Outline of the Bill on Transparency and Corporate Governance Best Practices. March, 2001. MINISTERIO DE ECONOMIA

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Outline of the Bill on Transparency and Corporate
Governance Best Practices.March,
2001.MINISTERIO DE ECONOMIA
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Content

• Presentations content
• I. INDIRECT PROTECTION MECHANISMS (Transparency
  Regime and Tender Offers)
• 1.- Basic concepts
• 2.- Transparency in Public Offering
• 3.- Market Organization
• 4.- Tender Offers
• 5.- Inside Information and Market Fraud
• 6.- Punishment and Procedure Regime. Guarantees
• II. DIRECT PROTECTION MECHANISMS (Securitiess
  Act New Section)
• 1.- Financial Information
• 2.- Flexibilization rules for capital increases
  
• 3.- Types of shares. Voting rights. Stock
  Options and repurchase of shares
• 4.- Functioning of corporate structure and
  shareholders meetings. Request of Proxy
• 5.- Rules about conflict of interest.
  Directors compensation
• 6.- Minority shareholders rights. Stockholders
  appraisal rights and cumulative vote
• 7.- Auditing Committee Regime

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Indirect Protection Mechanisms

• 1.- Basic concepts
• CONSUMER LAW Concept of investor as a
  financial products consumer.
• PUBLIC OFFER Different disclosure regimes
  according to the issuers nature, amount
  of the issuance, investors number
  or characteristics and other
  circumstances.
• SECURITY DEFINITION Open definition
  securities issued or combined in series and
  capable of generalized or impersonal trade in
  financial markets.
• Residual legal concept of investment
  contract.
• Freedom to
  create marketable securities. Legal Regime of
  securities registered on book
  entry systems
• INSIDE INFORMATION Specific Information,
  referred to one or more securities or issuers
  that it is not public and if it were public it
  would have a material influence on the
  securitys price.
• CONCERTED ACTION Wide definition for
  cooperation among a group of persons to
  acquire, hold or dispose securities

MINISTERIO DE ECONOMIA
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Indirect Protection Mechanisms

• 2.- Transparency on Public Offering
• DUTY TO DISCLOSE Issuersdisclosure of material
  information. Investors Relation Person.
• (in a direct, truthful, Intermediariesdisclos
  ure of non habitual situations.
• sufficient and Insiders, Rating Agencies
  and Regulators CNV information opportune
  manner) regarding holding of stock.
• Every person in respect of any change of
  control or acquisitions over 5.
• Every person in respect of agreements which
  affect the corporations control.
• DUTY TO KEEP RESERVE Rule (disclose or abstain
  rule)
• Persons included insiders, persons with
  special, temporal or accidental relationship
  and subordinated persons.
• DUTY OF LOYALTY AND Insiders priority of the
  corporate interest.
• FAIR DEALING. Intermediaries professional
  conduct, loyalty and priority of the
  principal interest.
• MINISTERIO DE ECONOMIA

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Indirect Protection Mechanisms

• 3.- Capital Markets Organization
• SUPERVISION AND INSPECTION
• OF SELF- REGULATED ENTITIES Minimum
  standards in rules and regulations
• MARKET ARBITRATION Mandatory for Agents
  and Public Companies. Optional for
  investors.
• NEGOCIATION SYSTEMS
• (General Principles) Investors
  protection, fairness, efficiency,
  transparency
  and no fragmentation and reduction of
  systemic risk.
• RULES ON EXTERNAL AUDITORS Affidavit. Publicity
  of Sanctions. Designation by the shareholders
  meetings, proposed by the audity committee.
  CNV authority to require information,
  perform inspections, suggest principles,
  establish independence criteria.
• Shareholders right to request a special
  audit.
• LIMITS ON SECURITIES DISTRIBUTION
• AND MARKET STABILIZATION Aim Avoid artificial
  prices and other manipulative practices.
• DICLOSURE Availability of such materials to
  investors
• Misleading Publicity (publicidad engañosa)
  and the CNV power to stop it. Publicity of
  CNV resolutions. Prohibition of False News.
• MINISTERIO DE ECONOMIA

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• 4.- Tender Offers
• Create a mechanism of mandatory, previous and
  partial tender offers (optional for listed public
  companies).
• Guiding principles
• a) Equal Treatment b) Full Disclosure c) Duty
  of Administrators of non-obstruction of Public
  Tender Offers d) the corporations activities
  must not be affected
• The Tender Offer Rules
• a) Significant participation (never less
  than 35)
• b) Road Rules periods, pro rata
  distributions, participation calculation, best
  price, revocation, etc.
• c) Irrevocability and guarantees, if
  applicable
• d) Competitive Offers
• e) Information Tender Offers Prospect
• Squeez Out Procedure for public companies.
  Controls shareholders right to buy minorities
  over 95 and minority right to be bought.
• Tender Offer and Voluntary Delisting
• 1. Payment net profits, subject to the
  liquidity report that assures solvency.
• 2. Price concept of fair price, among
  the different market indicators.
• 3. CNV power to object the price focus
  on decision process and reports produced by the
  parties

