March, 2001.
MINISTERIO DE ECONOMIA
1

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 (Securities´s 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. Stockholder´s appraisal rights and cumulative vote
7.- Auditing Committee Regime
2 MINISTERIO DE ECONOMIA

Indirect Protection Mechanisms
CONSUMER LAW :
PUBLIC OFFER :
SECURITY DEFINITION :
INSIDE INFORMATION :
CONCERTED ACTION :
Concept of investor as a “financial products consumer”.
Different disclosure regimes according to the issuer’s nature, amount of the issuance, investor’s number or characteristics and other circumstances.
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
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 security’s price.
Wide definition for cooperation among a group of persons to acquire, hold or dispose securities
3
MINISTERIO DE ECONOMIA

Indirect Protection Mechanisms
DUTY TO DISCLOSE :
(in a direct, truthful, sufficient and opportune manner)
Issuers:disclosure of material information. Investors Relation Person.
Intermediaries:disclosure of non habitual situations.
Insiders, Rating Agencies and Regulators “ CNV” information 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 corporation’s 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.
4
MINISTERIO DE ECONOMIA

Indirect Protection Mechanisms
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):
RULES ON EXTERNAL AUDITORS :
Investors protection, fairness, efficiency, transparency and no fragmentation and reduction of systemic risk.
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.
5
MINISTERIO DE ECONOMIA

• 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 corporation’s 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 Offer´s 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
4. Shareholders right to object the price.
MINISTERIO DE ECONOMIA
6

Indirect Protection Mechanisms
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
7
MINISTERIO DE ECONOMIA

Indirect Protection Mechanisms
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) infraction’s 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
8

Direct Protection Mechanism
• 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 9

Direct Protection Mechanisms
• “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 issuance’s premium may be delegated to the Board of Directors
MINISTERIO DE ECONOMIA
10

Direct Protection Mechanisms
3
• 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 corporation´s 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 Comptroller’s report and payment with liquid reserves plus the liquidity report.
MINISTERIO DE ECONOMIA
11

Direct Protection Mechanisms
•
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. Shareholder’s 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
12

Direct Protection Mechanisms
• Clarifies the conflict of interests rules.
• Allows the director’s compensation by option plans in the terms to be established by the CNV.
MINISTERIO DE ECONOMIA
13

Direct Protection Mechanisms
•
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 14