Seminar on Corporate Governance

1. SeminaronCorporate Governance MARIA HELENA SANTANA New York, November 2nd, 2010

2. Overview of CVM • Periodic Disclosure • Disclosure prior to general shareholder meetings • Proxy solicitations • Tender offers

3. Overview of CVM

4. Scope of Activity • RULE MAKING (disclosure and conduct) • SUPERVISION (market surveillance, general oversight of all the activities regulated by CVM) • ENFORCEMENT (administrative procedures and imposition of penalties – from fines to banishment from the market place) • MARKET DEVELOPMENT (guaranteeing a stable regulatory framework and fostering investor education)

5. Legal Mandate • The following activities and entities are subject to CVM’s regulation: • Intermediaries, asset managers and other service providers in the securities markets • Public offerings of securities by companies, investment funds, etc • Entities that manage exchange and organized OTC markets (cash and derivatives) • Trading conducted on stock exchanges and OTC markets

6. Legal Mandate • Additionally, CVM has important responsibilities in matters related to corporate governance • Power to enforce compliance by public companies, managers and shareholders with the Securities Law, Corporate Law and rules it has enacted • Setting and enforcing disclosure provisions (periodic disclosure, during public offerings and prior to general shareholder meetings) • Setting and enforcing rules on proxy solicitations and contests • Setting and enforcing tender offers procedures • Enforcing compliance with legal fiduciary duties by managers and controlling shareholders

7. TheBraziliancontextRegulationandSelf-regulation • Butthemostimportantsteptaken in theevolutionofcorporategovernance in Brazilwasnotregulation-drivenandratherself-regulation-driven, marketdriven • As it frequentlyhappens, it occurreddue to theneed to find a solution andnotby design • As a reaction to a failedattempt to reformtheBraziliancorporatelaw, the BOVESPA createdcontract-basedcorporategovernancerules – Novo Mercado • Now, it is clearthatBrazilhas a hybrid system, that is based as muchin self-regulation – andso, in market incentives - as in regulationitself • Allrule-basedthough, no complyorexplain approach (investorsgave a strongmessage in favor of ‘hardlaw’) • Bothpillarshavebeentrying to evolve in eachone’sdimensionandcoordination is consideredkey

8. Periodic Disclosure

9. Periodic disclosureRule 480 • New rules on disclosure for issuers • Improvement on periodic disclosure (risk factors, management discussion and analysis, executive compensation, related party transactions) • The new rules require managers to prepare assessments, not just descriptions • Setting of 2 categories of issuers with different information obligations • Reference Form offers an overview of the issuer and has to be updated on a ongoing basis • Standard for ongoing disclosure similar to that presented to potential investors during an offering • Faster access to market, including fast track for well known seasoned issuers

10. Disclosure onExecutive compensation • One of the Reference Form sections requires information about executive compensation • Before the rule came into force, there was very little information available. Companies used to report only the total expenditure on the remuneration of senior managers • Currently, the rules require disclosure of detailed information on the remuneration policy and the amounts paid to senior managers (previous 3 years and current) • lowest and highest individual amounts paid to board members and the executive management, as well as the average remuneration of each corporate body

11. Disclosure prior to general meetings Proxy solicitations

12. Rule 481 • The Brazilian law provides for, as examples: • majority voting in director elections • majority voting on executives remuneration – say on pay • But essential conditions were missing • This regulation addresses some major obstacles preventing shareholders from effectively exercising their voting rights in general meetings: • lack of information on the matters included in the agendas of general meetings • the costs to attend general meetings and the costs to mobilize shareholders to define common positions in general meetings

13. Disclosure prior to general meetings • Firstly, the rule seeks to ensure adequate information to shareholders prior to general meetings • Complete disclosure required at the moment of the meeting notice • Rule defines the minimum information to be divulged for the most common subjects (directors nomination, approval of financial statements, capital increases, executives remuneration…)

14. Proxy solicitations • Any public request must be sent to all shareholders with voting rights and must contain certain minimum information • Shareholders holding at least 0,5% of the company’s capital stock can have access to the list of shareholders’ addresses and can include proposals in the company’s or controlling shareholders’ proxy statement • Reimbursement of certain expenses. Total, if the proposal is approved. Partial, if the proposal is refused by the GSM. If the company provides a service on a website to host proxy requests, it has no obligation to reimburse expenses

15. Empty voting • It is not yet a hot topic in Brazil. We are still at an early stage, seeking to ensure an appropriate level of transparency and to stimulate participation • We expect to see investors exercising stewardship • Nevertheless, the Rule 481 partially addresses this issue: anyone promoting a public request for proxy must disclose his/her exposure in derivatives referenced to shares of the company

16. Takeover Bids

17. Tender Offers • The Brazilian regulation of tender offers has been significantly improved in the early 2000s. Through the reform of the Corporate Law and the adoption by CVM of the Rule 361, the major problems concerning shareholders treatment in the delisting of companies were addressed • More recently, due to the growing number of companies with dispersed ownership, the regulation of takeover bids has become an important issue

18. Takeover bidsReform of Rule 361 • Main objective is to improve the rules applicable to takeover bids • In terms if the disclosure provisions, at the beginning of the period of the offer: • securities of the target company (or any derivatives) held by itself, managers, offeror or related parties • securities of the offeror (or derivatives) held by the target company, its managers or related parties • any contract involving securities of the target company done by itself, its managers or related parties in the three months preceding the offer, or still effective • Daily disclosure during the offer period: • any deal involving securities of the target company done by the company itself, managers, the offeror or anyone holding 2,5% of the shares

19. Takeover bids • In addition to the disclosure provisions: • Restrictions on trading and contracting derivatives referenced to the target company’s shares • New squeeze-out rules • Information on the board’s opinion about the offer • “Put up or shut up” rule • If a competitive situation lasts for a long time, CVM may set a deadline for the announcement of final competing offers or require the execution of an auction procedure

20. Thank you www.cvm.gov.br pte@cvm.gov.br