CORPORATE GOVERNANCE PRACTICES AND NOVO MERCADO
In 2000, the Bovespa introduced three special listing segments, known as Levels 1 and 2 of Special Corporate Governance Practices and Novo Mercado. The goal was to create a secondary market for securities issued by Brazilian publicly held companies that follow best corporate governance practices.
The listing segments are intended for the trading of shares issued by companies that voluntarily undertake to follow good corporate governance practices and comply with more stringent disclosure requirements than those already imposed by Brazilian legislation. In general, such rules expand the rights of shareholders and improve the quality of information provided to them.
In addition to the obligations imposed by the Brazilian legislation in force, Novo Mercado rules require the fulfillment of the following requirements, among others:
- To issue only common shares;
- To grant all shareholders tag along rights in case of sale of the Company’s control; the acquirer of control must make a tender offer to the other shareholders, offering for each share the same price paid per share of the controlling block;
- To ensure that at least 25% of the shares of Aeris’ capital stock are in free float;
- To adopt offering procedures that favor share dispersion;
- To meet minimum quarterly disclosure standards;
- To follow stricter disclosure policies with respect to trades carried out by the Company’s controlling shareholders, directors and officers involving securities issued by the Company;
- To submit any existing shareholder agreements and stock option programs to the Bovespa;
- To provide shareholders with a corporate events calendar;
- To limit the term of office of all members of Aeris’ Board of Directors, which shall be composed of at least five members, to one year;
- To prepare, as of the second fiscal year ended after the Company’s inclusion in the Novo Mercado, annual financial statements, including cash flow statements, in English, in accordance with international accounting standards, such as U.S. GAAP or IFRS;
- To exclusively adopt the Bovespa arbitration rules, under which the Bovespa, the Company, the controlling shareholder, the members of the Company’s senior management and the Fiscal Council, if installed, undertake to resolve any and all disputes or controversies related to the listing regulation by means of arbitration;
- To hold, at least once a year, a public meeting with analysts and other stakeholders to disclose information regarding its respective economic and financial situation, projects and prospects; and
- In case the Company is delisted from the Novo Mercado segment in order for its shares to be traded outside the Novo Mercado segment, the controlling shareholder must make a tender offer for the acquisition of free-float shares at their economic value, determined in an appraisal report prepared by a specialized independent company.
RIGHTS OF COMMON SHARES OF AERIS ENERGY S.A.
Holders of Aeris Energy shares are entitled to the following rights:
- Voting rights at the Company’s Shareholders’ Meetings;
- Minimum mandatory dividends equivalent to 25.0% of adjusted net income every fiscal year, pursuant to article 202 of Brazilian Corporate Law;
- Pursuant to article 47 of the Company’s Bylaws, the direct or indirect sale of the Company’s control, either through a single transaction or through successive transactions, shall be carried out, subject to the condition precedent or subsequent that the acquirer of control undertake to make a tender offer for Company shares held by the other shareholders, observing the terms and conditions provided for in the legislation and regulations in force and in the Novo Mercado Regulations, in order to ensure that they receive the same treatment given to the seller.
- In case of cancellation of the Company’s registration as a publicly held company or cancellation of its listing in the Bovespa’s Novo Mercado segment, shareholders have the right to sell their shares in a tender offer to be made by the Controlling Shareholders at their respective economic value, determined though the preparation of an appraisal report by a specialized independent company, with proven experience and chosen by a meeting of free-float shareholders from a triple list presented by the Board of Directors. The costs incurred in the preparation of said report should be fully borne by the Controlling Shareholders;
- All other rights conferred on the Shares, under the terms set forth in the Bovespa’s Novo Mercado Regulations, Aeris Energy S.A.’s Bylaws and Brazilian Corporate Law.
REGULATIONS OF THE BRAZILIAN CAPITAL MARKET
The Brazilian securities market is regulated by the Brazilian Securities and Exchange Commission (“CVM”), which has the authority to supervise and issue general rules on the disciplinary power and management of stock exchanges and financial institutions registered with the CVM, members of the Brazilian securities market, as well as by the National Monetary Council (“CMN”) and the Central Bank of Brazil (“BACEN”), which have powers to authorize the registration and operation of securities brokers and to regulate foreign investments and foreign exchange transactions, among other things.
The Brazilian securities market is regulated by the Brazilian Securities Act, Brazilian Corporate Law and regulations issued by the CVM, the CMN and the BACEN. These laws and regulations set out information disclosure requirements, restrictions on stock trading related to insider information and price manipulation, and the protection of minority shareholders, among other things. However, the Brazilian securities market does not have the high level of regulation and supervision seen in the U.S. securities markets.
According to Brazilian Corporate Law, a company is classified as publicly held if its securities are admitted to trading on the Brazilian securities market and as privately held if its securities are not publicly traded on the Brazilian securities market. All publicly held companies must be registered with CVM and are subject to regulatory and information disclosure requirements.
A company registered with the CVM may trade its securities on the Bovespa or on the Brazilian over-the-counter market. Companies need to apply for registration with the Bovespa and the CVM in order to have its shares listed on the Bovespa. The shares of companies listed on the Bovespa cannot be traded simultaneously on the Brazilian over-the-counter market. The shares of companies listed on the Bovespa may also be traded in private transactions, subject to several limitations.
The Brazilian over-the-counter market, organized or not, consists of trades between investors through a financial institution registered with the CVM and authorized to operate in the Brazilian capital market. No special requirements are imposed on the trading of publicly traded securities on the non-organized over-the-counter market. The CVM requires the respective intermediaries to provide notice of all trades carried out on the Brazilian over-the-counter market.
Securities trading on the Bovespa may be interrupted at the issuer’s request before the publication of a material fact. Trading may also be suspended at the initiative of the Bovespa or the CVM, based on or due to indications that the Company has provided inadequate information in relation to a material fact or has provided inadequate responses to inquiries made by the CVM or the Bovespa, among other reasons.
INFORMATION USE AND DISCLOSURE
CVM Instruction 358 governs the use and disclosure of information on material acts or facts relating to publicly held companies, as follows:
- It defines the concept of material fact, which comprises any decision of a controlling shareholder, resolution of a shareholders’ meeting or a meeting of the management bodies of a publicly held company, or any other act or fact of a political-administrative, technical, business or economic-financial nature occurred in or related to the company’s business, which may influence (i) the price of its securities; (ii) investors’ decision to buy, sell or hold such securities; and (iii) investors’ decision to exercise any rights inherent in the condition of holders of securities issued by the company;
- It gives examples of potentially material acts or facts that include, among others, the signing of an agreement or contract for the transfer of the company’s control; entry or exit of a partner who maintains with the company an operational, financial, technological or administrative contract or collaboration agreement; and merger, consolidation or spin-off involving the company or related companies;
- It obliges the Investor Relations Officer, controlling shareholders, officers and members of the Fiscal Council and any bodies with technical or advisory functions to report any material fact to the CVM;
- It requires the simultaneous disclosure of material facts in all the markets where the company’s shares are listed for trading;
- It obliges the acquirer of a controlling interest in a publicly held company to disclose a material fact declaring its intention to cancel its registration as a publicly held company within one year of the acquisition, if applicable;
- It establishes rules regarding the disclosure of the acquisition or disposal of a relevant equity interest in a publicly held company; and
- It restricts the use of privileged information.