Overview

Corporate Governance Practices and the Novo Mercado Segment

In 2000, the São Paulo Stock Exchange (Bovespa) introduced three special listing segments, known as Level 1 and 2 of Differentiated Corporate Governance Practices and the Novo Mercado (New Market), aimed at fostering a secondary market for securities issued by Brazilian companies that follow the best practices of corporate governance. The listing segments were designed for the trading of shares issued by companies voluntarily undertaking to abide by corporate governance practices and disclosure requirements in addition to those already imposed by Brazilian law. These rules generally increase shareholders’ rights and enhance the quality of information provided to shareholders.

To be listed on the Novo Mercado, in addition to the obligations imposed by Brazilian law, an issuer must meet all of the following requirements:

  • issue only common shares;
  • grant tag-along rights to all shareholders in connection with transfer of control of the company, the acquirer being required to hold a public offer for acquisition of the shares to the other shareholders, at the same price per share paid for the controlling block;
  • ensure that shares representing at least 25% of the total capital of Brasil Brokers are ‘free float’;
  • adopt offering procedures that favor widespread ownership of shares;
  • comply with minimum quarterly disclosure standards;
  • follow stricter disclosure policies with respect to transactions made by the Company’s controlling shareholders, board of directors and executive officers involving securities issued by the issuer;
  • submit any existing shareholders’ agreements and stock option plans to the Bovespa;
  • disclose a schedule of corporate events to the shareholders;
  • limit the term of office of all the members of Brasil Brokers’ Board of Directors to a maximum of 1 year. The Board to consist of at least 5 members;
  • from the second year ended after shares are listed on the Novo Mercado, prepare annual financial statements, including cash flow statements in English, in accordance with international accounting standards, such as U.S. GAAP or International Financing Report Accounting Standards (IFRS);
  • adhere exclusively to the arbitration rules of the Bovespa, pursuant to which the Bovespa, the company, the controlling shareholder, the management and the members of the fiscal council, if any, agree to resolve by arbitration any dispute or controversy related to the Novo Mercado listing rules;
  • hold public meetings with financial analysts and any other interested third parties at least once a year to disclose information regarding its financial and economic position, projects and prospects; and
  • if a decision to delist from the Novo Mercado is made, the issuer’s controlling shareholder must make a public offer to acquire all the outstanding shares at the economic value, to be established by an independent appraisal firm specializing in such matters.

Rights of Brasil Brokers common shares

Brasil Brokers shares guarantee their shareholders the following rights:

(a) the right to vote at the General Meeting, with each share corresponding to one vote;

(b) the right to the minimum mandatory dividend for each year, not less that 25% of the net income for the period, adjusted according to the terms of Article 202 of the Brazilian Corporate Law;

(c) in the case of transfer of control of the Company, whether in a single operation or through successive operations, it should be contracted under the suspensive or resolutory condition, by which the acquirer assumes an obligation to make a public offer for acquiring the shares of other shareholders of the Company, subject to the conditions and deadlines specified in the legislation and in the Novo Mercado Listing Regulations to ensure for them the same treatment given to the Selling Majority Shareholder;

(d) if any shareholder that acquires other rights, including usufruct and trust, over shares issued by the Company that represent 20% or more of its capital, that shareholder shall, within a maximum period of 60 days from the date of acquisition or of the event that results in the ownership of the shares or rights in a quantity greater than 20% of the total stock issued by the Company, register or request the registration, as the case requires, of a public offering of stock acquisition, pursuant to the terms described in article 35 of the Company’s Bylaws.

(e) in the case of delisting from the Bovespa’s Novo Mercado, the right to sell shares in a public offering to be initiated by the controlling shareholder or by the Company, specifically for delisting from the Novo Mercado. The minimum price to be offered shall correspond to the economic value duly appraised in a report prepared by a specialized company with proven experience, whose decisions are independent of the Company, its managers, and/or the controlling shareholder, in addition to satisfying the requirements of section 1 of article 8 of Law 6404/76, and retain the responsibility set forth in section 6 of the same article; and

(f) all other rights guaranteed to shareholders, according to the terms set forth in the Bovespa’s Novo Mercado Listing Rules, the Company’s by-laws and the Brazilian Corporate Law, including the payment of full dividends and all other benefits declared by the company from the Date of Liquidation.

