PROXY PAPER
PETROLEO BRASILEIRO S.A. - PETROBRAS
BOVESPA: PETR3
ISIN: BRPETRACNPR6
MEETING DATE:
02 APRIL 2014
RECORD DATE:
02 APRIL 2014
PUBLISH DATE:
20 MARCH 2014
INDEX MEMBERSHIP:
SECTOR:
INDUSTRY:
DJSI WORLD; BRAZIL MID-LARGE CAP;
BRAZIL IBOVESPA; BRAZIL IBRX; BRAZIL
IBRX 50
ENERGY
OIL, GAS AND CONSUMABLE FUELS
COMPANY DESCRIPTION
Petróleo Brasileiro S.A. - Petrobras operates as an
integrated oil and gas company in Brazil and
internationally.
COUNTRY OF TRADE:
BRAZIL
COUNTRY OF INCORPORATION:
BRAZIL
VOTING IMPEDIMENT:
DISCLOSURES:
OWNERSHIP
COMPANY PROFILE
REMUNERATION
POA
REFER TO APPENDIX REGARDING
VOTING INSTRUCTIONS and
EXPLANATION FOR REPUBLICATION
PREVIOUS BOARD
VOTE RESULTS
APPENDIX
2014 ANNUAL GENERAL MEETING
PROPOSAL
ISSUE
BOARD
GLASS LEWIS
CONCERNS
See proposal
1.00
Accounts and Reports
FOR
ABSTAIN
2.00
Capital Expenditure Budget
FOR
FOR
3.00
Allocation of Profits/Dividends
FOR
FOR
4.00
Election of Directors
FOR
ABSTAIN
4.01
Elect Guido Mantega
FOR
FOR
4.02
Elect Maria das Graças Silva Foster
FOR
FOR
4.03
Elect Luciano Galvão Coutinho
FOR
FOR
4.04
Elect Francisco Roberto de Albuquerque
FOR
FOR
4.05
Elect Márcio Pereira Zimmermann
FOR
FOR
4.06
Elect Sérgio Franklin Quintella
FOR
FOR
4.07
Elect Miriam Aparecida Belchior
FOR
FOR
5.00
Election of Board Member Representative of Minority Shareholders
UNDETERMINED
FOR
6.00
Election of Board Member Representative of Preferred Shareholders
UNDETERMINED
SPLIT
6.01
Elect José Guimarães Monforte
UNDETERMINED
FOR
6.02
Elect Jorge Gerdau Johannpeter
UNDETERMINED
ABSTAIN
7.00
Election of the Chairman of the Board
FOR
FOR
8.00
Election of Supervisory Council
FOR
ABSTAIN
8.01
Elect César Acosta Rech
FOR
FOR
8.02
Elect Paulo José dos Reis Souza
FOR
FOR
8.03
Elect Marisete Fátima Dadald Pereira
FOR
FOR
See proposal
Nominee
independence
issues
See proposal
9.00
Election of Supervisory Council Member Representative of Minority
Shareholders
UNDETERMINED
FOR
10.00
Election of Supervisory Council Member Representative of Preferred
Shareholders
UNDETERMINED
FOR
2014 EXTRAORDINARY GENERAL MEETING
PROPOSAL
ISSUE
BOARD GLASS LEWIS
1.00
Remuneration Policy
FOR
FOR
2.00
Capitalization of Reserves w/o Share Issuance
FOR
FOR
3.00
Merger by Absorption (Termoaçu)
FOR
FOR
3.01
Ratification of Appointment of Appraiser (Termoaçu)
FOR
FOR
3.02
Valuation Report (Termoaçu)
FOR
FOR
3.03
Merger Agreement (Termoaçu)
FOR
FOR
3.04
Merger by Absorption (Termoaçu)
FOR
FOR
3.05
Authority to Carry Out Merger by Absorption
Formalities (Termoaçu)
FOR
FOR
FOR
FOR
4.00
Merger by Absorption (Termoceará)
4.01
Ratification of Appointment of Appraiser (Termoceará)
FOR
FOR
4.02
Valuation Report (Termoceará)
FOR
FOR
4.03
Merger Agreement (Termoceará)
FOR
FOR
4.04
Merger by Absorption (Termoceará)
FOR
FOR
4.05
Authority to Carry Out Merger by Absorption
Formalities
FOR
FOR
FOR
FOR
5.00
Merger by Absorption (CLEP)
5.01
Ratification of Appointment of Appraiser (CLEP)
FOR
FOR
5.02
Valuation Report (CLEP)
FOR
FOR
5.03
Merger Agreement (CLEP)
FOR
FOR
5.04
Merger by Absorption (CLEP)
FOR
FOR
5.05
Authority to Carry Out Merger by Absorption
Formalities
FOR
FOR
PETR3 April 02, 2014 Annual Meeting
2
CONCERNS
Glass, Lewis & Co., LLC
SHARE OWNERSHIP PROFILE
SHARE BREAKDOWN
SHARE CLASS
1
2
Preferred Shares
Common Shares
5,602.0 M
7,442.5 M
0
1
SHARES OUTSTANDING
VOTES PER SHARE
SOURCE CAPITAL IQ AND GLASS LEWIS. AS OF 12-FEB-2014
TOP 16 SHAREHOLDERS
HOLDER
OWNED* COUNTRY
INVESTOR TYPE
1.
Government of the Federative Republic of Brazil
28.68% Brazil
State Owned Shares
2.
BNDES Participações S/A - BNDESPAR
17.29% Brazil
VC/PE Firm
3.
Caixa De Previdencia Dos Funcionarios Do Banco Do Brasil
2.79% Brazil
4.
Aberdeen Asset Management PLC
2.28% United Kingdom Traditional Investment Manager
5.
BlackRock, Inc.
2.11% United States
Traditional Investment Manager
6.
The Vanguard Group, Inc.
1.91% United States
Traditional Investment Manager
7.
Dimensional Fund Advisors LP
1.56% United States
Traditional Investment Manager
8.
Franklin Resources Inc.
1.07% United States
Traditional Investment Manager
9.
BNY Mellon Asset Management
0.94% United States
Traditional Investment Manager
10.
T. Rowe Price Group, Inc.
0.90% United States
Traditional Investment Manager
11.
Capital Research and Management Company
0.85% United States
Traditional Investment Manager
12.
Caixa Economica Federal, Asset Management Arm
0.84% Brazil
Traditional Investment Manager
13.
Norges Bank Investment Management
0.71% Norway
Traditional Investment Manager
14.
BTG Pactual, Asset Management Arm
0.64% Brazil
Traditional Investment Manager
15.
Dodge & Cox
0.64% United States
Traditional Investment Manager
16.
OppenheimerFunds, Inc.
