I. DOMESTIC MARKET OVERVIEW

NOTE: Except as otherwise indicated, the number of the articles mentioned in the answers refer to Act 16.060, Commercial Corporations, September 4, 1989.

1. For the each of the following types of investors, identify the approximate percentage of participation in your market, in terms of equity market capitalization:

ANSWER:

Out of the 22 corporations the shares whereof are registered with the Securities Register , 20 have bearer shares. Therefore, there is no data available for answering the items under this question

Controlling shareholders (for the 20 companies in your market with the largest equity market capitalization, please indicate the percentage that have, at least, one or more controlling shareholders);

N/A

Institutional investors (for the 20 companies in your market with the largest equity market capitalization, please indicate the percentage that have, at least, one or more institutional investors);

N/A

Domestic financial institutions;

N/A

Domestic non-financial institutions;

N/A

Other domestic investors; and

N/A

Foreign investors.

N/A

2. Are there any entities in your jurisdiction that promote effective corporate governance, such as stock exchanges, business trade groups, professional associations, securities regulators, and others? If so, please briefly describe their objectives and activities, including any written corporate governance provisions.

ANSWER:

In our jurisdiction there is no entity, be it public or private, which is exclusively in charge of promoting effective corporate governance. Nonetheless, there are various entities which, among other functions, promote such practices. In this respect could be mentioned the professional corporations or government control bodies.

3. Are there special governance rules pertaining to particular types of companies, e.g., state owned companies, banks, or investments funds?

ANSWER:

The Central Bank of Uruguay, as oversight and regulator of the financial system, has issued rules regarding effective corporate governance applicable to banks. Heading I, Part VII of Book I, of the Compilation of Rules for Regulating and Supervising the Financial System, refers to the Integrated System for Internal Oversight. Heading II refers to Internal Auditing and Heading III refers to the Auditing Commission. Besides these, there are rules of a different type, such as those that limit or prohibit the possibility of granting preferential loans to those persons occupying positions in the governing bodies of institutions engaged in financial brokerage.

Furthermore, there are other rules of a constitutional and legal nature, which refer to banks and state owned companies, which might be applicable.

4. Describe the basic rights afforded to shareholders of public companies in your jurisdiction which are stipulated in your local legislation.

ANSWER:

According to articles 319-321 of the Act on Commercial Corporations, the following are fundamental rights of Shareholders:

* To take part in the shareholders’ meetings and vote.

* To partake in social earnings and in the balance after liquidation in case of dissolution of partnership.

* To exercise control of corporate business management.

* To withdraw from the company in such cases as are prescribed by law.

* To receive a minimum dividend

* To obtain specific corporate information.

These rights may only be conditioned, limited or annulled in those cases where the law expressly authorizes it.

5. Registration and Transfer of Shares:

How are shares registered and transferred?

ANSWER:

Shares may be bearer, nominative or in registered form.

In the case of bearer shares these are not registered and are transferred by simple delivery.

If nominative or in registered form, as hereinbelow:

Art. 333. Books for entering Registered Shares and Securities:

Corporations issuing temporary certificates, shares and nominative negotiable papers, have to keep the respective Registers wherein they shall enter the ordinal number of each security, its value and the holder is identified. All juridical business executed therewith (transfers, liens, etc) and any other mention derived from their respective legal situations and amendments.

Art.334. Book for the Registration of Entry Form Shares.

If the by-laws establish entry form shares, a special Registry Book must be kept for the purpose of registering them; this shall include the same entries, insofar as pertinent, as are established in the preceding article.

In turn, Act 16.749 of the Securities Market also rules on entry form shares.

How shares are registered in your jurisdiction? Focus on the transparency and reliability of the registration’s mechanisms.

ANSWER:

The two aforementioned articles are applicable here, to which should be added that art. 333 rules: "In legal negotiations, the intervening parties shall sign the entries without detriment to that which is set forth in article 34 of decree-law 14.701 dated 12 September 1977, concerning securities in general.

On the other hand, with respect to liability for vices or irregularities in the entries made on the mentioned books, the corporations themselves are accountable according to the law (art. 338).

Insofar as experience on this subject is practically nil, there are no elements to serve as a basis for an opinion concerning transparency and integrity of mechanisms therein applied.

c) Are there any restrictions on the ability of shareholders to transfer shares? If so, what are they?

ANSWER:

No. Transfer of shares is totally free. Nonetheless, art. 3045 rules that " The corporate contract shall limit transferability of nominative or book entry shares provided this does not imply a prohibition on their transferability. The limitation should appear in the security itself or in the Register of Entry Form Shares if this be the case. Transfer of nominative and entry form shares and the constitution or transfer of liens on corporations that be imposed on them, shall be notified to the company in writing and shall be registered in their respective share register. It is on the basis of said register that they shall take effect with respect to the company and third parties. Endorsable shares shall be transferred through an uninterrupted chain of endorsements and in order to exercise his/her rights the endorser shall request registration thereof.

However there are corporations where the right to transfer has been limited or regulated. For example, banks, investment funds, pension savings funds, underwriting bodies, etc., are governed by special regulations.