Regulation of the Brazilian Securities Market

The Brazilian securities markets are regulated by the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários - CVM), which has regulatory authority over the stock exchanges and securities markets registered with it, by the National Monetary Council and by the Central Bank, which have, among other powers, licensing authority over brokerage firms and regulate foreign investment and foreign exchange transactions.

The Brazilian securities markets are governed by the Lei do Mercado de Valores Mobiliários governing the Brazilian securities markets, by the Brazilian Corporate Law (Lei das Sociedades por Ações), and by regulations issued by the CVM, the CMN and the Central Bank. These laws and regulations provide for, among other things, disclosure requirements, restrictions on insider trading and price manipulation and protection of minority shareholder interests. However, the Brazilian securities markets are not as highly regulated and supervised as U.S. securities markets.

Under the Brazilian Corporate Law, a company is publicly held (companhia aberta) if its securities are listed for trading on the stock exchanges, or privately held (companhia fechada), if its securities are not publicly traded. All listed companies must be registered with the CVM and are subject to reporting and regulatory requirements.

A company registered with the CVM may trade its securities either on the Brazilian exchange markets, including the Bovespa, or in the Brazilian over-the-counter market. To be listed on the Bovespa, a company must apply for registration with the Bovespa and the CVM. Shares of companies listed on the Bovespa may not simultaneously be traded at the Brazilian over-the-counter market. The shares of a listed company may also be traded privately, subject to several restrictions.

The Brazilian over-the-counter market, whether or not organized, consists of trades between investors through a financial institution registered with the CVM, and authorized to trade in the Brazilian capital market. No special application, other than registration with the CVM, is necessary for securities of a public company to be traded in the non-organized over-the-counter market. The CVM must be informed by the respective intermediaries of all the trades carried out in the Brazilian over-the-counter market.

Trading of securities on the Bovespa may be suspended at the request of a company before publishing a material fact. Trading may also be suspended on the initiative of the Bovespa or the CVM, among other reasons, based on or due to a belief that a company has provided inadequate information regarding a significant event or has provided inadequate responses to inquiries by the CVM or the Bovespa.

Disclosure and Use of Information

CVM Instruction 358, which regulates the disclosure and use of information pertaining to material acts of facts of publicly held companies, contains provisions which:

  • establish the concept of a material fact that gives rise to reporting requirements. Material facts include decisions made by the controlling shareholders, resolutions of the annual general meeting of shareholders or the Company management, or any other acts or facts relating to the policy, administration, and technical, business, economical or financial issues related to the Company’s business and which may notably influence the (i) price of its securities, or (ii) the decision of investors to trade such securities or (iii) investors’ decisions to exercise any underlying rights of such securities;
  • specify examples of acts or facts that are considered to be material, which include, among others, the signing of agreements for transfer of shareholding control, entry or withdrawal of shareholder having any operational, financial, technological, administrative agreement or collaboration or of amalgamation, fusion or split-off involving the Company and related companies;
  • oblige the investor relations officer, controlling shareholders, other executive officers, members of its board of directors, members of the fiscal council and other advisory boards to disclose material facts to the CVM;
  • require simultaneous disclosure of material facts in all the markets in which the corporation’s securities are listed;
  • require the acquirer of a controlling stake in a corporation to publish material facts, including its intentions as to whether or not to de-list the corporation’s shares within one year of trading;
  • establish rules regarding disclosure of the acquisition or sale of a significant shareholding interest in a publicly-held company; and
  • restrict the use of insider information.

Arbitration Clause

Pursuant to Article 37 of the Company’s Bylaws, the Company, its shareholders, management and members of the Fiscal Council hereby undertake to resolve by means of arbitration, any and every dispute or controversy that may arise among them,

related to or deriving from, and specially due to the application, validity, effectiveness, construal, infringement and its effects of the provisions of the Novo Mercado Listing Rules, the Company’s Bylaws, Law 6,404/76, rules issued by the Brazilian Monetary Council (CMN), the Brazilian Central Bank (Bacen) and the Brazilian Securities and Exchange Commission (CVM), as well as other rules applicable to the operation of the capital markets in general, in addition to those provided for in the Novo Mercado Listing Agreement, and the Market Arbitration Panel Rules, which shall be conducted with the Market Arbitration Chamber provided by the BM&FBOVESPA, in compliance with the regulations of said Chamber. The parties may, pursuant to Chapter 12 of those Rules, agree on another chamber or arbitration body to resolve their disputes.