0.57% United States
Traditional Investment Manager
Traditional Investment Manager
*COMMON STOCK EQUIVALENTS (AGGREGATE ECONOMIC INTEREST) SOURCE: CAPITAL IQ. AS OF 12-FEB-2014
**CAPITAL IQ DEFINES STRATEGIC SHAREHOLDER AS A PUBLIC OR PRIVATE CORPORATION, INDIVIDUAL/INSIDER, COMPANY CONTROLLED FOUNDATION,
ESOP OR STATE OWNED SHARES OR ANY HEDGE FUND MANAGERS, VC/PE FIRMS OR SOVEREIGN WEALTH FUNDS WITH A STAKE GREATER THAN 5%.
SHAREHOLDER RIGHTS
MARKET THRESHOLD
COMPANY THRESHOLD1
VOTING POWER REQUIRED TO CALL A SPECIAL MEETING
5%
5%
VOTING POWER REQUIRED TO ADD AGENDA ITEM
N/A
N/A
1N/A INDICATES THAT THE COMPANY DOES NOT PROVIDE THE CORRESPONDING SHAREHOLDER RIGHT.
PETR3 April 02, 2014 Annual Meeting
3
Glass, Lewis & Co., LLC
1.00:
ACCOUNTS AND REPORTS
PROPOSAL REQUEST:
Approval of financial statements and related reports for
the past fiscal year.
PRIOR YEAR VOTE RESULT: N/A
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority of votes cast
RECOMMENDATIONS & CONCERNS:
ABSTAIN- The Company's director and supervisory council reservations
regarding the financial statements are absent from
independent auditor's report.
PROPOSAL SUMMARY
Shareholders will be presented with the Company's financial statements, management report and supervisory council's
report.
MARKET PRACTICE
In Brazil, unanimous shareholder approval of a company's financial statements exempts management and supervisory
council members from liability for their actions during the corresponding fiscal year, with exceptions in instances of error,
bad faith, fraud or misrepresentations of accounting, as explained in article 134 of Brazilian Corporations Law 6.404.
GLASS LEWIS ANALYSIS
We believe that all of the necessary financial statements and reports are present in the Company's annual report. We note
that in the opinion of PricewaterhouseCoopers, the Company's independent auditor, the financial statements have been
properly prepared in accordance with generally accepted accounting principles in Brazil and International Financial
Reporting Standards.
We note that in its unqualified opinion, PricewaterhouseCoopers places an emphasis of matter on the accounting
standards which were used to prepare the Company's individual financial statements, generally accepted accounting
principles in Brazil, which differ from IFRS in the manner investments in subsidiaries are valued.
However, we highlight that the Company has electronically disclosed through BM&FBOVESPA that director Mauro
Rodrigues da Cunha (representative of minority shareholders), voted against the approval of the aforementioned financial
statements during a board meeting, held on February 25, 2014. Mr. Cunha highlighted the following reasons for his
objection: (i) lack of timely distribution of financial statements for analysis; (ii) disagreement about the hedge accounting
policy; (iii) lack of information and the apparent inadequacy of accounting investments in refineries. Further, in a
meeting held on the same day, the supervisory council expressed concerns regarding the possible deterioration of the
Company's credit rating, which may affect volumes and costs for future borrowings to finance the investment plans of the
Company.
We believe shareholders should exercise caution in evaluating the Company's financial statements given Mr. Cunha's
objection. However, in the absence of an auditor's qualified opinion regarding these concerns, we do not believe that
shareholders have sufficient information to make a well-informed judgment regarding this matter at this time. Although it is
unusual for Glass Lewis to recommend that shareholders abstain from voting on a company's accounts in Brazil, the
uncertainty regarding the integrity of the Company's financial statements does not warrant support for this proposal at this
time.
Accordingly, we recommend that shareholders ABSTAIN from voting on this proposal.
PETR3 April 02, 2014 Annual Meeting
4
Glass, Lewis & Co., LLC
2.00:
CAPITAL EXPENDITURE BUDGET
PROPOSAL REQUEST:
Approval of capital expenditure budget for the current
fiscal year.
PRIOR YEAR VOTE RESULT: N/A
RECOMMENDATIONS & CONCERNS:
FOR- NO CONCERNS
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority of votes cast
PROPOSAL SUMMARY
If approved, the capital expenditure budget will be set at R$69,726,000,000 and will be allocated as follows:
FINANCINGS/INFLOWS
AMOUNT (R$ MILLIONS)
EXPENDITURES/OUTFLOWS
AMOUNT(R$ MILLIONS)
Direct Investments
69,545.0
Exploration/Production
43,697.3
Third Party Funds
181.0
Downstream
18,428.6
-
-
Energy/Gas
6,366.0
-
-
Corporate Segment
1,234.2
GLASS LEWIS ANALYSIS
Glass Lewis will generally support a company's decisions regarding capital expenditures, absent a showing of egregious
conduct that might threaten shareholder value. It is our opinion that management and the board are in the best position to
determine what operational decisions are best in the context of a company's business. We believe that board members
can be held accountable on this issue when they face reelection.
Accordingly, we recommend that shareholders vote FOR this proposal.
PETR3 April 02, 2014 Annual Meeting
5
Glass, Lewis & Co., LLC
3.00:
ALLOCATION OF PROFITS/DIVIDENDS
PROPOSAL REQUEST:
Approval of the allocation of profits and distribution of
dividends for the most recently completed fiscal year.
PRIOR YEAR VOTE RESULT: N/A
RECOMMENDATIONS & CONCERNS:
FOR- NO CONCERNS
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority of votes cast
PROPOSAL SUMMARY
If approved, the Company will distribute its profits as follows:
FUNDS AND ALLOCATIONS
AMOUNT (R$ MILLIONS)
Net Profit
23,407.6
Legal Reserve
1,170.4
Retained Earnings
11,744.4
Interest on Capital and Dividends
9,301.0
PERCENTAGE
Payout Ratio
42%
GLASS LEWIS ANALYSIS
With limited exceptions, Glass Lewis will generally support the dividend policy proposed by a company. In Brazil,
companies are required by law to distribute a mandatory dividend equal to at least 25% of their profits for the previous
fiscal year, subsequent to the allocation of 5% to the legal reserve. Moreover, in addition to, in lieu of, or as part of the
mandatory dividend, shareholders in Brazil may be entitled to the payment of interest from their investments.
In our view, paying interest on capital allows a company to benefit from accrued interest collected on its own capital, and
treat such payments as fiscal expenses for income tax and social contribution purposes. Generally, the interest is limited
to the daily pro rata variation of a nominal long-term interest rate (“TJLP”) determined by the federal government that
includes an inflation factor and cannot exceed the greater of 50% of net income for the period in which the payment is
made, or 50% of the sum of retained earnings and profit reserves.
Given that the Company complies with the aforementioned Brazilian requirements, we do not see any cause for concern
in terms of the board's process in making this determination.
Accordingly, we recommend that shareholders vote FOR this proposal.
PETR3 April 02, 2014 Annual Meeting
6
Glass, Lewis & Co., LLC
4.00:
ELECTION OF DIRECTORS
PROPOSAL REQUEST:
Election of ten directors
RECOMMENDATIONS & CONCERNS:
PRIOR YEAR VOTE RESULT: N/A
ELECTION METHOD:
ABSTAIN- Gerdau Johannpeter J.
