Overview

Novo Mercado

In 2000, BM&FBOVESPA introduced three trading segments with different levels of corporate governance practices, denominated as Level 1, Level 2 and Novo Mercado, in order to encourage companies to follow the best corporate governance practices and adopt a level of disclosure of additional information regarding those required by law. The listing segments were designed for the trading of shares issued by companies who voluntarily undertake to comply with corporate governance practices and with the requirements of information disclosure, in addition to those already imposed by the Brazilian law. Overall, these rules expand the shareholders‘ rights and increase the quality of the information provided to the shareholders. Novo Mercado is the most rigorous of them, requiring the higher degree of corporate governance practices among the three segments.

Companies in the Novo Mercado voluntarily undertake to comply with stricter rules than those within the Brazilian legislation, forcing themselves to, for example, (i) issue only common shares; (ii) keep at least 25% of the Company‘s shares as outstanding shares; (iii) detail and include additional information in their financial statements; and (iv) provide the consolidated financial statements, together with the management‘s report or comment on the performance and the legal opinion or special review report from the independent auditors, in English, within fifteen days from the date of disclosure of the financial statements by the Company in Portuguese. A company joins the Novo Mercado by signing of an agreement between the itself, its managers and the controlling shareholders and BM&FBOVESPA, in addition to the adjustment of the company‘s bylaws in accordance with the rules in the Novo Mercado‘s Regulation.

By signing the agreements, the companies must adopt the rules and the practices of the Novo Mercado. The rules imposed by the Novo Mercado aim to provide transparency regarding the activities and the economic situation of the companies tot the market, as well as grant greater powers to minority shareholders for them to participate in the management of the companies, among other rights. The main rules on the Novo Mercado are briefly described below, to which we will also be subject.

Authorization for trading on the Novo Mercado

First, the company that intends to list its securities on the Novo Mercado must obtain and keep it up to date its registration with CVM as a publicly-held company. In addition, the company must, among other conditions, sign the Participation Agreement in the Novo Mercado and adjust its bylaws in accordance with the minimum contractual terms required by BM&FBOVESPA. As for the capital structure, it must be exclusively divided into common shares and a minimum number of shares representing 25% of the share capital must be kept as outstanding shares by the company. There is also a ban to the issue of beneficiary parties (or maintenance as outstanding) by companies listed in the Novo Mercado.

The board of directors of the authorized companies that will have their shares traded on the Novo Mercado must be composed of at least five members, elected by a Shareholders‘ Meeting, for a unified term of no more than two years, with reelection allowed. At least 20% of the members of the Board of Directors must be independent.

All new members of the board of directors and of the executive board must sign a Term of Consent of the Management, conditioning the investiture in their respective offices to the signing of this document. Through the Term of Consent, the company‘s new officers are personally responsible to work in compliance with the Agreement of Participation in the Novo Mercado, with the Regulation of the Market Arbitration Chamber and with the Novo Mercado‘s Regulation.

Other features of the Novo Mercado

Among the requirements imposed to the companies listed in the Novo Mercado, we highlight: (i) the duty to effect public offerings of shares under certain circumstances, such as, for example, for the cancellation of the trading registration in the Novo Mercado; (ii) the duty to, in any public offering of shares, favor the shareholding dispersion; (iii) providing to all the shareholders the same conditions obtained by the controllers when selling the company‘s control; (iv) the duty to provide non-financial information each quarter, such as, for example, the number of shares held by the company‘s management and the number of outstanding shares; (v) the duty of greater disclosure of transactions with related parties; and (vi) the required binding of the Company, its shareholders, managers and members of the Supervisory Board to the Regulations of the Market Arbitration Chamber of BM&FBOVESPA to resolve conflicts that may arise among them, concerning or arising from the application, validity, effectiveness, interpretation , violation and its effects, of the provisions of the Brazilian Corporations Law, the Company‘s Bylaws, the rules issued by the National Monetary Council ("CMN"), BACEN and CVM, in addition to those within the Novo Mercado‘s Regulation, the Regulation of the Market Arbitration Chamber and the Agreement of Participation in the Novo Mercado.

In addition, due to CMN‘s Resolution 3456/2007, which established new rules for the use of resources of private pension entities, shares issued by companies that adopt differentiated corporate governance practices, such as those whose securities are admitted to be traded on the special segment Novo Mercado or whose listing are classified as Level 1 or Level 2 in accordance with the regulations issued by BM&FBOVESPA, may have a greater participation in the investment portfolio of such pension funds. Thus, the shares of companies that adopt corporate governance practices have become, from the publication of the said Resolution, an important and attractive investment for private pension entities that are major investors in the Brazilian capital market. This fact could boost the development of Novo Mercado, benefiting the companies whose securities are there traded, including our own.

As provided for in our Bylaws, all rights and guarantees provided for in the Novo Mercado‘s Rules are made available to our shareholders.

Recent changes in the Novo Mercado‘s Listing Rules

In May 2011, the new rules of Novo Mercado entered into force. Among the amendments approved, the main ones are those concerning the board of directors and the statutory limitation on the exercise of voting rights by shareholders.

Concerning the exercise of voting rights by shareholders, the main changes are (i) the ban of a voting limitation by the establishment to less than 5% percent of the share capital, i.e. the company may not have in its bylaws provisions that limit the number of votes by shareholders in percentages lower than 5% of the share capital, except in cases of privatization or within the limits prescribed by law or regulations applicable to the activity developed by the company; (ii) except in the cases required by the applicable law or regulations, companies may not have in their bylaws provisions establishing a qualified quorum for the resolution of matters that must be submitted to the shareholders‘ meeting; and (iii) except in the cases required by the applicable law or regulations, companies may not have in their bylaws provisions preventing the exercise of a favorable vote or imposing burdens to the shareholders who vote in favor of the suppression or amendment of statutory provisions.

Concerning the board of directors, the main amendments approved are (i) the ban to the accumulation of the positions as chairman of the board of director and as chief executive officer and (ii) the mandatory manifestation of the board of directors on the terms and conditions of any public offer of shares with the company‘s shares, taking into account the interest of all shareholders.

It is also noteworthy that other important changes such as establishing that companies must disclose the policies adopted on the trading of securities issued by the Company, by the company itself, its controlling shareholder and managers and also the duty to prepare and disclose a code of conduct setting out the values and principles that guide their activities.