6. Participation and Voting in General Shareholder Meetings:

a) Are all shareholders furnished with information concerning the date, location and agenda of the meeting, as well as information regarding the issues to be decided at the meeting? If so, how far in advance of the meeting is the information provided to shareholders? Also, how much information is provided?

ANSWER:

Yes. Art. 345. Notice of Meeting. Form. Notice shall be published for at least three days in the Diario Oficial and in another newspaper, at least ten but not more than thirty days prior to it. It shall mention the nature of the meeting, date, place, time of meeting and agenda thereof.

b) Do all shareholders have the right to ask questions of the board and to propose the inclusion of items in the agenda to a shareholder meeting? If so, under what circumstances?

ANSWER:

Within the right to information, the law establishes (art. 321 numeral 2) that the shareholders may demand that they be informed on the draft resolutions proposed by the board of directors or the administrator to the shareholders’ meetings and the basis thereof. If the administrative body were to refuse to provide the information so requested, be it totally or partially, the shareholder may take action before the courts.

According to article 344, "shareholders that represent at least 20% of paid up capital, unless the corporate contract establish a lower representation, may request that a meeting be convoked. The petition shall indicate the topics to be discussed and the administrative or controlling body shall call the meeting so that it be held at most 40 days after the request has been received."

However, the law mandates that the topics to be discussed at a meeting, be it ordinary or extraordinary, be pre determined and acknowledges no pact to the contrary concerning the matters to be resolved by the latter (arts. 342,343.). In turn art.358 sets forth that "Any decision on matters outside those included in the agenda, shall be null and void, except such cases as are authorized by the law or when the totality of the capital having a right to vote be present and provided the resolution be adopted by unanimity. The liability and removal of administrators, directors, comptrollers and members of the auditing committee and the election of those who are to sign the minutes, may be resolved even though they have not been included in the agenda."

This article is to be taken together with 393 on corporate action concerning liability

c) Are shareholders able to vote in person and in absentia? Please describe how it works. If allowed by local regulations, what are the requirements and formalities for proxy voting at a shareholder meeting? Are telephone and electronic voting permitted?

ANSWER:

Meeting resolutions, in the matters within its competence, are binding to all shareholders, whether present or absent, provided they have been validly adopted.

Each ordinary share gives the right to one vote and the law in its art. 322 goes on to say that a minimum number of ordinary shares per contract may be required, "which cannot be more than ten, in order to grant the right to a vote in the meetings. Shareholders may combine their shares in order to reach the required minimum and proceed to appoint a common representative."

The extraordinary meeting may regulate the procedure for all meetings and set forth the manner in which the shareholders shall express their vote. This regulation shall be filed with the Registro Público de Comercio (Public Commercial Registry). The administrator or the board of directors must deliver a copy of the regulations to those shareholders that request it, "and the latter may take legal action should this be denied, as per articles 357 and 321 aforementioned.

"The law only contemplates the intervention of an attorney in fact in the case when shareholders are not present at the meeting – art. 351. It is incompatible that either administrators, directors, comptrollers, members of the audit committee, managers and other employees of the company be holders of a power of attorney. The mandate shall be executed as a private document, and shall require the certification of signatures by a notary public, although if it be for a single meeting, it shall be sufficient to present a simple proxy letter without certification, unless the corporate contract rule otherwise.

Absent shareholders which are not represented by an attorney in fact, may not vote in the Meetings. Voting through the telephone or by electronic means is not admitted.

7. Fundamental Corporate Changes:

a) Fundamental corporate changes may include: amendments to statutes or governing documents of the company; the authorization of additional shares; and extraordinary transactions that in effect result in the sale of the company. Please describe any other corporate activities that would be considered fundamental corporate changes in your jurisdiction.

ANSWER:

The merger, transformation or severance and extension or anticipated dissolution of the company, its change from open-ended to close-ended, the transfer of domicile abroad, the fundamental change of object and the total or partial increase or refund of equity capital, have to be decided upon at an extraordinary meeting, with the favorable vote of the absolute majority of shares having a right to the vote (articles 362 and 249).

b) Are shareholders sufficiently informed of fundamental corporate changes? If so, how? Before the change or after?

ANSWER:

Prior to the meeting the procedure is governed by the aforementioned provisions as to the manner of convening the meeting and the competence thereof (notification is published for at least three days in the Diario Oficial or in another newspaper, at least ten days and not more than thirty days prior to it; it shall mention nature of meeting, date, place, time of meeting and agenda), and subsequent to it there is the requirement that it be published in the Diario Oficial and in another newspaper so that third parties may be acquainted with the outcome.

c) Can shareholders participate in decisions with respect to fundamental corporate changes?

ANSWER:

Yes. A quorum is required in order to hold the meeting and majority votes are established (absolute majority of shares with a right to the vote). The exercise of adjournment is also contemplated (arts. 363 and 364) as well as that of the right to contest resolutions of the meetings (Sub-section IX of Law)

i) How do shareholders get involved in decisions involving fundamental corporate changes?