FOR-
Aparecida Belchior M.
das Graças Silva Foster M.
de Albuquerque F.
Galvão Coutinho L.
Guimarães Monforte J.
Mantega G.
Pereira Zimmermann M.
Quintella S.
NOT UP-
None
Majority
PROPOSAL SUMMARY
The candidates (proposed by the Brazilian federal government) up for election as directors are eligible to serve for
a 1-year term.
BOARD OF DIRECTORS
NAME
UP AGE
GLASS LEWIS
CLASSIFICATION
COMPANY
CLASSIFICATION
OWNERSHIP**
COMMITTEES
TERM TERM
START END
AUDIT REM NOM
Maria das Graças Silva Foster*
YEARS
ON
BOARD
60
Insider 1
Not Independent
N/D
2012
2014
2
Miriam Aparecida Belchior
56
Affiliated 2
Not Independent
61%
2011
2014
3
Luciano Galvão Coutinho
67
Affiliated 3
Not Independent
61%
2008
2014
6
Guido Mantega
64
Affiliated 4
Not Independent
61%
2006
2014
8
Márcio Pereira Zimmermann
57
Affiliated 5
2010
2014
4
Francisco Roberto de Albuquerque
76
Mauro Gentile Rodrigues da Cunha
42
Jorge Gerdau Johannpeter
José Guimarães Monforte
Sérgio Franklin Quintella
78
·CEO
·Chairman
C = Chair, * = Public Company Executive,
Not Independent
61%
Independent
6
Independent
N/D
2007
2014
7
Independent
7
Independent
N/D
2013
2014
1
76
Independent
8
Independent
N/D
2001
2014
13
66
Independent
9
Independent
N/D
-
-
-
Independent
N/A
2009
2014
5
Independent
C
C
C
= Withhold or Against Recommendation
1. CEO.
2. Minister of planning, budget and management for the Brazilian Government, which along with the Brazilian National Development Bank
("BNDES") and its associated holding company BNDES Participações S.A. ("BNDESPAR") beneficially owns 60.5% of the Company's voting
share capital.
3. President of BNDES.
4. Chairman. Minister of finance for the Brazilian government.
5. Executive secretary of the ministry of mining and energy for the Brazilian Government.
6. Former commander of the Brazilian Army (until 2007).
7. Appointed by minority shareholders.
8. Appointed by preferred shareholders.
9. Appointed by preferred shareholders.
**Direct, indirect or representational ownership of voting rights. Below 5% displays as Yes.
NAME
Maria das Graças Silva Foster
PETR3 April 02, 2014 Annual Meeting
ADDITIONAL PUBLIC COMPANY DIRECTORSHIPS
None
7
Glass, Lewis & Co., LLC
Miriam Aparecida Belchior
None
Luciano Galvão Coutinho
(1) Vale SA
Guido Mantega
None
Márcio Pereira Zimmermann
(1) Centrais Eletricas Brasileiras SA - Eletrobras
Francisco Roberto de Albuquerque
None
Mauro Gentile Rodrigues da Cunha
None
Jorge Gerdau Johannpeter
(2) Gerdau S.A.; Metalurgica Gerdau SA
José Guimarães Monforte
None
Sérgio Franklin Quintella
(1) Oi S.A.
MARKET PRACTICE
INDEPENDENCE AND COMPOSITION
PETR3*
REQUIREMENT
BEST PRACTICE
Independent Chairman
No
No
No1
Board Independence
50%
N/A
51%2
Audit Committee Independence
100%; Independent Chair
N/A
100%2
Remuneration Committee Independence
67%
N/A
N/A
Nominating Committee Independence
67%
N/A
N/A
Percentage of women on board
20%
N/A
N/A
Directors' biographies
Company's meeting circular, available on BM&FBOVESPA or the Company's website.
* Based on Glass Lewis Classification
1. Brazilian Code of Best Corporate Governance Practices Recommends
Separating Roles of Chairman/CEO
2. Brazilian Code of Best Corporate Governance Practices
Brazilian companies are generally governed by a three-tier structure that includes a management board, a board of
directors and an optional supervisory council. The board of directors provides oversight of the management board while
the supervisory council is responsible for overseeing the company’s board of directors to ensure that it complies with the
legal and statutory obligations ascribed to it.
Companies listed on the BM&FBOVESPA, can adhere to one of three corporate governance segments provided they
comply with their corresponding regulations. The regulations for a conventional listing and Nível 1 (Level 1) listing
segment impose the least stringent corporate governance practices, followed by Nível 2, or Level 2, and finally the Novo
Mercado, which imposes the most stringent ones. The Company is listed on the Conventional segment.
Controlled companies are commonplace in Brazil, with corporate control often exercised by a family, the state or a group
of shareholders' acting in concert. In most cases, corporate control is dependent upon Brazil's dual-class share system
whereby up to 50% of share capital may comprise non-voting preferred shares. However, there are presently a number of
new cases wherein companies maintain a diffuse shareholder base and no controlling shareholder. This is due in part to
the single-class share requirement of the Novo Mercado. The following table outlines the differences in share capital
structure between the three listing segments and the conventional listing:
Minimum
Free Float
Share Classes
Tag Along
Rights
NOVO MERCADO
NÍVEL 2 (LEVEL 2)
NÍVEL 1 (LEVEL 1)
CONVENTIONAL
25%
25%
25%
None
Only Common
Shares
Both Preferred Shares w/ Add'l
Rights and Common Shares
Both Preferred Non-Voting Shares
and and Common Shares
Both Preferred Non-Voting Shares
and Common Shares
100% Common Shares
100% - Common and Preferred
Shares
None
None
VOTING PROCEDURES
While controlling shareholders can of course elect their entire slate of nominees, minority shareholders may nominate one
candidate in a separate election if the minority shareholders represent either 15% of common shares or 10% of
non-voting preferred shares. If neither threshold is met, minority shareholders may group their shares together to
nominate one candidate provided that they have been shareholders for the three months prior to the meeting.
PETR3 April 02, 2014 Annual Meeting
8
Glass, Lewis & Co., LLC
In Brazil directors are elected by a majority vote. However, Brazilian Companies Law allows for the adoption of cumulative
voting if minority shareholders representing at least 5% of common shares (unless otherwise stated in the articles of
association) make such a request 48 hours in advance of the meeting. In this case, the controlling shareholder is
permitted to elect one more director than the number nominated by minority shareholders.