MINISTERIO DE ECONOMIA
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Indirect Protection Mechanisms

• 5.- Inside information and Market fraud
• INSIDE INFORMATION Prohibition to all those
  people who have the duty to keep reserve and the
  individuals mentioned in section 35 of the
  Act 24.083.
• Short
  swing profit (purchase and sale within six
  months)
• MARKET FRAUD AND
• MANIPULATION Legal norm which prevents the
  manipulation prices or volumes.
• Market fraud general legal norm antifraud.
  Aggravating penalties when
  performed by insiders or controlling
  shareholders
• LIABILITY FOR
• PROSPECTUS Impose
  liability on the issuer, the directors, the
  corporate comptroller and
  signers, as well as the controlling
  shareholders, experts and intermediaries
  that act as organisers and/or
  underwriters and arrangers.
• PROHIBICION TO INTERVENE
• IN THE PUBLIC OFFER Sanctions for public offer
  without authorisation
• CIVIL ACCTION Contemporary participants
  
  
• MINISTERIO DE ECONOMIA

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Indirect Protection Mechanisms

• 6.- Punishment and Procedure Regime. Guarantees
• SANCTIONS Warning, fine (up to 1.5 MM)
  Disablement (up to 5 years) Suspension
  (up to 2 years) Prohibition of Public
  Offering.
• Standards to be considered
  a) damage to market trust b) infractions
  magnitude c) benefits generated by the
  infringing person d) corporate volume e)
  individual performance f) sanctions record.
• SUMMARY AND
• PROCEDURE Amendment to Act 17.811.
  Administrative Law principles enforcement.
• PREVENTIVE
• SUSPENTION
• OF PUBLIC OFFER By reason of systemic risk or
  serious danger
• Limits for
  self-regulated entities (Act 17.811)
• INVESTORS
• GUARANTIES Guaranty Fund
• MINISTERIO DE ECONOMIA
• 
  

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Direct Protection Mechanism

• 1. Financial Information
• CNV power to require consolidated financial
  statements.
• CNV power to require the projected cash flows.
  (forward looking statement)
• Complementary notes include agreements for the
  lien and/or disposition of goods and risk
  administration policies.
• Additional Information of the annual report of
  public corporations. E.g. dividends policies and
  administrators compensations.
• Filing information in the CNV by electronic
  means.
• Directors, corporate comptrollers and managers
  liability for information supplied to the market
  and the duty to watch for the independence and
  capability of the auditors.
• MINISTERIO DE ECONOMIA

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Direct Protection Mechanisms

• 2. Flexibilization of Rules for Capital
  Increases.
• Green shoe clause, except that the
  shareholders meeting decides otherwise.
• Non-common shares have the preemptive right,
  unless the issuance act establishes otherwise.
• Improvement in the limitation to the preemptive
  right by request of Directors and corporate
  comptrollers report, stating the necessity,
  fairness and benefit for all the shareholders
• Public Corporations, the determination of the
  issuances premium may be delegated to the Board
  of Directors
• MINISTERIO DE ECONOMIA

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Direct Protection Mechanisms

• 3. Types of shares. Voting rights. Options and
  repurchase of shares
• Freedom of issuance of non common shares
  preferred stock, shares without right to vote and
  shares with participation.
• Right to vote one share one vote in public
  corporations. Regulation on exchange offers which
  may alter the voting structure.
• Non common shares of Public Corporations have
  the right of information, voice and objection.
  Maximum limit 49 of the corporations capital
• Options Legal protection regime for the holders
  of options similar to the protection of
  convertible bonds.
• Repurchase authorises the repurchase of shares
  in public corporations, subject to a resolution,
  a Corporate Comptrollers report and payment with
  liquid reserves plus the liquidity report.
• MINISTERIO DE ECONOMIA

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Direct Protection Mechanisms

• 4. Functioning of Corporate Structure and
  Shareholders Meetings. Proxy Request.
• Board of Directors and Shareholders meetings by
  non-presential means.
• Broad powers of the Extraordinary shareholders
  meetings, for the disposition of total or
  substantial part of assets and contracts related
  to corporate profits.
• Longer term to call shareholders meetings
  (between 25 and 45 days). Increase of information
  to be considered. Shareholders right to include
  issues when represent at least 2 of the stock.
• Limits to one day the prohibition to dispose the
  shares. (blocking shares)
• Regulates the public requests for proxy.
• MINISTERIO DE ECONOMIA

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Direct Protection Mechanisms

• 5. Rules about the Conflict of Interests.
  Directors compensation
• Clarifies the conflict of interests rules.
• Allows the directors compensation by option
  plans in the terms to be established by the CNV.
• MINISTERIO DE ECONOMIA

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Direct Protection Mechanisms

• 7. Minority Shareholders rights. Appraisal rights
  and cumulative vote
• (sections 245 and 263)
• Appraisal rights the criteria for price
  settlement in public corporations is modified in
  a way similar to the Delisting of shares.
• Cumulative vote it extends and ratifies its
  application within each class
• MINISTERIO DE ECONOMIA