ANSWER:

The previous answer is applicable.

ii) Are special shareholder meetings held? If so, are special majorities required for shareholder approval of these fundamental corporate changes? If so, please indicate the types of special majorities that are required to approve the various fundamental corporate changes.

ANSWER:

Yes, please see answer 7.a.

8. Acquisition of Corporate Control:

Are there any rules and procedures for shareholder involvement in the acquisition of corporate control or any extraordinary transactions, such as mergers and sales of substantial portions of corporate? If so, please describe them.

ANSWER:

With respect to acquisition of corporate control, there exist no rules or specific procedures applicable thereto, except in those cases in which the oversight body (banks, investment funds, etc.) intervenes mandatorily.

Public bid for acquisition thereof is not regulated, nor does there exist the obligation of reporting insofar as this aspect is concerned.

In some cases of extraordinary transactions (mergers, , scission, etc.), as has already been pointed out, an extraordinary meeting must be held and any resolution of said meeting requires a given majority.

As to the sale of a substantial part of assets, there are no rules with respect to it although the Board of Directors may (but is not bound to) convene an extraordinary meeting of shareholders. Statutorily there may exist restrictions to the free transfer of assets by the Board of Directors in which case the approval of the Shareholders’ Meeting is required.

b) Are those rules and procedures, as well as any available recourse, disclosed to investors? How?

ANSWER:

In those cases in which the law requires that a Meeting be convened, or when the Board of Directors convokes it of its own initiative, the investor is acquainted with the rules and procedures applicable. In the case of a change in the structure of capital stock, in particular in corporations having bearer shares, the other shareholders may even be ignorant of such rules and procedures. As to the sale of substantial assets, they have to be included both in the Annual Report of the Board of Directors and the Comptrollers’ Report as well as appearing in the financial statements. This information must be made available for the approval of shareholders within one hundred and eighty days after end of fiscal year. The right to approve and challenge the financial statements and to adopt resolutions of whichever nature in this respect, cannot be renounced (art. 97). It falls within the competence of the Ordinary Meeting to consider and resolve on balance sheet matters, on the Annual and Comptroller’s Report and regarding any other measure which refers to the management of the company. It may appoint or remove administrators, directors or comptrollers. It also discusses their liability.

c) Are there any rules and procedures to provide assurance that these transactions occur at transparent prices and under fair conditions that protect the rights of all shareholders according to their class?

ANSWER:

In changes involving corporate control it is not compulsory to report on prices or conditions, even though there may be a public offering, which is not regulated. In other cases, as already pointed out, the shareholders may learn at a later date what has occurred; however their possibility for taking action is practically nil.

d) Are anti-takeover devices permitted, and are these devices ever used to shield management from accountability?

ANSWER:

Excepting special cases (banks, investment funds, etc.) there are no mechanisms for preventing control take over.

e) Are there any arrangements that might enable certain shareholders to obtain a level of control not proportionate to their equity ownership? Must these arrangements be disclosed?

ANSWER:

There are the so-called agreements of shareholder syndication, which are legally valid and might refer to the purchase and sale of shares, the exercise of preferential rights or voting rights or any other aspect, provided it be licit. In this respect, art.331 sets forth that in order for the former to be valid vis-à-vis third parties, the company must have a copy, with signatures certified by a notary public, which copy has to be registered with the Commercial Registry, written in the share certificates or appear in the Register of Entry Form Shares. These agreements shall have a maximum life of five years, which does not preclude automatic extensions therein included.

10. Voting Rights:

a) Is more than one outstanding class of voting capital stock permitted?

ANSWER:

Art. 307: "Shares shall be ordinary, preferred or dividend-right shares (jouissance shares), according to the rights they grant their holders. No plural vote shares may be issued.

b) If voting preferred stock is permitted, do holders of this stock vote as a separate class and under what circumstances and on what matters?

ANSWER:

See next answer.

c) If more than one class of voting common stock is permitted, do the voting rights differ among classes and, if so, under what circumstances and on what matters?

ANSWER:

Articles 322 and 323 concerning the rights of preferred shares are applicable and in this respect, they state: Preferred shares may be deprived of voting rights, except at ordinary meetings when the company is in default regarding the observance of rights accorded to them and in extraordinary meetings which consider resolutions or reforms that confer the right to withdraw.

d) Within any given class, do all shareholders have the same voting rights?

ANSWER:

The relevant article is 322, which we have already mentioned: one vote per ordinary share; however the corporate contract may demand a minimum number of said shares which cannot exceed ten. Shareholders may resort to grouping their shares in order to attain the established minimum, appointing a common representative and there is a provision concerning abuse of the right to vote which reads: "shareholders shall be responsible for whatever damage is caused as a consequence of the abusive use of the right to vote: (art. 324).

e) Are all investors able to obtain information about the voting rights corresponding to all classes of shares before they purchase them? If so, how?

ANSWER:

The majority of shares that are to be found in the local securities market are the ordinary type and are therefore governed by the general rules in this respect.

Concerning preferred shares, there is no procedure, legal or regulatory, for informing investors which are their holders’ rights in regard to votes.