GLASS LEWIS ANALYSIS
We believe shareholders should be mindful of the following issues:
MINORITY SHAREHOLDER ACTIVISM
On February 24, 2014 the Company announced on its website that a group of shareholders (Aberdeen do Brasil Gestão
de Recuros, APG Asset Management, British Colombia Investment Management Corporation, AMUNDI Asset
Management, MN Services N.V., USS Investments Management, Hermes Equity Ownership Services Ltd., F&C
Management Ltd., State of Board Administration of Florida) representing 0.5% of the Company's issued share
capital, have nominated two independent directors (nominee Rodrigues da Cunha, representative of minority
shareholders and nominee Monforte representative of common shareholders). The group claims that the Company's
policy regarding the pricing of gas and diesel has been harmful to shareholders and requires more transparency regarding
the Company's internal practices in order to guarantee the capacity of investments and Company expansion ("Foreign
shareholders unite to ask 'improvement' of the federal administration." Estadão. March 19, 2014).
Further, on February 28, 2014 it was also announced that BRAM - Bradesco Asset Management S.A., representing
0.63% of the Company's issued share capital, has also nominated two independent directors (also nominee Rodrigues da
Cunha and nominee Gerdau , representative of preferred shareholders). The public release of this information marks the
Company's second anniversary of disclosing candidates nominated by minority and preferred shareholders and is
discussed further in Proposals 5 and 6.
SIGNIFICANT BENEFICIAL OWNERSHIP
We note that the Brazilian federal government, together with BNDESPar, BNDES, FPS and FIFE, beneficially owns 60.5%
of the Company's voting share capital. We suspect that most, if not all, shareholders both understand and accept the
nature and the extent of the majority shareholder's control over the Company.
ATTENDANCE NOT DISCLOSED
To the best of our knowledge, the Company has not disclosed the director attendance records for the board and
committee meetings held during the past fiscal year. We believe attendance at board and committee meetings is a vital
element of a director's performance and that companies have a responsibility to disclose this information to its
shareholders. In cases where a director fails to attend at least 75% of the meetings held by the board and the committees
on which he or she served during a given fiscal year, we view it as a failure by the director to fulfill his or her duty to
shareholders. Accordingly, we believe the board should provide greater transparency with regard to the attendance record
of the Company's directors at board and committee meetings going forward.
BRIBERY INVESTIGATIONS WITH SBM OFFSHORE NV
Nominee Graças Silva Foster, the Company's CEO, is currently leading an internal investigation regarding allegations that
the Company accepted USD$139.2 million in bribes from the Netherlands-based ship leaser, SBM Offshore NV. SBM
Offshore NV claims a former employee seeking to extort money from the company is responsible. The employee
reportedly circulated parts of documents from the early stages of an internal audit on "potentially improper payments"
made in several nations between 2007 and 2011 ("Brazil's Petrobras Bribery Investigation Continues." Wall Street
Journal. March 17, 2014). While nominee Graças Silva Foster states that the Company hopes to conclude its
investigation soon, as of March 19, 2014, we have not found any additional information surrounding this issue. We
suspect news regarding the outcome of this internal investigation will be delayed until after the meeting. We will monitor
this issue going forward.
RECOMMENDATION
Having reviewed the board's nominees, we do not believe there are substantial issues for shareholder concern.
However, we note that holders of common shares may only cast votes on this proposal or Proposal 5, not both. While we
PETR3 April 02, 2014 Annual Meeting
9
Glass, Lewis & Co., LLC
would ordinarily support this proposal, we recommend shareholders abstain from voting on the slate of candidates
proposed by the Brazilian federal government, given that common shareholders will have the rare opportunity to vote for
candidates representative of minority and preferred shareholder interests. Further, holders of preferred shares may not
cast votes on this agenda item, but rather may vote on Proposal 6.
Accordingly, we recommend that shareholders ABSTAIN from voting on this proposal.
PETR3 April 02, 2014 Annual Meeting
10
Glass, Lewis & Co., LLC
5.00:
ELECTION OF BOARD MEMBER REPRESENTATIVE OF MINORITY
SHAREHOLDERS
PROPOSAL REQUEST:
Election of one minority shareholder representatives to
serve on the board of directors.
PRIOR YEAR VOTE RESULT: N/A
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority of votes cast by minority common shareholders
RECOMMENDATIONS & CONCERNS:
FOR- NO CONCERNS
PROPOSAL SUMMARY
If approved, one candidate representative of minority shareholders will be elected to serve on the board of directors for a
1-year term.
MARKET PRACTICE
In accordance with Brazilian corporate law, minority common shareholders representing at least 15% of a
company’s common shares and preferred shareholders representing at least 10% of a company’s non-voting preferred
shares may each nominate one candidate to the board of directors in a separate election. If neither threshold is met,
minority/preferred shareholders may group their shares together to nominate one candidate. Further, CVM Instruction 481
expressly requires the inclusion in a company's proxy solicitation materials of any candidates to the board of directors
and supervisory council nominated by shareholders owning at least 0.5% of the Company's total share capital.
Moreover, shareholders individually or jointly representing between at least 5% and 10% of a company’s voting
share capital may request the adoption of cumulative voting, provided the request is received at least 48 hours prior to
the shareholder meeting. However, since requests for a separate election are generally made at the meeting, and
requests for cumulative voting are made after the instructions from those voting by proxy have been sent, shareholders
voting by proxy are generally unable to participate in the election of minority/preferred shareholder-nominated candidates.
VOTING PROCEDURES
Shareholders should note that the election of the candidates proposed by minority shareholders will take place after
the election of the board's candidates. That is, in addition to voting on this proposal, shareholders who wish to vote in
favor of the currently known candidate should submit a separate power of attorney to an authorized representative who
will be present at the meeting.
Further, common shareholders should note that a vote in favor or against the board's proposed slate discussed in
Proposal 4.0 will automatically disqualify them from voting on this proposal. As such, common minority shareholders may
only vote on Proposal 4.0 or this proposal, but not both.
GLASS LEWIS ANALYSIS
As of March 19, 2014, Mauro Rodrigues da Cunha is the only announced nominee for the seat reserved for directors
representative of minority shareholders. However, we note that additional candidates for the minority shareholder
representative position on the board may be presented up to and during the meeting.
Glass Lewis generally recommends that shareholders abstain from voting on these elections given that the names of
candidates are rarely disclosed by an issuer and that additional candidates may be nominated. Therefore, a definitive
recommendation to vote for this proposal may allow for a vote in favor of unknown candidates proposed by minority
shareholders who meet the minimum ownership threshold at the general meeting, or a default candidate proposed by a
company's management, who therefore may not independently represent the best interest of minority shareholders.
In this case, however, we believe the proposed candidate has relevant skills and experience which would bring a
PETR3 April 02, 2014 Annual Meeting
11
Glass, Lewis & Co., LLC
necessary and independent perspective to the board. Moreover, as this proposal represents one of the few times a
Brazilian issuer has opened the door for participation among its minority shareholders, particularly foreign shareholders
who are generally excluded from participating in these elections unless present at the meetings, we believe that
shareholders should actively participate, rather than abstain, from voting on this significant proposal.
Accordingly, we recommend that shareholders vote FOR this proposal.
PETR3 April 02, 2014 Annual Meeting
12
Glass, Lewis & Co., LLC
6.00:
ELECTION OF BOARD MEMBER REPRESENTATIVE OF
PREFERRED SHAREHOLDERS
PROPOSAL REQUEST:
Election of one preferred shareholder representative to
serve on the board of directors.
