Under the Corporate Governance Rules of the New York Stock Exchange, currently in effect as approved by the U.S. Securities and Exchange Commission on November 4, 2003 (other than Section 303A.08 which was approved on June 30, 2003), BRF is required to disclose any significant ways in which the Company´s corporate governance practices differ from those required to be followed by domestic companies under NYSE listing standard. The Company has summarized these significant differences below.
The Company is permitted to follow practice in Brazil in lieu of the provisions of the Corporate Governance Rules, except that it will be required to have a qualifying audit committee under Section 303A.06 of the Rules by July 31, 2005 (or avail ourselves of an appropriate exemption) and the Company´s Chief Executive Officer is obligated, under Section 303A.12(b), to promptly notify the NYSE in writing after any of its executive officers becomes aware of any material non-compliance with any applicable provisions of the Corporate Governance Rules.
Majority of Independent Directors: Under NYSE Rule 303A.01, each U.S. listed company must have a majority of independent directors. There is not a similar requirement under Brazilian practice, however the Company has a majority of independent directors serving on its board of directors.
Separate Meetings of Non-Management Directors: Under NYSE Rule 303A.03, the non-management directors of each U.S. listed company must meet at regularly scheduled executive sessions without management. There is not a similar requirement under Brazilian practice, but in any event, all members of BRF’s board are non-executive directors. Its independent directors do not meet separately from directors who are not independent.
Nominating/Corporate Governance Committee: Under NYSE Rule 303A.04, each U.S. listed company must have a nominating/corporate governance committee composed entirely of independent directors. It’s not required to have such a committee under Brazilian law. Directors are recommended for our Board of Directors consistent with the shareholders’ agreement which is described under “Principal Shareholders”.
Compensation Committee: Under NYSE Rule 303A.05, each U.S. listed company must have a compensation committee composed entirely of independent directors. The Company is not required to have such a committee under Brazilian practice. The Company’s Board of Directors is directly responsible for employee and executive compensation and recruitment, incentive-compensation and related matters.
Audit Committee: Under NYSE Rule 303A.06 and the requirements of Rule 10A-3 of the SEC, each U.S. listed company is required to have an audit committee consisting entirely of independent members that comply with the requirements of Rule 10A-3. In addition, the Audit Committee must have a written charter compliant with the requirements of NYSE Rule 303.A.06(c), have an internal audit function and otherwise fulfill all other requirements of the NYSE and Rule 10A-3. SEC recognized that due to the local legislation for foreign private issuers, some of the functions of the Audit Committee could be subordinated by local laws to BRF’s other bodies. The Company has availed itself of an exemption from the listing standards for audit committees. See “Fiscal Council”.
Equity Compensation Plans: Under NYSE Rule 303A.08, shareholders must be given the opportunity to vote on all equity-compensation plans and material revisions thereto, with certain limited exemptions as described in the Rule. The Company’s Board of Directors has authorized the establishment of a share option plan that is intended to stimulate the Company’s growth and to retain the services of executives and certain employees by enabling them to become shareholders in the company. No plan has yet been established, however, and no assurance can be given as to whether and when such a plan will be implemented or what its principal features will be. Any such plan, if established, would require the favorable vote of holders of the common shares of the company.
Corporate Governance Guidelines: Under NYSE Rule 303A.09, each U.S. listed company must adopt and disclose their corporate governance guidelines. The Company does not have a similar requirement under Brazilian law. However, listed its common shares on the Novo Mercado (New Market) of the São Paulo Stock Exchange, which requires adherence to the corporate governance standards of that Exchange specified under “Market Information—São Paulo Stock Exchange Corporate Governance Standards”. In addition, BRF has adopted a written policy of trading of securities and disclosure matters.
Code of Business Conduct and Ethics: Under NYSE Rule 303A.10, each U.S. listed company must 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. The Company is subject to a similar recommendation under Brazilian law and has adopted a Code of Ethics that applies to its directors, officers and employees.
Further information concerning our corporate governance practices and applicable Brazilian law is available on the Company’s website. The Company has also voluntarily adhered to the Novo Mercado listing standards of the Sao Paulo Stock Exchange (BOVESPA) on which its shares are traded, which impose heightened standards of disclosure, transparency and corporate governance on us. For more information concerning such standards, see www.brasilfoods.com/ir.