Corporate Governance Practices and Novo Mercado

In 2000, the BOVESPA introduced three special listing segments, known as Level 1 and 2 of Differentiated Corporate Governance Practices and the Novo Mercado, aiming at fostering a secondary market for securities issued by Brazilian companies with securities listed on the BOVESPA by prompting such companies to follow good 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 applicable Brazilian law.

These rules generally increase shareholders’ rights and enhance the quality of information provided to shareholders. To become a Level 1 company, the issuer must agree to: (1) ensure that shares of the issuer representing at least 25% of its total capital are effectively available for trading; (2) adopt offering procedures that favor widespread ownership of shares whenever making a public offering; (3) comply with minimum quarterly disclosure standards; (4) follow stricter disclosure policies with respect to transactions made by controlling shareholders involving securities issued by the issuer; (5) make a schedule of corporate events available to shareholders; (6) meet at least once a year with research analysts to discuss its financial statements, projects and prospects; and (7) provide information on certain related party transactions.

To become a Level 2 company, an issuer must agree to: (1) comply with all of the listing requirements for Level 1 companies; (2) grant tag-along rights for all shareholders in connection with a transfer of control of the company (a) offering the same price paid per share of controlling block for each common share and (b) 80% of the price paid per share of controlling block for each preferred share; (3) grant voting rights to holders of preferred shares in connection with certain corporate restructurings and related party transactions, such as (a) any transformation of the company into another corporate form; (b) any merger, consolidation or spin-off of the company; (c) approval of certain transactions between the company and its controlling shareholder or parties related to the controlling shareholder; (d) approval of any valuation of assets to be delivered to the company in payment for shares issued in a capital increase; (e) appointment of an expert to ascertain the fair value of the company in connection with any deregistration and delisting tender offer; and (f) any changes to these voting rights; (4) have a board of directors consisting of at least five members of which at least 20% must be management directors and limit the term of all members to two years; (5) prepare annual financial statements, including cash flow statements, in accordance with U.S. GAAP or International Financial Reporting Standards, or IFRS; (6) if it elects to delist from the Level 2 segment, conduct a tender offer (the minimum price of the shares to be offered will be the economic value determined by an independent specialized firm with requisite experience); and (7) adhere exclusively to the Market Arbitration Chamber for resolution of disputes between the company and its investors.

To be listed in the Novo Mercado, an issuer must meet all of the requirements for Level 1 and Level 2 companies and, in addition, the issuer must: (1) issue only common shares; and (2) grant tag-along rights for all shareholders in connection with a transfer of control of the company, offering to the minority shareholders the same price paid per share of controlling block.

Regulation of the Brazilian Securities Market

The Brazilian securities markets are regulated by the CVM, which has regulatory authority over the stock exchanges and securities markets, as well as by the Central Bank, which has, among other powers, licensing authority over brokerage firms and regulates foreign investment and foreign exchange transactions. The Brazilian securities markets are governed by Law No. 6,385, of December 7, 1976, as amended, as well as by the Brazilian corporate law and by regulations issued by the CVM.

Under the Brazilian corporate law, a company is either publicly-held and listed, a sociedade por ações decapital aberto, or privately held and unlisted, a sociedade por ações de capital fechado. All listed companies are 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 BOVESPA or in the Brazilian over-the-counter market. Shares of companies listed on the BOVESPA may also be traded privately.The Brazilian over-the-counter market consists of direct trades between individuals in which a financial institution registered with the CVM serves as intermediary. No special application, other than registration with the CVM, is necessary for securities of a publicly-held company to be traded in this market. The CVM requires that it be given notice of all trades carried out in the Brazilian over-the-counter market by the respective intermediaries.

The Brazilian over-the-counter market is divided into two categories: (i) organized over-the-counter market, where trading is supervised by self-regulatory organizations licensed by the CVM; and (ii) non-organized over-the-counter market, where trading is not supervised by self-regulatory organizations licensed by the CVM. There are no special requirements other than a CVM license (and, in the case of organized over-the-counter markets, a license by the pertinent over-the-counter market) in order for a public company to trade securities in the over-the-counter market.

The trading of securities of a listed company on the BOVESPA may be halted at the request of such company in anticipation of a material announcement. The company may also halt its trading in international stock exchanges where its securities are traded. 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.

The Brazilian corporate law, the regulations issued by the CVM and the Novo Mercado regulations establish, among other things, requirements of disclosure of information, restrictions on transactions based on privileged information and price manipulation, as well as protection to minority shareholders.

