Corporate governance

Overview

Corporate Governance practices

Our Company adopted several corporate governance practices recommended in the first edition of the Brazilian Corporate Governance Code (Código Brasileiro de Governança Corporativa - Companhias Abertas CBGC), published by the Interagency Group in 2016 and in the 5th edition of the Code of Best Corporate Governance Practices published in 2015 by the Brazilian Institute of Corporate Governance (Instituto Brasileiro de Governança Corporativa). Among these best practices, we highlight the following:

  • Our Board of Directors is currently composed of 13 members, 11 of whom are external and independent board members, following the CGGC‘s best practices that the board should be composed mostly of external members with at least one third of independent members, except that, according to our Bylaws, the requirement is at least two or 20% of the Board of Directors members, whichever is greater, must be independent.
  • We have an Audit Committee, composed of at least three members, appointed by the Board of Directors, being composed in its majority by independent members. Considering the members of the Audit Committee, at least two must be independent members of the Board of Directors, and at least one must have recognized experience in corporate accounting matters. This Committee, among its duties, is to advise the Board of Directors about the monitoring and control of the quality of financial statements, internal controls, risk management and compliance, following the CBGC‘s best practices.
  • Among other corporate documents, we have a risk management policy, a Code of Ethics and Conduct and a shares´ trading policy.
  • Our bylaws provide for rules of the Market Arbitration Chamber for the resolution of disputes involving the Company and its investors.

Principal differences between Brazilian and U.S. corporate governance practices

We are subject to the NYSE corporate governance listing standards. As a foreign private issuer, the standards applicable to us are considerably different to the standards applicable to U.S. listed companies. Under the NYSE rules, we are required only:

  • To have an audit committee or audit board that meets certain requirements, pursuant to an exemption available to foreign private issuers, as discussed below;
  • To provide prompt certification by our chief executive officer of any material non-compliance with any corporate governance rules; and
  • To provide a brief description of the significant differences between our corporate governance practices and the NYSE corporate governance practice required to be followed by U.S. listed companies.

A summary of the significant differences between our corporate governance practices and those required of U.S. listed companies is included below.

Majority of Independent Directors

The NYSE rules require that a majority of the board must consist of independent directors. Independence is defined by various criteria, including the absence of a material relationship between the director and the listed company. Under the listing standards of Level 2 segment of BM&FBOVESPA, our board of directors must have at least five members, at least 20% of which must be independent. Also, Brazilian corporate law and the CVM have established rules that require directors to meet certain qualificationrequirements and that address the compensation and duties and responsibilities of, as well as the restrictions applicable to, a company’s executive officers and directors. While our directors meet the qualification requirements of Brazilian corporate law and the CVM, we do not believe that a majority of our directors would be considered independent under the NYSE test for director independence. Brazilian corporate law requires that our directors be elected by our shareholders at a shareholders’ meeting.

Executive Sessions

NYSE rules require that the non-management directors must meet at regularly scheduled executive sessions without management present. Brazilian corporate law does not have a similar provision. According to Brazilian corporate law, up to one-third of the members of the board of directors can be elected to officer positions. Our president, David Neeleman, is a member of our board of directors. As a result, the non-management directors on our board do not typically meet in executive session.

Nominating committee, corporate governance committee and compensation committee

NYSE rules require that listed companies have a nominating/corporate governance committee and a compensation committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities—although as a company the majority of whose voting shares are held by another group, we would not be required to comply with this rule. The responsibilities of the nominating/corporate governance committee include, among other things, identifying and selecting qualified board member nominees and developing a set of corporate governance principles applicable to the company. The responsibilities of the compensation committee, in turn, include, among other things, reviewing corporate goals relevant to the chief executive officer’s compensation, evaluating the chief executive officer’s performance, approving the chief executive officer’s compensation levels and recommending to the board compensation of other executive officers, incentive compensation and equity-based plans.

We are not required under applicable Brazilian corporate law to have a nominating committee, corporate governance committee and compensation committee. Aggregate compensation for our directors and executive officers is established by our common and preferred shareholders at annual shareholders’ meetings, and our directors at board of directors’ meeting are required to determine the allocation of the aggregate compensation among their members and the officers.

Audit Committee and Audit Committee Additional Requirements

NYSE rules require that listed companies have an audit committee that:

• Is composed of a minimum of three independent directors who are all financially literate;

• Meets the SEC rules regarding audit committees for listed companies;

• Has at least one member who has accounting or financial management expertise, and

• Is governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities.

The audit committee is elected by the board of directors.

Within one year following the completion of this global offering, we expect that all members of our audit committee will either satisfy requirements of the SEC and NYSE applicable to U.S. audit committees or will qualify with the Rule 10A-3 exemption.

Shareholder Approval of Equity Compensation Plans

NYSE rules require that shareholders be given the opportunity to vote on all equity compensation plans and material revisions to those plans (which may be approved for an undefined period), with limited exceptions. Under Brazilian corporate law, all stock option plans must be submitted for approval by the holders of our common shares. In addition, any issuance of new shares that exceeds our authorized share capital is subject to approval by holders of our common shares at a shareholders’ meeting.