In general, the constitutive documentation of the corporation (issuer) is entered in a public register, which is the Securities Register. On the other hand, the National Commercial Register is a public register that provides corporate information whenever requested and the respective rights may be obtained through a reading of the law.

f) Are changes in the voting rights corresponding to a class of shares subject to the approval of shareholders? If so, are these changes subject to the approval of all shareholders or only to those holding shares of that particular class?

ANSWER:

The general provision in art. 319 rules on this aspect: it is an essential right of shareholders to take part and vote in meetings. According to Article 349, in order to adopt resolutions affecting the rights of a given class of share, the approval or ratification of its holders, adopted during a special meeting, shall be required.

g) Describe the manner in which votes can be cast by custodians or nominees. Is approval by the beneficial owner of the shares required?

ANSWER:

Custodians do not vote in place of those persons who have placed securities in their custody, except by express mandate. In Uruguay there are no Institutions for Deposit of Securities (Depositories), therefore it is not usual to find such a situation. Hereinbelow please find the rules in force on share deposit:

Art. 355 states in its first paragraph that "every company shall have a Book for the Registry of Shareholder Attendance to Meetings wherein shall be noted the names of those intending to attend, the class, number and value of shares registered and the number of votes corresponding to them." Concerning share deposit art.350 rules the following insofar as applicable: "In order to attend meetings shareholders shall deposit with the company their shares or a deposit certificate issued by a financial brokerage firm, by a stockbroker, by the judiciary depository or by other persons, in which case shall be required the corresponding certification by a notary public The company shall deliver the necessary receipt, whereby they shall be admitted to the meeting.

Holders of nominative or book entry shares, the registry whereof be kept by the company itself, shall be exempt from the obligation to deposit their shares or present their certificates or receipts, but shall nevertheless inform of their intention to attend so that they be registered in the Book for the Registry of Shareholder Attendance to Meetings within the same term as the other shares."

With respect to the issue of the vote itself, art.351 concerning voting through an attorney in fact, which has been mentioned hereinbefore, is applicable.

11. Shareholder Meetings:

a) Describe the processes and procedures for public companies’ shareholder meetings. Please indicate the applicable rules, regulations and local practices.

ANSWER:

This point has already been answered in items 6 (a) (b) and 7 (c). Furthermore it is required that it shall be previously reported to the National Internal Audit Institution within certain time limits, it being the government oversight body for corporations. In practice, the stock exchange where the security is quoted, shall also be informed in order for it to be published in official bulletins.

b) What are the formal requirements for calling and conducting shareholder meetings? Are there different kinds of shareholder meetings?

ANSWER:

This point has already been answered in items 6 (a) (b) and 7 (c)

c) Are companies permitted to require personal attendance or to charge fees to vote at a shareholder meeting?

ANSWER:

The general principle is that the shareholder cannot be compelled to be present at the meeting, since he/she may vote by proxy. Since the right to vote is a fundamental right, it is not possible to charge any type of fee to exercise such a right.

d) Are shareholders able to request that the company or another body, such as a court, call a shareholder meeting in case the board of directors does not do it?

ANSWER:

Yes, since art.344 authorizes "shareholders representing at least 20% of paid-up capital, unless the social contract establishes a lower representation", to request that a meeting be convened. "The petition shall indicate the topics to be discussed and the administrative or controlling body shall call the meeting so that it be held at most 40 days after the request has been received." Should these bodies omit so doing, the meeting may be convoked by any of the directors, the members of the auditing commission, the state oversight body or judicially.

e) Under what circumstances, if any, is it possible for shareholders to take binding action without a meeting? Are other shareholders informed of such actions?

ANSWER:

Subsection IX of Section V on corporations regulates the challenge to resolutions adopted at a meeting, in violation of the law, the corporate contract or the regulations "or that be detrimental to the corporate interest or to the rights of shareholders as such", which fact does not preclude ordinary actions that might be taken.

Dispute Resolution:

a) What legal recourse is available to the shareholders if their rights are violated?

ANSWER:

The above answer is pertinent here as well.

b) Are there non-adversarial mechanisms to solve disputes between shareholders and the company or between themselves, e.g., commercial arbitration panels, stock exchange mediation, etc., or is civil litigation the only alternative?

ANSWER:

There is the Center for Settlement and Arbitration, the International Arbitration Court for the MERCOSUR; it is also possible within the scope of the Stock Exchange; and these may be applied provided the parties agree to do so.

13. Insider Trading:

a) Is insider trading prohibited? If so, are the prohibitions contained in the securities laws or under other types of statutes?

ANSWER:

Yes, it is prohibited, furthermore there a rule in this respect that has legal status.

b) What are the key provisions of the insider trading prohibitions?

ANSWER:

The law governing the Stock Market, in its article 6 states that: "issuers or brokers that make use of reserved or privileged information, obtained by reason of their station or position, which be unknown to the market (insider trading) for the purpose of gaining advantage in negotiation with securities, shall be liable to penalization as per article 25 of said law, which fact does not preclude action for damages were this the case."

c) Who is subject to insider trading prohibitions?

ANSWER:

Issuers or brokers that make use of reserved or privileged information, obtained by reason of their station or position, which be unknown to the market, for the purpose of gaining advantage in negotiation with securities. (insider trading).