PRIOR YEAR VOTE RESULT: N/A
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority of votes cast by preferred shareholders
RECOMMENDATIONS & CONCERNS:
SPLIT- NO CONCERNS
PROPOSAL SUMMARY
If approved, one candidate representative of preferred shareholders will be elected to serve on the board of directors for a
1-year term.
MARKET PRACTICE
In accordance with Brazilian corporate law, minority common shareholders representing at least 15% of a
company’s common shares and preferred shareholders representing at least 10% of a company’s non-voting preferred
shares may each nominate one candidate to the board of directors in a separate election. If neither threshold is met,
preferred shareholders may group their shares together to nominate one candidate. Further, CVM Instruction 481
expressly requires the inclusion in a company's proxy solicitation materials of any candidates to the board of directors
and supervisory council nominated by shareholders owning at least 0.5% of the Company's total share capital.
Moreover, shareholders individually or jointly representing between at least 5% and 10% of a company’s voting
share capital may request the adoption of cumulative voting, provided the request is received at least 48 hours prior to
the shareholder meeting. However, since requests for a separate election are generally made at the meeting, and
requests for cumulative voting are made after the instructions from those voting by proxy have been sent, shareholders
voting by proxy are generally unable to participate in the election of preferred shareholder-nominated candidates.
VOTING PROCEDURES
Shareholders should note that the election of the candidates proposed by preferred shareholders may only result in the
election of one director and will take place after the election of the board's candidates. That is, in addition to voting on this
proposal, shareholders who wish to vote in favor of one the currently known candidates should submit a separate power
of attorney to an authorized representative who will be present at the meeting.
Further, preferred shareholders should note they may not cast a vote in favor or against the board's proposed slate
discussed in Proposal 4.0. Rather, this proposal is preferred shareholders' only opportunity to elect nominees for the
board of directors.
GLASS LEWIS ANALYSIS
Glass Lewis generally recommends that shareholders abstain from voting on these elections given that the names of
candidates are rarely disclosed by an issuer and that additional candidates may be nominated. Therefore, a definitive
recommendation to vote for this proposal may allow for a vote in favor of unknown candidates proposed by preferred
shareholders who meet the minimum ownership threshold at the general meeting, or a default candidate proposed by a
company's management, who therefore may not independently represent the best interest of preferred shareholders.
As of March 19, 2014, José Guimarãres Monforte and Jorge Gerdau Johanpeter are the announced nominees for the
seat reserved for directors representative of preferred shareholders. However, we note that additional candidates for the
preferred shareholder representative position on the board may be presented up to and during the meeting.
We highlight that Mr. Gerdau is president of the Chamber of Management Policies, Performance and Competitiveness
PETR3 April 02, 2014 Annual Meeting
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Glass, Lewis & Co., LLC
(CGDC), an organization linked to the Dilma Rousseff presidency of Brazil. We do not believe a vote in favor of this
candidate best represents the interests of minority preferred shareholders, as the Brazilian federal government
beneficially owns 33.11% of the Company's preferred share capital. As such, we recommend shareholders vote for the
actual independent nominee, Monforte, who we believe will better represent the interests of minority preferred
shareholders.
RECOMMENDATIONS
Accordingly, we recommend that shareholders vote:
FOR: Monforte
ABSTAIN: All other nominees.
The Company discloses biographical details for its newly proposed nominees; however, the biographies are not available
in English.
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Glass, Lewis & Co., LLC
7.00:
ELECTION OF THE CHAIRMAN OF THE BOARD
PROPOSAL REQUEST:
Election of the board's chairman.
PRIOR YEAR VOTE RESULT: N/A
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority of votes cast
RECOMMENDATIONS & CONCERNS:
FOR- NO CONCERNS
PROPOSAL SUMMARY
If approved, Guido Mantega will be appointed as chairman of the board.
GLASS LEWIS ANALYSIS
Having reviewed the background of the proposed candidate for chairman and given our favorable recommendations for
the proposed candidate discussed in Proposal 4, we do not believe there are substantial issues for shareholder concern.
Accordingly, we recommend that shareholders vote FOR this proposal.
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Glass, Lewis & Co., LLC
8.00:
ELECTION OF SUPERVISORY COUNCIL
PROPOSAL REQUEST:
Election of supervisory council members.
RECOMMENDATIONS & CONCERNS:
PRIOR YEAR VOTE RESULT: N/A
ABSTAIN- Shareholders may only vote on Proposals 6.04 and 6.05
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority of votes cast
PROPOSAL SUMMARY
Three candidates (proposed by the Brazilian federal government) are up for election to serve on the supervisory council
for a 1-year term.
SUPERVISORY COUNCIL
NAME
UP
AGE
GLASS LEWIS
CLASSIFICATION
COMPANY
CLASSIFICATION
OWNERSHIP**
TERM
START
TERM
END
YEARS
ON
BOARD
César Acosta Rech
46
Independent
1
Independent
N/D
2008
2014
6
Walter Luis Bernardes Albertoni
45
Independent
2
Independent
N/D
-
-
-
Marisete Fátima Dadald Pereira
58
Independent
3
Independent
N/D
2011
2014
3
Paulo José dos Reis Souza
51
Independent
4
Independent
N/D
2012
2014
2
Reginaldo Ferreira Alexandre
54
Independent
5
Independent
N/D
-
-
-
C = Chair, * = Public Company Executive,
1.
2.
3.
4.
5.
= Withhold or Against Recommendation
Appointed by the controlling shareholder.
Appointed by preferred shareholders.
Appointed by the controlling shareholder.
Appointed by the controlling shareholder.
Appointed by minority shareholders.
**Direct, indirect or representational ownership of voting rights. Below 5% displays as Yes.
MARKET PRACTICE
Brazilian companies generally have a supervisory council that is independent of management and the external auditor. In
the absence of a permanent supervisory council, shareholders representing 10% of a company's common shares or 5%
of its non-voting preferred shares may request that one be established. According to Article 162 of the Brazilian
Companies Law, the supervisory council must be comprised of three to five members, none of whom can be (i) an
executive, director or employee of the company, of a subsidiary or of any affiliate thereof; or (ii) a spouse or relative of any
officer, director or employee of the company, of a subsidiary or of any affiliate thereof, up to the third degree. We believe
that this provision ensures that the current council has a certain minimal level of independence.
In most cases, the controlling shareholder typically elects a majority of the supervisory council's members. Shareholders
with restricted or no voting rights (i.e. preferred shares) and minority shareholders who jointly represent at least 10% of
the voting share capital (i.e. common shares) are each entitled to elect one member and his/her alternate to the
supervisory council.
GLASS LEWIS ANALYSIS
We find that the board's nominees comply with the aforementioned independence standards and do not believe there are
substantial issues for shareholder concern.
