1. The Shareholder’s Meeting: Scope and Procedures - Brazil 2nd Latin American Corporate Governance Roundtable Presentation by: Bruno Rocha Dynamo Asset Management

2. 2nd Latin American Corporate Governance Roundtable What is the context: -Brazil ranks well by usual corporate governance criteria for shareholder’s meetings procedures: 1.Cumulative voting 1.Voting by proxy ( though not by mail ) 2.Small % to call E.S.M. (5% of total capital) 1.Easy to obtain list of shareholders 1.Shares are not blocked before a S.M. - However, most shareholder’s meetings are a non-event Dynamo The Shareholder’s Meeting: Scope and Procedures - Brazil

3. Why ? -Almost all listed companies have a defined controlling shareholder (or a group of) -High leverage from preferred non-voting shares: separation of cash flow right from control rights which, coupled with : -Imperfect civil law -Lack of jurisprudence and specialized courts -No tag along rights 2nd Latin American Corporate Governance Roundtable Dynamo The Shareholder’s Meeting: Scope and Procedures - Brazil

4. Leads to: -High value of control -Structural conflict of interest between controlling and minority shareholders: -Dividends / Retained earnings -Related party transactions -De-listing procedures 2nd Latin American Corporate Governance Roundtable Dynamo The Shareholder’s Meeting: Scope and Procedures - Brazil

5. US / Europe x Brazil:  Concentration of controlling power changes the corporate governance agenda from: -Independent board members -Poison pills, staggered boards -Proxy mechanisms...... to issues not directly related to shareholder’s meetings -Tag along rights -Conflicts of interest (dividend policy, related parties) -De-listing procedures  As a consequence, shareholder’s meetings in Brazil are not a democratic exercise. 2nd Latin American Corporate Governance Roundtable Dynamo The Shareholder’s Meeting: Scope and Procedures - Brazil

6. Shareholder’s Meetings in Brazil Procedures: 1.Prior notice -8 days -Problem for ADR’S 2.Nomination to the board of directors -Only for voting shares -Guaranteed for holders of 20% of voting shares -Possible with less than 20% through cumulative voting 2nd Latin American Corporate Governance Roundtable Dynamo The Shareholder’s Meeting: Scope and Procedures - Brazil

7. Shareholder’s Meetings in Brazil: Procedures: 3.Representation -By power of attorney -Bureaucratic but effective process 4.Installment and Election for the Audit Board -Installment: 5% of non-voting or 10% of voting shares -Election: One seat for non voting One seat for voting with 10% of shares Three seats for controlling shareholders 2nd Latin American Corporate Governance Roundtable Dynamo The Shareholder’s Meeting: Scope and Procedures - Brazil

8. Shareholder’s Meetings in Brazil: Procedures: 5.Right to put items on the agenda -Not clearly defined in the law -Possible if included in “Matters of General Interest” 6.Voting in situations of conflict of interest -Conflicted shareholder cannot vote -Problems: Definition of conflict / non-voting shares do not vote 7. Fair amount of disclosure is granted by law 2nd Latin American Corporate Governance Roundtable Dynamo The Shareholder’s Meeting: Scope and Procedures - Brazil

9. Conclusion: - Quality of shareholder’s meetings in Brazil is poor not because of the law, but rather because of the concentration of ownership - Participation (and voting) in shareholder’s meeting is always important, even if meaningless because decisions have already been made - But it is crucial when minority shareholders may influence the decision: - Situations of conflict of interest - Corporate restructurings (de-listings, spin-offs, mergers) The Shareholder’s Meeting: Scope and Procedures - Brazil 2nd Latin American Corporate Governance Roundtable Dynamo