On the other hand, the regulatory Decree of the aforementioned law points out that "persons or entities which act in the securities market or carry out activities connected therewith, and in general, whomsoever by reason of his/her work, profession, station or duties has access to privileged or confidential information, shall abstain from preparing or carrying out transactions with whatever class of securities said information refers to, for as long as the latter continues to be of privileged or confidential nature. Neither may he/she communicate said information to third parties, except in the normal exercise of his/her position or duty, nor recommend a third party to operate with the aforementioned securities, based in this information.

d) How are these insider trading prohibitions enforced? Can actions be bought by civil, administrative and criminal authorities?

ANSWER:

There are no historical cases in this respect. In principle, both civil, administrative or criminal authorities may act, within their sphere of competence.

14. Conflicts of Interest:

Is self-dealing by the board and executives prohibited or subject to certain legal safeguards? Please explain.

ANSWER:

There is no legal prohibition although there is something to that effect in art. 325 on conflict of interests: "Shareholders or their representatives who have an interest in a given transaction – be it their own or the interest of others – which is contrary to that of the company, shall abstain from voting agreements related to it. Were they to violate this provision, they shall be liable for any resulting damages in cases when, had they not voted, the necessary majority for a valid decision would not have been obtained."

In turn, the Law in its Section IX on "Administration and representation" which is contained in Chapter I on general provisions, refers to the diligence and liability of administrators and representatives and more specifically to the procedure for entering into a contract with the company and activities which be at odds with articles 84 and 85 quoted hereinbelow:

Art. 84: "Administrators and representatives may enter into contracts with the company when these refer to normal activities, in the same conditions as any third party, provided they inform members thereof. Contracts not included in the aforegoing paragraph may be entered into with the prior authorization of members. Those executed in breach of this rule shall be absolutely null and void."

Article 85: "Administrators and representatives may not take part – on their own or on behalf of third parties – in activities conflicting with the company, except under express authorization of members, under penalty of incurring individually in the liability set forth in article 83" – that is to say be jointly liable vis-à-vis the company and the members for whatever damages may result from their action or omission.

b) Are members of the board and executives required to disclose any material interests in transactions or matters affecting the company? If so, please discuss how and when this information is made available to shareholders. For example:

i) Is the remuneration of directors and executives disclosed to investors?

ANSWER:

Art.385. " The by-laws may establish the remuneration of administrators or members of the board. Were this not the case, this item shall be put to the vote of an ordinary meeting on a yearly basis."

The mentioned article continues to read:

"In no case may the maximum amount of compensation which the administrator or the members of the board jointly receive - excluding salaries and other remuneration for discharging their permanent technical and administrative duties - exceed 10% of profits in the first case and 25% in the second … "

ii) Is the relationship between any of the directors and a controlling shareholder disclosed to investors?

ANSWER:

In general it is. In the case of issuers with nominative or book entry shares, the quality of controlling shareholder should be clearly established in the offering circular. This situation is also found in various corporations with bearer shares, when the holders wish to make known their share in the capital stock.

In various corporations, by-laws indicate how may directors choose the various types of shares; this information is known to investors.

Once the corporation has launched the issue, it may be more difficult to obtain this information systematically.

The law in turn makes administrators liable for the damages they may have caused by favoring a company that is linked to, controlled or controller of the one they administer to the detriment of the latter (art. 50) and makes them responsible for supervising the integrity of transactions undertaken.

iii) Are officers, directors and owners of a certain amount or percentage of shares required to disclose their holdings and trading activities?

ANSWER:

No.

15. Can a stakeholder (employees, creditors and suppliers) participate in corporate governance, e.g., employee representation on boards, employee stock ownership plans, creditor involvement via insolvency proceedings?

ANSWER:

Everything not forbidden by the law is permitted. The corporate contract may contemplate some of the cases listed in this question. In turn, the Shareholders’ Meeting may decide to distribute dividends in shares to employees or set up plans for the purchase of shares by the latter.

According to article 330, the Extraordinary Meeting may decide to limit or suspend preferential rights for underwriting or purchasing new shares if they be given in payment of pre existent commitments or as a contribution in money which, because of its importance, is absolutely essential for the development of social business or the disencumbrance of the company. In this case dissident shareholders may withdraw.

16. Where stakeholder interests are protected by law (e.g., labor law, contract law, insolvency law), do stakeholders have the opportunity to obtain effective redress for violation of their rights?

ANSWER:

The scope and specialization of applicable laws makes it difficult to give a concrete answer to this question, without a prior analysis of the corresponding legislation in each case and of the preferential rights set forth in positive law.

