Corporate Governance

Global Vision

DISTINGUISHED CORPORATE GOVERNANCE PRACTICES

In 2000, BM&FBOVESPA introduced three special segments for trading securities on the stock market, known as Levels 1 and 2 of Distinguished Corporate Governance Practices and Novo Mercado. The goal was to create a secondary market for securities issued by publicly held Brazilian companies that follow the best corporate governance practices. The listing segments are intended for the trading of shares issued by companies that voluntarily undertake to comply with good corporate governance practices and greater information disclosure requirements in relation to those already imposed by Brazilian legislation. In general, such rules increase shareholders’ rights and improve the quality of information provided to them.

 JOINING NOVO MERCADO

Companies that join the Novo Mercado voluntarily submit to certain corporate governance practices and disclosure of additional information in relation to what is required by Brazilian legislation, for example, being required to (i) issue only common shares, (ii) maintain at least 25.0% of shares representing the company’s free float, (iii) detail and include additional information in the quarterly information, annual information and standardized financial statements, (iv) disclose the annual financial statements in English, and (v) disclose the complete Quarterly Financial Information (ITR) translated into English. To join the Novo Mercado, agreements between the company, its managers, and controlling shareholders and the BM&FBOVESPA are executed, in addition to adjustments to the company’s bylaws pursuant to the rules contained in the Novo Mercado Regulation.

When executing the agreements, the companies must adopt the rules and practices required by the Novo Mercado, which aim to grant transparency as to the companies’ activities and economic situation to the market, as well as to grant greater powers for minority shareholders to participate in the companies’ management, among other rights. The main rules relating the Novo Mercado are briefly described below, to which the company joining the Novo Mercado is also subject.

First, a company that intends to list its securities on the Novo Mercado must obtain and maintain its registration as a publicly held company with the CVM. In addition, the company must, among other conditions, sign a Novo Mercado Participation Agreement and adjust its bylaws to contain the minimum provisions required by BM&FBOVESPA. Regarding the capital stock structure, it must be divided exclusively into common shares and a minimum portion of shares, representing 25.0% of the capital stock, must be kept as free float by the company.

The board of directors of companies authorized to have their shares traded on the Novo Mercado must be formed of at least five members, appointed by the shareholders’ general meeting, with a unified term of office of a maximum of two years, reelection being permitted. Out of the members of the Board of Directors, at least 20.0% must be Independent Directors. All new members of the board of directors and of the board of executive officers must sign a Term of Consent of Managers, and the new members of the Fiscal Council, when installed, must sign a Term of Consent of the Fiscal Council’s Members, conditioning the investiture in the respective positions to the signature of that document. Through this Term of Consent, the company’s new managers are personally responsible for complying with the Novo Mercado Participation Agreement, the Market Arbitration Chamber Regulation, and the Novo Mercado Regulation.

Among other requirements imposed on companies listed on the Novo Mercado, the following stand out: (i) the obligation to carry out public offerings for the acquisition of shares for, at least, their economic value under certain circumstances, such as, for example, upon cancellation of the registration of trading on the Novo Mercado; (ii) the obligation to carry out offerings for the distribution of shares always seeking the dispersion of shares; (iii) to grant all shareholders the same conditions as those obtained by the controlling shareholder upon the sale of the company’s control; (iv) requirements to provide non-financial information every quarter, such as, for example, the number of shares held by the company’s managers and the number of free float shares; (v) duty to provide greater disclosure of related party transactions; and (vi) required submission of the company, its shareholders, managers and members of the Fiscal Council to the Regulation of the Market Arbitration Chamber of BM&FBOVESPA for the resolution of conflicts that may arise among them, related to or arising from the application, lawfulness, effectiveness, interpretation, breach and its effects, of the provisions contained in the Brazilian Corporate Law, in the company’s bylaws, in the rules issued by the Brazilian Monetary Council (Conselho Monetário Nacional), the Central Bank of Brazil (Banco Central do Brasil) and the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários), in addition to those contained in the Novo Mercado Regulation, the Market Arbitration Chamber Regulation and the Novo Mercado Participation Agreement.