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:
- 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 HBR Realty’s share capital 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 HBR Realty’s 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 due to a corporate restructuring in which the resulting company is not admitted to trading the in the Novo Mercado segment, the controlling shareholder must carry out a public offering for the acquisition of free-float shares at their economic value, determined in an appraisal report prepared by a specialized independent firm.
The holders of HBR Realty’s shares are entitled to the following rights:
Each common share issued by the Company entitles its respective holder to one vote at the Annual and Extraordinary Shareholders’ Meetings. According to the Novo Mercado Regulation, the Company will not be able to issue shares without voting rights or with restricted voting rights. Additionally, pursuant to the Bylaws and the Brazilian Corporations Law, holders of common shares are entitled to receive dividends or other distributions made in relation to the common shares, in proportion to their interest in the share capital.
In the event of a corporate liquidation, shareholders have the right to receive the amounts related to capital reimbursements, in proportion to their interest in the share capital, after all of the Company’s liabilities are settled. Holders of common shares are entitled to participate in the Company’s future capital increases, in proportion to their interest in the share capital, but are not required to subscribe for shares in these capital increases.
According to the Brazilian Corporations Law, neither the Bylaws nor the resolutions adopted by the Company’s shareholders at General Meetings may deprive shareholders of the following rights:
- the right to receive distribution of profits;
- the right to participate, in proportion to their equity stakes in the Company’s share capital, in the distribution of any remaining assets in the event the Company is liquidated;
- preference right in the subscription of shares, debentures convertible into shares or subscription warrants, except in certain circumstances provided for in the Brazilian Corporations Law described in the “Preference Right” section;
- the right to inspect, in the manner provided for in the Brazilian Corporations Law, the management of social businesses; and
- he right to withdraw from the Company in situations provided for in the Brazilian Corporations Law.
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 their 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.
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 the 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, stating its intention to cancel its registration as a publicly held company within one year of the acquisition;
- 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.
Pursuant to article 51 of the Company’s Bylaws, the Company, its shareholders, Management and members of the Fiscal Council, both sitting and alternate members, undertake to settle by arbitration before Market Arbitration Chamber, pursuant to its regulations, any controversy that may arise among them, related to or resulting from their conditions as issuer, shareholders, Management and member of the Fiscal Council, and particularly the provisions set forth by Law 6.385/76, the Brazilian Corporations Law, the Company’s Bylaws, the rules published by the National Monetary Council, the Central Bank of Brazil and the Brazilian Securities and Exchange Commission, in addition to any other rules applicable to operations in the capital market in general, the provisions of the Novo Mercado Listing Regulation, other B3 regulations and the Novo Mercado Listing Agreement.