Indicate which of the following items is subject to disclosure, as well as to whom the disclosure is made. Please discuss how and when this information is made available to shareholders.

a) The financial and operating results of the company;

ANSWER:

According to art.97, within one hundred and eighty days of the closing of fiscal year, shareholders are made acquainted therewith so that this item be considered at the Ordinary Meeting.

b) Company objectives;

ANSWER:

These should be included in the by-laws of the company and in the circular offering.

c) Major share ownership and voting rights;

ANSWER:

Company by-laws and circular offering, both of which are entered in the Securities Register.

d) Members of the board and key executives, and their remuneration;

ANSWER:

The members of the Board of Directors are elected at the Shareholders Meeting and these appointments are reported to the Securities Register. In turn, the circular offering includes information regarding who they are as well as which are the key executive officers. No information is supplied in the circular offering concerning their remuneration, although shareholders have the right to be informed thereof. In many companies, the remuneration of the members of the Board of Directors are decided upon at the Meeting.

According to art.385, there is a ceiling to the salaries paid the members of the Board of Directors, which varies according to whether shareholders receive dividends or not.

e) Material foreseeable risk factors;

ANSWER:

No specific data. They fall within the generic concept of right to information.

f) Material issues regarding employees and other stakeholders; and other groups of social interest.

ANSWER:

No specific data. They fall within the generic concept of right to information

g) Governance structures and policies.

ANSWER:

No specific data. They fall within the generic concept of right to information

17. Financial Statements and Audits:

a) Are financial statements prepared, audited and presented in accordance with high quality, internationally acceptable standards of accounting and auditing? Are comparable high quality, internationally acceptable standards applicable to non-financial disclosures?

ANSWER:

International Auditing Standards are applied. With respect to accountancy, local standards, which coincide, in general with international standards, are compulsory although not all IAS are compulsory. At present there is a draft bill regarding this topic before parliament for its consideration. There are no reporting standards regarding non financial data.

b) Is the audit conducted by an independent auditor in order to provide an external and objective assurance on the way in which financial statements have been prepared and presented?

ANSWER:

Yes.

i) How are external auditors appointed and removed?

ANSWER:

The external auditor is generally appointed and removed by the Board of Directors.

ii) Are there any regulations that establish auditing standards and ensure auditors’ independence and responsible professional conduct?

ANSWER:

As international standards are the ones applied, professionals must be independent

iii) How is "auditors’ independence" defined

ANSWER:

There is no specific criteria regulated by rules. The auditor must be, and appear to be, free from all interest whatever the actual may impact be.

19. Describe the channels through which relevant information is disseminated to users, e.g., filing of reports via electronic filing and data retrieval systems, disclosure of material information via the internet?

ANSWER:

Issuers are compelled to present the relevant information to the Central Bank and to the stock exchange where they are quoted. This presentation is made, in actual practice, in written form printed on paper. The information entered into the Securities Register is public, free of cost and access thereto is also free.

20. Comment on aspects in your current disclosure regime that you would like to see reformed, indicating whether there is any support for such reforms internally and the main barriers that you see for implementing change.

ANSWER:

At present the automatic inclusion of relevant information in the WEB page of the Central Bank of Uruguay is under analysis.

21. Structure of the Board:

a) Who nominates, elects and removes the members of the board?

ANSWER:

Art.377. Appointment.

"The administrator or the members of the board of directors shall be appointed at the shareholders meeting. Should there be series of shares, the by-laws may establish that each one of them elect one or more directors and also regulate their appointment.

The election by holders of preferred shares with a right to elect one or more directors, shall also be regulated in the by-laws."

Art. 381. Removal.

" The administrator or the directors shall be basically removable by the shareholders meeting even though they may have been appointed in the by-laws.

The directors appointed by the holders of a series of shares or preferred shares may only be removed by these shareholders, unless the meeting has decided to start action for liability or there be cause for removal such as incapacity, prohibition or disqualification to hold their position."

i) Do shareholders have cumulative voting rights? If so, please describe.

ANSWER:

There is no right to the cumulative vote.

ii) How are vacancies on the board filled?

ANSWER:

This aspect is governed by the contract.

The law, in its art.379 sets forth that "The corporate contract may establish the procedure for replacement of the administrator or of the directors in case of either temporary or definitive vacancy. If there be no statutory provisions the following shall apply:

If there be a vacancy in the position of administrator, the internal control body shall appoint a temporary substitute. If there be no control body, any shareholder may ask the government oversight body to appoint a temporary administrator among majority shareholders. The temporary administrator shall call, within a term of sixty days, the extraordinary assembly which shall appoint a definitive administrator.

Temporary administrators may only carry out management acts which be urgent.

In the case of a vacancy among members of the board, the substitute shall be appointed by the remaining directors and shall hold the post until the next meeting. If no agreement be reached among them, or there be a vacancy in all or in the majority of the posts, the second paragraph of this article shall apply".

iii) Are the election and identity of the members of the board disclosed to the securities regulator and the stock exchange, and is this information publicly available? If so, how?

ANSWER:

Yes, it is a requirement governing issue and continuance of information. Once the information has been added to the Securities Register, it acquires the condition of being public and may be disclosed to whomsoever is interested.

b. What are the requirements for serving as a member of the board?

ANSWER:

The law devotes to this topic Section IX of Chapter I and sub Section X of section V on corporations.

According to art.80, individuals or juridical personas, whether members or non members, may be part of the administrative body. Requisites are that they have the capacity to engage in commerce and that they not be banned from so doing. A rightful cause for removal shall be disablement or impediment due to a legal ban, which has survived appointment.

