were granted;

• If permissible by the law, any significant additional
remuneration paid to directors for special services
outside the scope of the usual functions of a director;
• Compensation receivable or paid to each former
executive director or member of the management
body as a result of his resignation from the office
during the previous financial year;
Total estimated value of non-cash benefits
considered as remuneration, other than the items
covered in the above points.
8.5.2. As regards shares and/or rights to acquire share
options and/or all other share-incentive schemes, the
following information should be disclosed:
• The number of share options offered or shares
granted by the company during the relevant financial
year and their conditions of application;
• The number of shares options exercised during the
relevant financial year and, for each of them, the
number of shares involved and the exercise price or
the value of the interest in the share incentive scheme
at the end of the financial year;
• The number of share options unexercised at the end
of the financial year; their exercise price, the exercise
date and the main conditions for the exercise of the
rights;

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• All changes in the terms and conditions of existing share options occurring during the financial year. 8.5.3. The following supplementary pension schemes- related information should be disclosed: • When the pension scheme is a defined-benefit scheme, changes in the directors' accrued benefits under that scheme during the relevant financial year; • When the pension scheme is defined-contribution scheme, detailed information on contributions paid or payable by the company in respect of that director during the relevant financial year. 8.5.4. The statement should also state amounts that the company or any subsidiary company or entity included in the consolidated annual financial report of the company has paid to each person who has served as a director in the company at any time during the relevant financial year in the form of loans, advance payments or guarantees, including the amount outstanding and the interest rate. 8.6. Where the remuneration policy includes variable components of remuneration, companies should set limits on the variable component(s). The non-variable component of remuneration should be sufficient to allow the company to withhold variable components of remuneration when performance criteria are not met.	Not applicable	foreseen Because of the in reasons the recommendation No. 8.1. the remuneration policy according to which the report on remuneration would be prepared is not approved by the Company.
8.7. Award of variable components of remuneration should be subject to predetermined and measurable performance criteria. 8.8. Where a variable component of remuneration is awarded, a major part of the variable component should be deferred for a minimum period of time. The part of the variable component subject to deferment should be determined in relation to the relative weight of the variable component compared to the non- variable component of remuneration. 8.9. Contractual arrangements with executive or managing directors should include provisions that permit the company to reclaim variable components of remuneration that were awarded on the basis of data which subsequently proved to be manifestly misstated. 8.10. Termination payments should not exceed a fixed amount or fixed number of years of annual remuneration, which should, in general, not be higher than two years of the non-variable component of remuneration or the equivalent thereof. 8.11. Termination payments should not be paid if the termination is due to inadequate performance	Not applicable	of in the foreseen the reasons Because recommendation No. 8.1. the remuneration policy according to which the report on remuneration would be prepared is not approved by the Company.

8.12. The information on preparatory and decision- making processes, during which a policy of remuneration of directors is being established, should also be disclosed. Information should include data, if applicable, on authorities and composition of the remuneration committee, names and surnames of external consultants whose services have been used in determination of the remuneration policy as well as the role of shareholders' annual general meeting. 8.13. Shares should not vest for at least three years after their award. 8.14. Share options or any other right to acquire shares or to be remunerated on the basis of share price movements should not be exercisable for at least three years after their award. Vesting of shares and the right to exercise share options or any other right to acquire shares or to be remunerated on the basis of share price movements, should be subject to predetermined and measurable performance criteria. 8.15. After vesting, directors should retain a number of shares, until the end of their mandate, subject to the need to finance any costs related to acquisition of the shares. The number of shares to be retained should be fixed, for example, twice the value of total annual remuneration (the non-variable plus the variable components). 8.16. Remuneration of non-executive or supervisory directors should not include share options. 8.17. Shareholders, in particular institutional shareholders, should be encouraged to attend general meetings where appropriate and make considered use	Not applicable	_of the in foreseen Because the reasons recommendation No. 8.1. the remuneration policy according to which the report on remuneration would
of their votes regarding directors' remuneration.		be prepared is not approved by the Company.
8.18. Without prejudice to the role and organization of the relevant bodies responsible for setting directors' remunerations, the remuneration policy or any other significant change in remuneration policy should be included into the agenda of the shareholders' annual general meeting. Remuneration statement should be put for voting in shareholders' annual general meeting. The vote may be either mandatory or advisory.	Not applicable