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Glass, Lewis & Co., LLC
However, we note that minority common shareholders and preferred shareholders may only vote on Proposals 9 and 10,
respectively. A vote in favor of the slate proposed by the Brazilian federal government will not be counted and render
minority common shareholders and preferred shareholders ineligible to vote on Proposals 9 and 10 .
RECOMMENDATION
Accordingly, we recommend that shareholders ABSTAIN from voting on this proposal.
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Glass, Lewis & Co., LLC
9.00:
ELECTION OF SUPERVISORY COUNCIL MEMBER
REPRESENTATIVE OF MINORITY SHAREHOLDERS
PROPOSAL REQUEST:
Election of one minority shareholder representative to
serve on the supervisory council.
PRIOR YEAR VOTE RESULT: N/A
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority of votes cast
RECOMMENDATIONS & CONCERNS:
FOR- NO CONCERNS
PROPOSAL SUMMARY
If approved, one candidate representative of minority shareholders will be elected to serve on the supervisory council for a
1-year term.
MARKET PRACTICE
Brazilian companies generally have a supervisory council that is independent of management and the external auditor.
In the absence of a permanent supervisory council, shareholders representing 10% of a company's common shares or
5% of its non-voting preferred shares may request that one be established. According to Article 162 of the
Brazilian Companies Law, the supervisory council must be comprised of three to five members, none of whom can be (i)
an executive, director or employee of the company, of a subsidiary or of any affiliate thereof; or (ii) a spouse or relative of
any officer, director or employee of the company, of a subsidiary or of any affiliate thereof, up to the third degree. We
believe that this provision ensures that the current council has a certain minimal level of independence.
In most cases, the controlling shareholder typically elects a majority of its members. However, in accordance
with Brazilian corporate law, shareholders with restricted or no voting rights (i.e. preferred shares) and minority
shareholders who jointly represent at least 10% of the voting share capital (i.e. common shares) are each entitled to elect
one member and his/her alternate to the supervisory council. Further, CVM Instruction 481 expressly requires the
inclusion in a company's proxy solicitation materials of any candidates to the board of directors and supervisory council
nominated by shareholders owning at least 0.5% of the Company's total share capital.
VOTING PROCEDURES
Shareholders should note that the election of the proposed minority shareholders will take place after the election of the
board's supervisory council candidates. In addition to voting on this proposal, shareholders who wish to vote in favor of
the currently known candidate should submit a separate power of attorney to an authorized representative who will be
present at the meeting.
Further, common shareholders should note that a vote in favor or against the board's proposed slate for the supervisory
council discussed in Proposal 8 will not be counted. As such, we recommend holders of common shareholders only vote
on this proposal.
GLASS LEWIS ANALYSIS
As of March 19, 2014, Reginaldo Ferreira Alexandre and alternate Mario Cordeiro Filho are the only known candidates for
the supervisory council. Moreover, we note that additional candidates for the minority shareholder representative
positions on the supervisory council may be presented up to and during the meeting.
Glass Lewis generally recommends that shareholders abstain from voting on these elections given that the names of
candidates are rarely disclosed by an issuer and that additional candidates may be nominated. Therefore, a definitive
recommendation to vote for this proposal may allow for a vote in favor of unknown candidates proposed by minority
shareholders who meet the minimum ownership threshold at the general meeting, or a default candidate proposed by a
company's management, who therefore may not independently represent the best interest of minority shareholders.
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Glass, Lewis & Co., LLC
In this case, however, we believe the proposed candidates have relevant skills and experience which would bring a
necessary and independent perspective to the supervisory council. Moreover, as this proposal represents one of the few
times a Brazilian issuer has opened the door for participation among its minority and preferred shareholders, particularly
foreign shareholders who are generally excluded from participating in these elections unless present at the meetings, we
believe that shareholders should actively participate, rather than abstain, from voting on this significant proposal.
RECOMMENDATION
Accordingly, we recommend that shareholders vote FOR this proposal.
The Company discloses biographical details for its newly proposed nominees; however, the biographies are not available
in English.
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Glass, Lewis & Co., LLC
10.00:
ELECTION OF SUPERVISORY COUNCIL MEMBER
REPRESENTATIVE OF PREFERRED SHAREHOLDERS
PROPOSAL REQUEST:
Election of one preferred shareholder representative to
serve on the board of directors
PRIOR YEAR VOTE RESULT: N/A
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority of votes cast by preferred shareholders
RECOMMENDATIONS & CONCERNS:
FOR- NO CONCERNS
PROPOSAL SUMMARY
If approved, one candidate and one alternate member representative of preferred shareholders will be elected to serve on
the supervisory council for a 1-year term.
MARKET PRACTICE
Brazilian companies generally have a supervisory council that is independent of management and the external auditor.
In the absence of a permanent supervisory council, shareholders representing 10% of a company's common shares or
5% of its non-voting preferred shares may request that one be established. According to Article 162 of the
Brazilian Companies Law, the supervisory council must be comprised of three to five members, none of whom can be (i)
an executive, director or employee of the company, of a subsidiary or of any affiliate thereof; or (ii) a spouse or relative of
any officer, director or employee of the company, of a subsidiary or of any affiliate thereof, up to the third degree. We
believe that this provision ensures that the current council has a certain minimal level of independence.
In most cases, the controlling shareholder typically elects a majority of its members. However, in accordance
with Brazilian corporate law, shareholders with restricted or no voting rights (i.e. preferred shares) and preferred
shareholders who jointly represent at least 10% of the voting share capital (i.e. common shares) are each entitled to elect
one member and his/her alternate to the supervisory council. Further, CVM Instruction 481 expressly requires the
inclusion in a company's proxy solicitation materials of any candidates to the board of directors and supervisory council
nominated by shareholders owning at least 0.5% of the Company's total share capital.
VOTING PROCEDURES
Shareholders should note that the election of the proposed preferred shareholders will take place after the election of the
board's supervisory council candidates. In addition to voting on this proposal, shareholders who wish to vote in favor of
the currently known candidates should submit a separate power of attorney to an authorized representative who will be
present at the meeting.
Further, preferred shareholders should note that a vote in favor or against the board's proposed slate for the supervisory
council discussed in Proposal 8 will not be counted. As such, we recommend holders of preferred shareholders only vote
on this proposal.
GLASS LEWIS ANALYSIS
As of March 19, 2014, Walter Luis Bernardes Albertoni and alternate Robert Lamb are the only known candidates for the
supervisory council. Moreover, we note that additional candidates for the preferred shareholder representative positions
on the supervisory council may be presented up to and during the meeting.
Glass Lewis generally recommends that shareholders abstain from voting on these elections given that the names of
candidates are rarely disclosed by an issuer and that additional candidates may be nominated. Therefore, a definitive
recommendation to vote for this proposal may allow for a vote in favor of unknown candidates proposed by preferred
shareholders who meet the minimum ownership threshold at the general meeting, or a default candidate proposed by a
company's management, who therefore may not independently represent the best interest of preferred shareholders.