In turn, with respect to corporations, there are additional regulations. The officials of the government oversight body may not be part of the administrative body.

i) Can foreigners or non-residents be board members?

ANSWER:

Yes.

ii) What are the prohibitions on being a board member?

ANSWER:

Art. 80: "An individual or a juridical body may be administrator or representative, whether he/she be a member or not. Requisites are that they have the capacity to engage in commerce and that they not be banned from so doing.

A rightful cause for removal shall be disablement or impediment due to a legal ban, which has survived appointment. This is ratified in art.378.

iii) What is the maximum term of office for members of the board? Are classes of board members permitted? If so, describe the circumstances and rights of each class.

ANSWER:

This aspect is governed by the provisions contained in the contract. In general it is a year and they may be re-elected. The existence of members who represent the interests of different classes of shareholders is authorized, the rights thereof being determined in the By-laws.

Art.380 states, in this respect, that "The by-laws shall determine the duration of the term in office of the administrator or that of board members. If there be no stipulations to this effect they shall remain in office for a year as from their appointment. They shall remain in their post until they be replaced", except for cases of disablement or impediment due to a legal ban, which has survived appointment.

"They may be re-elected."

As to the rights of the various classes of shares, there are no legal stipulations thereto; this topic is governed by whatever the by-laws determine.

iv) Are there any legal provisions requiring independent members of the board? If so, how is "independent" defined?

ANSWER:

They do not exist in private law.

c) Are members of the board compensated? If so, how and subject to what approvals?

ANSWER:

The members of an administrative body may be remunerated. If this be the case, such remuneration is approved by the shareholders’ meeting.

d) Describe the typical structure and functioning of the board, e.g., calling of the meetings, quorum, majorities, other formal requirements.

ANSWER:

It is usual to find in contracts clauses such as the ones hereinafter: "The board of directors shall have from one to seven members, be they individuals or a body corporate, shareholders or not. The meeting shall elect or re-elect them every year and shall establish or ratify their remuneration. They shall remain in office until their successors take possession thereof. The Meeting may appoint alternates to the members of the board. The latter shall be called by the president or two members. It shall meet validly regardless of the number of members attending, and the directors may vote or be represented by another director or a third party by proxy letter, collated telegram, cable or telex. It shall adopt decisions by majority vote of those present. Vacancies need not be filled and it may operate with a single member. It shall have unlimited power for the administration of the company and the disposal of its property. The president or vice president, indistinctly, or any two directors acting jointly, shall represent the company.

22. Functioning of the Board:

ANSWER:

The aforegoing answer is applicable thereto and so is that which is included under each question in particular.

According to art.375, "in the case of open-ended companies the administrative body must perforce be a board of directors"

a) Describe the key functions of the board. In particular, please indicate whether the board is responsible for the following functions:

i) Reviewing and guiding corporate strategy, major plans of action, risk policy, annual budgets and business plans; setting performance objectives; monitoring implementation and corporate performance; and overseeing major capital expenditures, acquisitions and divestitures.

ANSWER:

Yes.

ii) Selecting, compensating, monitoring and, when necessary, replacing key executives and overseeing succession planning.

ANSWER:

Yes.

iii) Reviewing key executive and board remuneration, and ensuring a formal and transparent board nomination process.

ANSWER:

Yes.

iv) Monitoring and managing potential conflicts of interest of management, board members and shareholders, including misuse of corporate assets and abuse in related party transactions.

ANSWER:

No

v) Ensuring integrity of the corporation’s accounting and financial reporting systems, including the independent audit, and that appropriate systems of control are in place, in particular, systems for monitoring risk, financial control, and compliance with the law.

ANSWER:

Yes.

vi) Monitoring the effectiveness of the governance practices under which it operates and making changes as needed.

ANSWER:

Yes.

vii) Overseeing the process of disclosure and communications.

ANSWER:

Yes.

b) What standards must the board follow when it makes decisions on corporate issues? What duties do board members owe to the company and its shareholders, e.g., loyalty, due care, foregoing corporate opportunities?

ANSWER:

Article 83 and all others on due diligence and liability as well as the ones on activities in competition with the company, which have already been referred to, are the ones applicable regarding this item. Administrators and representatives of the company must act with loyalty and the due diligence of a good businessman. Those that fail to comply with their obligations shall be jointly liable vis-à-vis the company and the members for whatever damages may result from their action or omission.

i) Are there any sanctions applicable to the members of the board for a breach in the performance of their duties? If so, please enumerate them, indicating the remedies for violations.

ANSWER:

In general corporations abide by art.83: "Those that fail to comply with their obligations shall be jointly responsible vis-à-vis the company and the members, for whatever damages may result for their action or omission.

In the case of corporations, art.391 rules that "directors shall be jointly liable vis-à-vis the company, shareholders and third parties, for whatever damages may result, directly or indirectly, from a breach in the law, the by-laws or the regulations due to faulty performance of their duties … and for those resulting from the abuse of authority, fraud or grave negligence.

Articles 393 and subsequent refer to the consequences emanating from the above mentioned liabilities.

ii) Do shareholders have any legal recourse available to them to make members of the board accountable for any breach of their duties?