of Because the Not reasons 8.19. Schemes anticipating remuneration of directors in shares, share options or any other right to purchase applicable recommendation No. 8.1. the remuneration policy shares or be remunerated on the basis of share price according to which the report on remuneration would movements should be subject to the prior approval of be prepared is not approved by the Company. shareholders' annual general meeting by way of a Nevertheless, the Company publishes information on resolution prior to their adoption. The approval of the remuneration of the members of the Supervisory scheme should be related with the scheme itself and Board, Management Board, General Manager, his	foreseen in the
not to the grant of such share-based benefits under deputies and to the chief accountant in it's annual that scheme to individual directors. All significant reports in accordance with the legislation. The changes in scheme provisions should also be subject Company does not use schemes under which the to shareholders' approval prior to their adoption; the directors can be paid with the shares, stock selection approval decision should be made in shareholders' transactions or other rights to acquire shares, or to be annual general meeting. In such case shareholders paid by the stock price changes. should be notified on all terms of suggested changes and get an explanation on the impact of the suggested
changes. 8.20. The following issues should be subject to of Not the Because reasons approval by the shareholders' annual general meeting: applicable recommendation No. 8.1. the Company does not use 1) Grant of share-based schemes, including share schemes under which the options, to directors; remunerated with the shares, 2) Determination of maximum number of shares and transactions or other rights to acquire shares, or to be main conditions of share granting; paid by the stock price changes. 3) The term within which options can be exercised; 4) The conditions for any subsequent change in the exercise of the options, if permissible by law; 5) All other long-term incentive schemes for which directors are eligible and which are not available to other employees of the company under similar terms. Annual general meeting should also set the deadline within which the body responsible for remuneration of directors may award compensations listed in this article to individual directors. 8.21. Should national law or company's Articles of Association allow, any discounted option arrangement under which any rights are granted to subscribe to shares at a price lower than the market value of the share prevailing on the day of the price determination, or the average of the market values over a number of days preceding the date when the exercise price is determined, should also be subject to the shareholders' approval. 8.22. Provisions of Articles 8.19 and 8.20 should not be applicable to schemes allowing for participation under similar conditions to company's employees or employees of any subsidiary company whose employees are eligible to participate in the scheme and which has been approved in the shareholders' annual general meeting.	in foreseen the directors can be stock selection

of
Because
the
Not
reasons
8.19. Schemes anticipating remuneration of directors
in shares, share options or any other right to purchase
applicable
recommendation No. 8.1. the remuneration policy
shares or be remunerated on the basis of share price
according to which the report on remuneration would
movements should be subject to the prior approval of
be prepared is not approved by the Company.
shareholders' annual general meeting by way of a
Nevertheless, the Company publishes information on
resolution prior to their adoption. The approval of
the remuneration of the members of the Supervisory
scheme should be related with the scheme itself and
Board, Management Board, General Manager, his

foreseen
in
the

not to the grant of such share-based benefits under
deputies and to the chief accountant in it's annual
that scheme to individual directors. All significant
reports in accordance with the legislation. The
changes in scheme provisions should also be subject
Company does not use schemes under which the
to shareholders' approval prior to their adoption; the
directors can be paid with the shares, stock selection
approval decision should be made in shareholders'
transactions or other rights to acquire shares, or to be
annual general meeting. In such case shareholders
paid by the stock price changes.
should be notified on all terms of suggested changes
and get an explanation on the impact of the suggested