PETR3 April 02, 2014 Annual Meeting
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Glass, Lewis & Co., LLC
In this case, however, we believe the proposed candidates have relevant skills and experience which would bring a
necessary and independent perspective to the supervisory council. Moreover, as this proposal represents one of the few
times a Brazilian issuer has opened the door for participation among its preferred and preferred shareholders, particularly
foreign shareholders who are generally excluded from participating in these elections unless present at the meetings, we
believe that shareholders should actively participate, rather than abstain, from voting on this significant proposal.
RECOMMENDATION
Accordingly, we recommend that shareholders vote FOR this proposal.
The Company discloses biographical details for its newly proposed nominees; however, the biographies are not available
in English.
PETR3 April 02, 2014 Annual Meeting
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Glass, Lewis & Co., LLC
1.00:
REMUNERATION POLICY
PROPOSAL REQUEST:
Administrator's global remuneration;
Remuneration policy.
RECOMMENDATION:
FOR
PRIOR YEAR VOTE RESULT:
N/A
STRUCTURE:
Fair
BINDING/ADVISORY:
Binding
DISCLOSURE:
Good
REQUIRED TO APPROVE:
Majority of votes cast
REMUNERATION PROGRAM FEATURES 1
POSITIVE
NEGATIVE
Non-executive directors are not eligible for STI
No performance-vesting LTI awards
No mandatory deferral of annual bonuses
No clawback provision for STIs
Insufficient disclosure of STI metrics
1 Both positive and negative remuneration features are ranked according to Glass Lewis' view of their importance or severity
REMUNERATION TABLE
FISCAL YEAR 2013
BOARD OF DIRECTORS
MANAGEMENT BOARD
Highest Individual Remuneration
R$132,515
R$1,853,981
Lowest Individual Remuneration
R$114,715
R$1,289,667
Average Individual Remuneration
R$118,721
R$1,495,275
*Individual remuneration as disclosed by the Company in Sections 13.11 of the Formulário de Referência.
MANAGEMENT BOARD*
FISCAL YEAR
NO. MEMBERS
BASE SALARY
ACTUAL BONUS PAYMENTS**
TARGET BONUS PAYMENTS**
SHARE-BASED PAYMENTS
2014
7.67
2013
7
R$10,291,726
-
R$2,660,161
-
R$8,251,109
R$1,237,284
R$2,812,852
-
*Remuneration as disclosed by the Company in Section 13.2 of the Formulário de Referencia.
** The figures for onus payments include amounts paid under the Company's profit-sharing plan.
OWNERSHIP PROFILE
Controlling Shareholder
CEO
The Company is controlled by a state-affiliated entity.
The CEO is affiliated with the State.
EXECUTIVE REMUNERATION STRUCTURE - SYNOPSIS
FIXED PAY
PETR3 April 02, 2014 Annual Meeting
The average base salaries of the members of the management board will not increase
significantly for the upcoming fiscal year.
22
Glass, Lewis & Co., LLC
Annual Bonus Plan
Annual bonuses were awarded in the form of cash.
The Company says that the criteria it may consider in determining bonuses includes
negotiations with regulators, relevant legislation and market practices.
SHORT-TERM
INCENTIVES
Profit-Sharing Plan
LONG-TERM
INCENTIVES
Awards are based on the following criteria:battainment of performance conditions
negotiated with the Department of Coordination and Governance of Public Companies
(DEST) such as national oil processing, oil and natural gas production and unit cost of
extraction without government participation.
Beneficiaries are entitled to an undisclosed percentage of the Company's net income
under a profit-sharing plan.
The Company did not have a long-term incentive plan in the past fiscal year.
GLASS LEWIS ANALYSIS
This proposal seeks shareholder approval to set the aggregate remuneration for the Company's non-executive directors
(NEDs), executives, and supervisory council members (the administrators) for the current fiscal year at R$19,355,282.
According to Brazilian Companies Law, shareholders must approve the aggregate or individual remuneration of the
administrators at the annual general meeting.
Further, according to CVM Instruction 481, when the general meeting is called to resolve on this issue, the Company must
provide the information required under Section 13 of the Reference Form, or annual report, which details its remuneration
policy. Glass Lewis takes Section 13 into account when analyzing these proposals. This resolution is legally binding.
STRUCTURE : GOOD
We note the following concerns with the structure of the Company's remuneration programs:
No Long-Term Incentive Plan
While the Company has failed to implement a long-term incentive plan, the Company's CEO is also affiliated with its
controlling shareholder. As such, there is a natural alignment between the interests of management and shareholders.
Consequently, we believe the lack of long-term incentives for the CEO to be acceptable and in minority shareholders' best
interest.
DISCLOSURE : FAIR
We note the following concerns with the disclosure of the Company's remuneration programs:
STI Performance Metrics Not Disclosed
The Company has failed to disclose its process for determining awards granted under its annual bonus plan.
Without such disclosure, shareholders are unable to evaluate the extent to which the Company strives to align
executive remuneration with short-term performance. We believe the Company should provide substantially more detail
regarding the determination of awards under the annual bonus plan.
SUMMARY
While we do not believe these concerns are sufficiently grave to warrant voting against this proposal at this time, we urge
the Company to take corrective measures to address each of these issues in due course. In the aggregate,
however, considering that the chief executive officer is a controlling shareholder, we do not consider any of the
Company's remuneration practices to be particularly contentious and find the interests of executives and shareholders to
be appropriately aligned.
PETR3 April 02, 2014 Annual Meeting
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Glass, Lewis & Co., LLC
Accordingly, we recommend that shareholders vote FOR this proposal.
PETR3 April 02, 2014 Annual Meeting
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Glass, Lewis & Co., LLC
2.00:
CAPITALIZATION OF RESERVES W/O SHARE ISSUANCE
PROPOSAL REQUEST:
Approval to increase share capital via capitalization of
reserves without the issuance of new shares.
PRIOR YEAR VOTE RESULT: N/A
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority of votes cast
RECOMMENDATIONS & CONCERNS:
FOR- NO CONCERNS
PROPOSAL SUMMARY
If approved, the Company will increase its share capital by R$21,055,260.02, from R$205,410,905,230.50 to
R$205,431,960,490.52, via the capitalization of the Company's tax incentive revenue reserve.
Article 4 of the Company's articles of association will be amended to reflect the Company's new share capital following the
capitalization.
GLASS LEWIS ANALYSIS
The Brazilian Companies Law establishes that the balance of all profit reserves, excluding reserves for contingencies and
for unrealized profits, may not exceed its paid-in capital. If this occurs, the company is required to either capitalize the
excess reserves or distribute them as dividends.
In this case, the Company has decided to capitalize its excess reserves so as to comply with the requirements set forth by
Brazilian law. We believe that the proposed transaction will benefit shareholders by allowing the Company to increase
paid-in capital through a series of alternatives, above and beyond the issuance of shares. Moreover, when companies
capitalize reserves or retained earnings, there is no risk of dilution. This procedure merely transfers wealth to
shareholders and does not impact share value.