ANSWER:

According to Art.392 "liability of directors towards the company shall become extinguished by approval of their performance, express renunciation or negotiation resolved by the meeting, if said liability is not resultant from a breach in the law, the by-laws or the regulations and provided there be no opposition thereto from shareholders representing, at the very least, 5% of paid-up capital, and provided also that facts and acts generating them have been presented accurately and the matter has been included in the agenda".

According to art.393, "corporate action for liability shall be exercised by the company, following a resolution of the shareholders’ meeting, which may discuss it even though the matter be not included in the agenda. The resolution shall entail the removal of … directors affected thereby".

Article 394 deals with the exercise of corporate action on liability on the part of shareholders, which may "be exercised by those who have opposed extinction of liability".

If the action contemplated in the first paragraph of article 393 is not instituted within a term of ninety days from the date of agreement, any shareholder may proceed to do so.

iii) Is the board permitted to obtain and rely upon disinterested professional advice - from accountants, investment advisers, appraisers - in order to determine whether a transaction is proper and fair to the company and shareholders?

ANSWER:

Within the framework of their authority, it is frequent for the administrative bodies to request professional advice whenever they deem it pertinent, which does not preclude any such action which the Board of Directors and the Shareholders’ Meeting be authorized to undertake in this respect.

iv) Are decisions by the board entitled to a presumption of "business judgment," which shields the decisions from shareholder challenge? If so, under what circumstances and conditions?

ANSWER:

Legally there are no presumptions, whether favorable or unfavorable.

c) What duties does the board owe to shareholders where it makes a decision that may affect different shareholder groups differently?

ANSWER:

See comment on Section IX of Chapter I. The administrators and representatives of a company must act with loyalty and the due diligence of a good businessman. Those that fail to comply with their obligations shall be jointly responsible vis-à-vis the company and the members for whatever damages may result from their action or omission.

23. Board Independence:

a) Are there any requirements that the board assign non-executive board members capable of exercising independent judgment to tasks where there is a potential conflict of interest? If so, under what circumstances?

ANSWER:

There are no legal or regulatory provisions in this respect. They are governed according to the by-laws and the freedom of will of the parties.

b) Can specific committees be created within the board? If so, describe their composition and responsibilities. Are there any requirements that some committees be composed solely, or at least primarily, of independent board members?

ANSWER:

Special committees may be created within the administrative body and they shall have the structure and responsibilities freely assigned to them by the company. Furthermore, within the framework of by-laws and freedom of will of the parties, there is a definition of the structure of the committee, however without any limitations thereto.

c) Are there any limitations on the number of board positions that an individual can hold?

ANSWER:

There are no legal or regulatory provisions in this respect. They are governed according to the by-laws and the freedom of will of the parties

24. Describe how and when board members can gain access to relevant information necessary to make decisions on corporate issues.

ANSWER:

The members of the administrative bodies have access to information which is relevant and required for the adoption of decisions concerning corporate matters. There are no specific provisions concerning how or when, the general guiding principle being that of freedom to obtain said information, according to the framework within which they occur.

Boards structures and procedures vary among COSRA members’ jurisdictions. Some countries have two-tier boards that separate the supervisory and management functions in different bodies. Such systems typically have a "supervisory board" composed of members that are not executives of the company or part of the company's management staff. Other countries have a unitary board structure that combines executive and non-executive board members.

The purpose of this Section is to provide detail about the different legal provisions of the participating countries regarding this issue. Accordingly if, in your jurisdiction, has a two-tier board system is permitted or required, please answer the following questions. Also, please answer the questions contained in Section VI.

Does the corporate law of your jurisdiction require a supervisory board or person that is separate both from the board of directors? Is such a supervisory board permitted?

ANSWER:

Yes, the Act on Commercial Corporations. Section V, Sub Section XI Supervision of Corporations. This includes both private auditing – which is optional for closed-ended corporations and is compulsory for open-ended companies – and the existence of an internal government supervisory body. Private supervisory bodies may consist of one person or a supervisory board, according to what the Shareholders’ Meeting decide.

If so, please indicate the following:

a) Substantial differences between the supervisory board and the board of directors, the shareholders meetings and the auditor;

ANSWER:

The supervisory body is in charge of auditing. The administrative body is executive in its nature, the shareholders’ meeting provides a forum in which to discuss and resolve.

The function of the auditor is to issue an opinion concerning financial statements submitted for his/her consideration.

b) Supervisory board’s duties and powers that overlap with those of the board of directors, the shareholders meetings and the auditor;

ANSWER:

It is the same case as with the administrative body, the supervisory body has to:

Control company management, supervise due compliance with the law, the by-laws, the regulations and decisions of Meeting.

Inspect company books and documents.

As with the auditor, it verifies annual financial statements.

c) Is the relationship between any of the members of the supervisory board and the independent accountant certifying the corporation’s financial statements disclosed to investors? Are such relationships prohibited?

ANSWER:

According to the regulations in force, it is incompatible to be an auditor (or a member of his/her company) and be a member of the supervisory body.