Disclosure and Use of Information

CVM Rule No. 358 defines the disclosure and use of information requirements about material acts or facts concerning publicly traded companies, including the following:

  • it establishes the “material fact” concept, including in this definition any decisions made by a controlling shareholder, resolutions from general shareholders’ meetings or decisions made at the management meetings of listed companies, as well as any other act or fact of a political-administrative, technical, business, or economic-financial nature concerning our business that may measurably impact: (1) the value of our shares; (2) investors’ decisions to buy, sell or hold our shares; and (3) investors’ decisions to exercise their rights as holders of our shares;
  • it gives examples of potentially material acts or facts including, among others, agreements or contracts to transfer controlling shares of our company, addition or removal of a partner with whom we maintain a contract or operational, financial, technological or administrative relationship, or an incorporation, merger or split involving us or our affiliates;
  • it requires our investor relations officer, our controlling shareholder, members of our management, fiscal council members, if the latter is in place, and members of any technical or consulting committees to communicate any material facts to the CVM;
  • it requires the simultaneous disclosure of material facts in all markets where our shares are traded;
  • it obliges the buyer of controlling shares of a listed company to disclose material facts, including their intention to cancel registration as a publicly traded company, within one year of acquisition;
  • it establishes rules concerning disclosure of acquisition or disposal of relevant interest in a publicly traded company; and;
  • it limits the use of privileged information.

Under the terms of CVM Rule No. 358, we may, under exceptional circumstances, submit a request for confidential treatment to the CVM concerning a material act or fact when our controlling shareholder or management consider such disclosure to be prejudicial to a legitimate interest of ours.

Investment in VIVER’s common shares by non-residents of Brazil

Investors residing outside Brazil, including institutional investors, are authorized to purchase equity instruments, including VIVER’s common shares, on Bovespa provided that they comply with the registration requirements set forth in Resolution No. 2,689 of the National Monetary Council, which the Company refers to as Resolution 2,689, and CVM Instruction No. 325.

With certain limited exceptions, under Resolution 2,689 investors are permitted to carry out any type of transaction in the Brazilian financial capital market involving a security traded on a stock exchange, futures exchange or organized over-the-counter market. Investments and remittances outside Brazil of gains, dividends, profits or other payments under VIVER’s common shares are made through the new unified exchange rate market.

In order to become a Resolution 2,689 investor, an investor residing outside Brazil must:

  • appoint a representative in Brazil with powers to take actions relating to the investment;
  • appoint an authorized custodian in Brazil for the investments, which must be a financial institution duly authorized by the Central Bank and CVM; and
  • through its representative, register itself as a foreign investor with the CVM and the investment with the Central Bank.

Securities and other financial assets held by foreign investors pursuant to Resolution 2,689 must be registered or maintained in deposit accounts or in the custody of an entity duly licensed by the Central Bank or the CVM. In addition, securities trading by foreign investors is generally restricted to transactions involving securities listed on the Brazilian stock exchanges or traded in organized over-the-counter markets licensed by the CVM.

Rights of VIVER’s common shares

Each common share entitles its owner to one vote in VIVER general and special shareholders’ meetings. According to the agreement to be entered into with Bovespa for the listing the Company’s shares in the Novo Mercado, VIVER cannot issue shares without voting rights or with restricted voting rights. Moreover, as determined in the Company’s by-laws and the Brazilian corporation law, VIVER shareholders have the right to receive dividends and other distributions made in connection with the Company’s common shares in proportion to their ownership interest in VIVER’s share capital.

Holders of VIVER’s common shares are entitled to be included in a public tender offer in the case that a controlling stake in the Company is sold and the minimum price to be offered for each share is 100.0% of the price paid per share of the controlling stake.

In event of VIVER dissolution, the Company’s shareholders have the right to receive payments proportional to their ownership interest in VIVER’s share capital, after the settlement of all the Company’s obligations. Owners of VIVER’s common shares have the right participate in the Company’s share capital increases, in proportion to their ownership interest in VIVER’s share capital, but are not obligated to subscribe to new shares in future share capital increases.

According to the Brazilian corporation law, neither VIVER’s by-laws nor actions taken at a shareholders’ meeting may deprive a shareholder of the following rights:

  • the right to participate in the distribution of profits;
  • the right to participate, in proportion to ownership interest in VIVER’s share capital, in the distribution of any residual assets in the event of the Company’s dissolution;
  • the right to preemptive rights in relation to the subscription of shares, convertible debentures or subscription bonuses, except in the circumstances described in the Brazilian corporation law;
  • the right to inspect, in the manner set forth in the Brazilian corporation law, the management of corporate business; and
  • the right to sell their shares in the circumstances defined by the Brazilian corporation law.