Accordingly, we recommend that shareholders vote FOR this proposal.
PETR3 April 02, 2014 Annual Meeting
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Glass, Lewis & Co., LLC
3.00:
MERGER BY ABSORPTION (TERMOAÇU)
PROPOSAL REQUEST:
Approval of merger by absorption.
PRIOR YEAR VOTE RESULT: N/A
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority of votes cast
RECOMMENDATIONS & CONCERNS:
FOR- NO CONCERNS
PROPOSAL SUMMARY
If approved, Termoaçu S.A. ("Termoaçu") will be absorbed into the Company. Subsequent to the merger, any and all of
the assets and liabilities held by Termoaçu will be absorbed by the Company and Termoaçu will cease to exist.
Further, shareholders must ratify the appointment of Apsis Consultoria e Avaliações Ltda., who prepared the valuation of
Termoaçu at book value, as well as approve the valuation itself and the merger agreement. The board will be granted the
power to complete any formalities, such as required filings and registrations, needed to give full force and effect to the
merger.
In the merger agreement filed with the BM&FBOVESPA, the Company states that the proposed merger is intended to
reduce administrative and operating costs as well as to simplify the Company's corporate structure.
GLASS LEWIS ANALYSIS
We believe that shareholders should support the proposed transaction. Given that the Company currently controls
Termoaçu, the proposed transaction will not have any adverse impact on shareholders. Moreover, as a subsidiary of the
Company, the financial results of Termoaçu are already consolidated with those of the group.
Accordingly, we recommend that shareholders vote FOR this proposal.
PETR3 April 02, 2014 Annual Meeting
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Glass, Lewis & Co., LLC
4.00:
MERGER BY ABSORPTION (TERMOCEARÁ)
PROPOSAL REQUEST:
Approval of merger by absorption.
PRIOR YEAR VOTE RESULT: N/A
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority of votes cast
RECOMMENDATIONS & CONCERNS:
FOR- NO CONCERNS
PROPOSAL SUMMARY
If approved, Termoceará Ltda. ("Termoceará") will be absorbed into the Company. Subsequent to the merger, any and all
of the assets and liabilities held by Termoceará will be absorbed by the Company and Termoceará will cease to exist.
Further, shareholders must ratify the appointment of Apsis Consultoria e Avaliações Ltda., who prepared the valuation of
Termoceará at book value, as well as approve the valuation itself and the merger agreement. The board will be granted
the power to complete any formalities, such as required filings and registrations, needed to give full force and effect to the
merger.
In the merger agreement filed with the BM&FBOVESPA, the Company states that the proposed merger is intended to
reduce administrative and operating costs as well as to simplify the Company's corporate structure.
GLASS LEWIS ANALYSIS
We believe that shareholders should support the proposed transaction. Given that the Company currently controls
Termoceará, the proposed transaction will not have any adverse impact on shareholders. Moreover, as a subsidiary of the
Company, the financial results of Termoceará are already consolidated with those of the group.
Accordingly, we recommend that shareholders vote FOR this proposal.
PETR3 April 02, 2014 Annual Meeting
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Glass, Lewis & Co., LLC
5.00:
MERGER BY ABSORPTION (CLEP)
PROPOSAL REQUEST:
Approval of merger by absorption.
PRIOR YEAR VOTE RESULT: N/A
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority of votes cast
RECOMMENDATIONS & CONCERNS:
FOR- NO CONCERNS
PROPOSAL SUMMARY
If approved, Companhia Locadora de Equipamentos Petrolíferos – CLEP (“CLEP”) will be absorbed into the Company.
Subsequent to the merger, any and all of the assets and liabilities held by CLEP will be absorbed by the Company and
CLEP will cease to exist.
Further, shareholders must ratify the appointment of PricewaterhouseCoopers, who prepared the valuation of CLEP at
book value, as well as approve the valuation itself and the merger agreement. The board will be granted the power to
complete any formalities, such as required filings and registrations, needed to give full force and effect to the merger.
In the merger agreement filed with the BM&FBOVESPA, the Company states that the proposed merger is intended to
reduce administrative and operating costs as well as to simplify the Company's corporate structure.
GLASS LEWIS ANALYSIS
We believe that shareholders should support the proposed transaction. Given that the Company currently controls CLEP,
the proposed transaction will not have any adverse impact on shareholders. Moreover, as a subsidiary of the Company,
the financial results of CLEP are already consolidated with those of the group.
Accordingly, we recommend that shareholders vote FOR this proposal.
PETR3 April 02, 2014 Annual Meeting
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Glass, Lewis & Co., LLC
APPENDIX
Questions or comments about this report, GL policies, methodologies or data? Contact your client service representative or go to
www.glasslewis.com/issuer/ for information and contact directions.
NOTE
Shareholders should note that the elections of directors and supervisory council members representative of minority and preferred shareholders will take
place after the slate elections of directors and supervisory council members proposed by management. Minority common and preferred shareholders
who cast votes on Proposals 4 and 8 will be disqualified from participating in Proposals 5, 6, 9 and 10. As such, we recommend common shareholders
cast votes on Proposals 5 and 9 and that preferred shareholders cast votes on Proposals 6 and 10.
In addition to voting on these proposal, shareholders who wish to vote in favor of the currently known candidates should submit a separate power of
attorney to an authorized representative who will be present at the meeting.
Second Update: March 21, 2014. We have revised our analysis in Proposal 1 to state that the approval of the Company's financial statements releases
management and supervisory council members from liability for their actions during the past fiscal year. In Proposal 1, we had previously stated that
shareholders were only approving the receipt of the statements and reports, not their substance or content. As such, we have revised our
recommendation from FOR to ABSTAIN in light of the conflicting information regarding the integrity of the Company's financial statements. No other
changes have been made to the report at this time.
Update: March 21, 2014. We have revised our analysis in Proposal 6.0 to reflect that Mr. Gerdau is president of the Chamber of Management Policies,
Performance and Competitiveness (CGDC) in Brazil. The proxy paper published on March 20, 2014 originally stated that Mr. Monforte holds this
position. None of our voting recommendations have changed as a result of this clarification.
DISCLOSURES
Glass, Lewis & Co., LLC is not a registered investment advisor. As a result, the proxy research and vote recommendations included in this report should
not be construed as investment advice or as any solicitation, offer, or recommendation to buy or sell any of the securities referred to herein. All
information contained in this report is impersonal and is not tailored to the investment strategy of any specific person. Moreover, the content of this report
is based on publicly available information and on sources believed to be accurate and reliable. However, no representations or warranties, expressed or
implied, are made as to the accuracy, completeness, or usefulness of any such content. Glass Lewis is not responsible for any actions taken or not
taken on the basis of this information.
This report may not be reproduced or distributed in any manner without the written permission of Glass Lewis.
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LEAD ANALYSTS
Governance & Remuneration: Madeleine Moore
PETR3 April 02, 2014 Annual Meeting
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Glass, Lewis & Co., LLC