changes.
8.20. The following issues should be subject to
of
Not
the
Because
reasons
approval by the shareholders' annual general meeting:
applicable
recommendation No. 8.1. the Company does not use
1) Grant of share-based schemes, including share
schemes
under
which
the
options, to directors;
remunerated with the
shares,
2) Determination of maximum number of shares and
transactions or other rights to acquire shares, or to be
main conditions of share granting;
paid by the stock price changes.
3) The term within which options can be exercised;
4) The conditions for any subsequent change in the
exercise of the options, if permissible by law;
5) All other long-term incentive schemes for which
directors are eligible and which are not available to
other employees of the company under similar terms.
Annual general meeting should also set the deadline
within which the body responsible for remuneration of
directors may award compensations listed in this
article to individual directors.
8.21. Should national law or company's Articles of
Association allow, any discounted option arrangement
under which any rights are granted to subscribe to
shares at a price lower than the market value of the
share prevailing on the day of the price determination,
or the average of the market values over a number of
days preceding the date when the exercise price is
determined, should also be subject to the
shareholders' approval.
8.22. Provisions of Articles 8.19 and 8.20 should not
be applicable to schemes allowing for participation
under similar conditions to company's employees or
employees of any subsidiary company whose
employees are eligible to participate in the scheme
and which has been approved in the shareholders'
annual general meeting.

in
foreseen
the
directors
can
be
stock
selection

8.23. Prior to the annual general meeting that is
intended to consider decision stipulated in Article
8.19, the shareholders must be provided an
opportunity to familiarize with draft resolution and
project-related notice (the documents should be posted
on the company's website). The notice should contain
the full text of the share-based remuneration schemes
or a description of their key terms, as well as full
names of the participants in the schemes. Notice
should also specify the relationship of the schemes
and the overall remuneration policy of the directors.
Draft resolution must have a clear reference to the
scheme itself or to the summary of its key terms.
Shareholders must also be presented with information
on how the company intends to provide for the shares
required to meet its obligations under incentive
schemes. It should be clearly stated whether the
company intends to buy shares in the market, hold the
shares in reserve or issue new ones. There should also
be a summary on scheme-related expenses the
company will suffer due to the anticipated application
of the scheme. All information given in this article
must be posted on the company's website.

Principle IX: The role of stakeholders in corporate governance

The corporate governance framework should recognize the rights of stakeholders as established by law and encourage active co-operation between companies and stakeholders in creating the company value, jobs and financial sustainability. For the purposes of this Principle, the concept "stakeholders" includes investors, employees, creditors, suppliers, clients, local community and other persons having certain interest in the company concerned.

9.1. The corporate governance framework should assure that the rights of stakeholders that are protected by law are respected. 9.2. The corporate governance framework should create conditions for the stakeholders to participate in corporate governance in the manner prescribed by law. Examples of mechanisms of stakeholder participation in corporate governance include: employee participation in adoption of certain key decisions for the company; consulting the employees on corporate governance and other important issues; employee participation in the company's share capital; creditor involvement in governance in the context of the company's insolvency, etc. 9.3. Where stakeholders participate in the corporate governance process, they should have access to relevant information.	Yes	The Company follows all the requirements foreseen by the laws for the stakeholders' opportunities to participate in the management of the Company, but at this moment no stakeholders group, having the right determined by the laws to participate in the management of the Company, are created by the order determined in the law.
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Principle X: Information disclosure and transparency

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

10.1. The company should disclose information on: 1) The financial and operating results of the company;

Yes

2) Company objectives:

3) Persons holding by the right of ownership or in control of a block of shares in the company:

4) Members of the company's supervisory and management bodies, chief executive officer of the company and their remuneration;

5) Material foreseeable risk factors;

6) Transactions between the company and connected persons, as well as transactions concluded outside the course of the company's regular operations;

7) Material issues regarding employees and other stakeholders;

8) Governance structures and strategy.

This list should be deemed as a minimum recommendation. while the companies are encouraged not to limit themselves to disclosure of the information specified in this list.

10.2. It is recommended to the company, which is the parent of other companies, that consolidated results of the whole group to which the company belongs should be disclosed when information specified in item 1 of Recommendation 10.1 is under disclosure.

10.3. It is recommended that information on the professional background, qualifications of the members of supervisory and management bodies, chief executive officer of the company should be disclosed as well as potential conflicts of interest that may have an effect on their decisions when information specified in item 4 of Recommendation 10.1 about the members of the company's supervisory and management bodies is under disclosure. It is also recommended that information about the amount of remuneration received from the company and other income should be disclosed with regard to members of the company's supervisory and management bodies and chief executive officer as per Principle VIII.