Corporate Governance Guidelines

NYSE rules require that listed companies adopt and disclose corporate governance guidelines. We comply with the corporate governance guidelines under applicable Brazilian law and the Level 2 segment of BM&FBOVESPA. We believe the corporate governance guidelines applicable to us under Brazilian law are consistent with the NYSE guidelines. We have adopted and observe the Policy of Material Fact Disclosure, which deals with the public disclosure of all relevant information as per CVM’s Instruction No. 358 guidelines, and the Policy on Trading of Securities, which requires management to disclose all transactions relating to our securities, and which is required under Level 2 segment of BM&FBOVESPA.

Code of Business Conduct and Ethics

NYSE rules require that listed companies adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. Level 2 segment of BM&FBOVESPA hasa similar requirement.

We adopted a code of business conduct and ethics in May 2009, which regulates the conduct of our managers in connection with the disclosure and control of financial and accounting information and their access to privileged and non-public information. Our code of business conduct and ethics complies with the requirements of the Sarbanes-Oxley Act of 2002, the NYSE rules and Level 2 segment of BM&FBOVESPA rules.

Internal Audit Function

NYSE rules require that listed companies maintain an internal audit function to provide management and the audit committee with ongoing assessments of the company’s risk management processes and system of internal control.

Our internal auditing department works independently to conduct methodologically structured examinations, analysis, surveys and fact finding to evaluate the integrity, adequacy, effectiveness, efficiency and economy of the information systems processes and internal controls related to our risk management. The internal auditing department reports continually to our board of directors and audit committee and its activities are directly supervised by our audit committee, which acts under our board of directors, and is monitored by our audit and operational risk management superior committee. In carrying out its duties, the internal auditing department has access to all documents, records, systems, locations and people involved with the activities under review.

Brazilian Takeover Panel (ACAF)

On January 21, 2014, we entered into an agreement to adhere to the Panel Code issued by ACAF, a non-statutory non-for-profit entity organized under private law for the purpose of organizing, maintaining and administering the ACAF. Our Company, shareholders, directors, fiscal council members and members of any other entity with technical or consultative functions created by statutory provision will have to respect the principles and rules of the Panel Code and comply with the decisions that may be taken by ACAF under the Panel Code in respect of all tender offers, takeovers, stock takeovers, mergers or spin-offs in connection with a takeover.

The rights of any shareholder who fails to comply with the Panel Code may be suspended pursuant to a decision of the shareholders at the Annual General Meeting, including the right of the non-compliant shareholder to vote.

Level 2 Segment of BM&FBOVESPA

With the IPO, our securities will be listed on the Level 2 segment of BM&FBOVESPA, a special listing segment intended exclusively for companies that meet minimum requirements and accept to be subject to differentiated corporate governance rules. To become a Level 2 segment of BM&FBOVESPA company, in addition to the obligations imposed by applicable law, an issuer must comply with the following rules:

  • Ensure that shares of the issuer representing at least 25% of its total capital are effectively available for trading;
  • Requirement that the new members of the Board of Directors and the Board of Executive Officers sign the Terms of Agreement of the Directors, conditioning the tenure in the respective positions to the signing of these documents, through which new directors are required to act in accordance with the Contract of Agreement to Level 2, with the Regulation of the Market Arbitration Chamber and with the Level 2 Regulation, also serving as a Commitment Clause;
  • Prohibition on the issuance or maintenance of beneficiary shares;
  • In a transfer of control, even if by successive sales, the business must be conditioned to the same conditions offered to the controlling shareholder to the minority shareholders holding common and preferred shares, by an public offer of shares acquisition, including the same price in the case of holders of common shares (tag along), and the holders of preferred shares for the same price offered to holders of common shares and under the same conditions;
  • Grant voting rights to holders of preferred shares, at least in connection with the following matters: (a) transformation, merger, consolidation or spin-off of the Company; (b) execution of any agreement between the Company and its controlling shareholder, acting directly or through any third party, in the event such agreement must be approved by a shareholders’ meeting, as provided by law or in the bylaws of the Company; (c) valuation of assets to be contributed to the capital stock of the Company in a capital increase; (d) appointment of the valuation company or institution that will determine the economic value of the Company; and (e) amendments or exclusions of bylaw provisions which eliminate or modify any of the matters above;
  • Have a board of directors consisting of at least five members out of which a minimum of 20% of the directors must be independent and limit the term of all members to two years, reelection permitted. Our Bylaws requires at least two or 20% of the Board of Directors members, whichever is greater, must be independent.;
  • Translate into English its annual and quarterly consolidated and unconsolidated financial statements;
  • Adhere exclusively to the Market Arbitration Chamber for resolution of disputes between the company and its investors.

Brazilian Takeover Panel (ACAF)

On January 21, 2014, we entered into an agreement to adhere to the Panel Code issued by ACAF, a non-statutory non-for-profit entity organized under private law for the purpose of organizing, maintaining and administering the ACAF. Our Company, shareholders, directors, fiscal council members and members of any other entity with technical or consultative functions created by statutory provision will have to respect the principles and rules of the Panel Code and comply with the decisions that may be taken by ACAF under the Panel Code in respect of all tender offers, takeovers, stock takeovers, mergers or spin-offs in connection with a takeover.

The rights of any shareholder who fails to comply with the Panel Code may be suspended pursuant to a decision of the shareholders at the Annual General Meeting, including the right of the non-compliant shareholder to vote.