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Corporate Governance and New Market Practices

In 2000, the BM&FBovespa introduced three special listing segments, known as Level 1 and 2 of Differentiated Corporate Governance Practices and New Market (Novo Mercado), aiming at fostering a secondary market for securities issued by Brazilian companies with securities listed on the BM&FBovespa, 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 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 current 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 a 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 of the issuer representing at least 25% of its total capital are effectively available for trading;
  • adopt offering procedures that favor widespread ownership of shares whenever making a public offering;
  • comply with minimum quarterly disclosure standards;
  • follow stricter disclosure policies with respect to transactions made by controlling shareholders, directors and officers involving securities issued by the issuer;
  • submit any existing shareholders´ agreements and stock option plans to the BM&FBovespa;
  • disclose a schedule of corporate events to the shareholders;
  • have a board of directors comprised of at least five members with a term limited to one year;
  • within two years after listing shares on the Novo Mercado, prepare annual financial statements in English, including cash flow statements, 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 BM&FBovespa, pursuant to which the BM&FBovespa, the company, the controlling shareholder, the management and the members of 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 present 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 launch a tender offer for the acquisition of all outstanding shares at a minimum price to be established based on an independent appraisal.
Rights of Positivo Tecnologia’s common shares

Each of the Company’s common shares entitles its holder to one vote in the deliberations at its shareholders’ meetings. Under the Novo Mercado regulations, Positivo Tecnologia can only issue voting shares. In addition, upon its liquidation, following payment of all other obligations, the common shareholders are entitled to receive any remaining assets as capital reimbursement on a pro rata basis. Except in specific situations described in the Brazilian Corporation Law, holders of common shares have the right, but not the obligation, to subscribe for future capital increases in proportion to their holdings.

Positivo Tecnologia’s common shareholders are assured the following, among other rights:

  • the right to vote in shareholders’ meetings, wherein each share entitles its holder to one vote;
  • the right to be paid a mandatory dividend in each year of not less than 25% of the net income for the year, as adjusted pursuant to article 202 of the Brazilian Corporation Law, as amended;
  • a direct or indirect disposal of the Company’s control, through a single or successive transactions, must be subject to a condition precedent or dissolving condition that the acquirer of control make a public offer to purchase the shares of the other shareholders, on terms and conditions established in the applicable legislation and the Novo Mercado regulations, thus ensuring minority shareholders are treated in the same way as the controlling shareholder;
  • in the event of cancellation of Positivo Tecnologia’s registration as publicly held corporation, or its delisting from the Novo Mercado of the BM&FBovespa, the right to participate in a tender offer carried out by the controlling shareholder to purchase shares at a minimum price equal to their fair market value, as calculated by an experienced, specialized and independent firm, unrelated to the Company, its directors and officers and the controlling shareholders, chosen at a shareholders’ meeting, from a list of three candidates submitted by its board of directors;
  • the right to receive the full amount of dividends and all other distributions and benefits granted to shareholders; and
  • all other rights assured to common shareholders under the Brazilian Corporation Law, the Novo Mercado regulations and Positivo Tecnologia’s by-laws.
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, by the National Monetary Council and 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 the principal law governing the Brazilian securities markets, by the Brazilian Corporation Law, 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 shareholders. However, the Brazilian securities markets are not as highly regulated and supervised as U.S. securities markets.

Under the Brazilian Corporation Law, a company is either publicly held and listed, a “companhia aberta”, or privately held and unlisted, a “companhia fechada”. All listed companies are registered with the CVM and are subject to reporting and regulatory requirements. To be listed on the BM&FBovespa, a company must apply for registration with the Bovespa and the CVM and is subject to regulatory requirements and information publishing requirements.

A company registered with the CVM may trade its securities either on the Brazilian exchange markets, including the BM&FBovespa, or in the Brazilian over-the-counter market. Shares of companies listed on the BM&FBovespa may not simultaneously trade on the Brazilian over-the-counter market. The shares of a listed company may also be traded privately, subject to several limitations.

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 receive notice of all trades carried out in the Brazilian over-the-counter market by the respective intermediaries.

The trading of securities on the BM&FBovespa may be suspended at the request of a company in anticipation of a material announcement. Trading may also be suspended on the initiative of the BM&FBovespa 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 BM&FBovespa.

Disclosure and Use of Information

Pursuant to CVM Rule # 358, of January 3, 2002, the CVM revised and consolidated the requirements regarding the disclosure and use of information related to material facts and acts of publicly held companies, including the disclosure of information in the trading and acquisition of securities issued by publicly held companies.

Such requirements include provisions that:

  • 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 general meeting of shareholders and of management of the Company, or any other facts related to the Company’s business (whether occurring within the Company or otherwise somehow related thereto) that may influence the price of its publicly traded securities, or the decision of investors to trade such securities or to exercise any of such securities’ underlying rights;
  • specify examples of facts that are considered to be material, which include, among others, the execution of shareholders’ agreements providing for the transfer of control, the entry or withdrawal of shareholders that maintain any managing, financial, technological or administrative function with or contribution to the Company, and any corporate restructuring undertaken among related companies;
  • oblige the officer of investor relations, controlling shareholders, other executive officers, members of its board of directors, members of the audit committee and other advisory boards to disclose material facts;
  • require simultaneous disclosure of material facts to all markets in which the corporation’s securities are admitted for trading;
  • 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;
  • establish rules regarding disclosure requirements in the acquisition and disposal of a material stockholding stake; and
  • restrict the use of insider information.
Investment in Positivo Tecnologia’s common shares by non-residents of Brazil

Investors residing outside Brazil, including institutional investors, are authorized to purchase equity instruments, including Positivo Tecnologia’s common shares, on BM&FBovespa 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 Positivo Tecnologia’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.

Arbitration Clause

Pursuant to Article 34 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 Law 6,404/76, the Company’s Bylaws, rules issued by the Brazilian Monetary Council (CMN), the Brazilian Central Bank (Bacen) and the Brazilian Securities and Exchange Commission, 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 Rules, the “Novo Mercado” Listing Agreement, and the Market Arbitration Panel Rules.