10.4. It is recommended that information about the links between the company and its stakeholders, including employees, creditors, suppliers, local community, as well as the company's policy with regard to human resources, employee participation schemes in the company's share capital, etc. should be disclosed when information specified in item 7 of Recommendation 10.1 is under disclosure.

The Company discloses information, provided in this recommendation, in the reports, the annual and interim information, the Company's website and Centre of Registers electronic publication, in which the public information of legal persons are announced, except the report of remuneration policy determined in VIII principle. This report is not prepared in the Company because of the reasons foreseen in the article No. 8.1. and it is not approved, as it is not required by the law. The remuneration for the members of the Company's Supervisory Board and of the Management Board is determined by the shareholders meeting, but it has not yet been assigned up to now (all of this is described in detail in annotation of VIII recommendations).

The company also is attempting not to disclose the information that can affect the price of Securities issued by the Company in the comments, interviews or other means, as long as such information will be publicly announced at the NASDAQ stock exchange OMX Vilnius used GlobeNewswire dissemination system on the Company's website.

10.5. Information should be disclosed in such a way shareholders neither that nor investors are discriminated with regard to the manner or scope of access to information. Information should be disclosed to all simultaneously. It is recommended that notices about material events should be announced before or after a trading session on the Vilnius Stock Exchange, so that all the company's shareholders and investors should have equal access to the information and make informed investing decisions.	Yes	The Company simultaneously presents the information through the Stock Exchange NASDAQ OMX, Vilnius used information dissemination system GlobeNewswire in Lithuanian and English languages as it possible. The Stock Exchange NASDAQ OMX, Vilnius places received information on its website and in trading system assuring simultaneous presentation of this information to all. In addition, the Company strives to announce the information before or after a trading session on the Stock Exchange NASDAQ OMX Vinius and to present it to all the markets in which there is trade in the Company's stocks at the same time. The Company does not provide the information which can have an influence on the price of its issued stocks on comments, interview and other ways till this information is publicly announced through the Stock Exchange NASDAQ OMX Vinius used dissemination system.
10.6. Channels for disseminating information should provide for fair, timely and cost-efficient or in cases provided by the legal acts free of charge access to relevant information by users. It is recommended that information technologies should be employed for wider dissemination of information, for instance, by placing the information on the company's website. It is recommended that information should be published and placed on the company's website not only in Lithuanian, but also in English, and, whenever	Yes	Company's information is published on its website in Lithuanian.
possible and necessary, in other languages as well. 10.7. It is recommended that the company's annual reports and other periodical accounts prepared by the company should be placed on the company's website. It is recommended that the company should announce information about material events and changes in the price of the company's shares on the Stock Exchange on the company's website too.	Yes	All the information provided in this recommendation is placed on the Company's website, except the information on the changes in the price of the Company's shares on the Stock Exchange because this information is publicly placed on the Stock Exchange NASDAQ OMX, Vilnius, website and it can be reached by all the interested persons.
Principle XI: The selection of the company's auditor conclusion and opinion.		The mechanism of the selection of the company's auditor should ensure independence of the firm of auditor's
11.1. An annual audit of the company's financial reports and interim reports should be conducted by an independent firm of auditors in order to provide an	Yes	The set of annual financial statements and the annual report of the Company is verified by the independent audit company.

external and objective opinion on the company's
financial statements
11.2. It is recommended that the company's $\vert$ No	The candidature of the Company's audit company for
supervisory board and, where it is not set up, the	the shareholders meeting if offered by the Management
company's board should propose a candidate firm of	board in compliance with the results of the public
auditors to the general shareholders' meeting.	competition.

11.3. It is recommended that the company should Not	The information provided in the recommendation was
disclose to its shareholders the level of fees paid to the $\parallel$ applicable	not presented to the shareholders because the audit
firm of auditors for non-audit services rendered to the	company did not provide non-audit services for the
company. This information should be also known to	Company in the year 2010.
the company's supervisory board and, where it is not
formed, the company's board upon their consideration
which firm of auditors to propose for the general
shareholders' meeting.

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Kauno Energija

2256_mda_2011-04-29_850411e5-5c54-4b8f-bad0-5a5748987f2e.pdf