3. Reform Agenda
New legislation and dates for coming into effect:
v Law # 10.303 (6385 - 6404) March 1st;
v Decree # 3.995 in effect;
v Provisional Measure # 8 (6.385) in effect.
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4. Main Changes
I - Law #10.303:
Tag- Along
v Article 254- A:
u In a change of control, the purchaser must
conduct a tender offer to acquire the remaining
voting shares for at least 80% of the amount paid
for shares comprising the controlling block.
u The purchaser may offer minority shareholders
the option to keep their holdings in exchange for a
premium equal to the amount paid for controlling
block shares minus market value of the shares.
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5. Main Changes
Finance Committee (“ Conselho Fiscal”)
v Article 163: Emphasizes individual power of
Finance Committee Members
u I - The finance committee shall, by any of its members,
supervise the acts of management and ensure that they
comply with their legal and statutory duties;
u IV - The finance committee shall, by any of its members,
report any error, fraud, or criminal act discovered to an
officer or member of management, and if these fail to take
the necessary steps to protect the corporation’s interest,
report to the general meeting.
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6. Main Changes
Management Information
v Article 133: Management must make publicly
available no later than 30 days before the
general meeting:
u IV: the finance committee’s opinion, including all
dissident votes, if any; and;
u V: the remaining documents relevant to matters
included in the agenda;
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7. Main Changes
Publicly- Held Corporations
v Article 4:
u § 3. The CVM may classify publicly-held companies in
categories according to the types and classes of securities
issued (...) and shall specify the regulations for (...) each
category;
u § 4. The registration of a public corporation may only be
canceled, and shareholder capital share increased, through
a tender offer to acquire all outstanding shares for a fair
price. Methodologies to reach “fair price”.
v Article 4- A :
u Minority shareholders representing more than 10% of the
free float have the right to request a second
valuation. 7
8. Main Changes
Minority Shareholders on the Board of Directors
v Article 141: Right to elect members
u §4, item I. Right of common (voting) shareholders
representing more than 15% of common shares to elect
one director;
u §4, item II. Right of preferred (non-voting or restricted
voting) shareholders representing more than 10% of
preferred shares to elect one director (not mandatory for
5 years);
u §5. If the holders of common shares and the holders of
preferred shares do not represent sufficient votes for the
required quorum, they shall be allowed to aggregate
their shares to jointly elect a member.
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9. Main Changes
Minority Shareholders on the Board of Directors (2)
v Article 142: Right to veto auditors
u §2°. The selection and dismissal of independent
auditors may be vetoed by the directors elected
pursuant to Section 141, § 4, as applicable.
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10. Main Changes
v Article 109: Arbitration
u § 3 . The corporation’s bylaws may establish that any
disputes between the shareholders and the
corporation, or between the majority shareholders and
the minority shareholders may be resolved by
arbitration under the terms specified therein.
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11. Main Changes
General Meeting Notices
v Article 124,
u §5. The Brazilian Securities Commission may:
l Item I: request up to a 30- day call in advance if the
meeting relates to complex transactions;
l Item II: Suspend, by up to fifteen days, the course of the
advance notice term for call of the general meeting in
order to (...) analyze the proposals to be submitted at
the meeting and, if applicable, inform the corporation
why the Commission understands that a resolution
proposed at the meeting violates legal or
regulatory provisions.
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12. Main Changes
Non- voting or Restricted Voting Shares
v Article 15: Limits proportion of preferred shares
u §2°. (For new corporations) the number of preferred
shares without voting rights, or subject to restriction on
voting rights, may not exceed fifty percent (50%) of all
issued shares.
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13. Main Changes
Founders` Shares Disallowed
v Article 47. Publicly-held corporations are
not allowed to issue founders’ shares;
State Owned Companies
v Article 242 of Law 6.404 revoked.
v Public companies may go bankrupt.
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14. Main Changes
Redemption Rights
v Article 137, Item II. In cases of mergers &
acquisitions, dissenting holders of shares of a
class or type that has no liquidity or no
dispersion have redemption rights.
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15. Main Changes
Crimes Against the Securities Markets
v Article 27- C, 27- D and 27- E: Define as
crimes: insider trading, market manipulation
and irregular exercise of position, profession,
activity or function in the securities markets.
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16. Main Changes
II - Decree # 3.995
CVM’s New Responsibilities
v Redefinition of administrative procedures:
u secret investigation period;
u processes and documents made public, unless
secrecy is essential;
u priority for the investigation of serious crimes.
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17. Main Changes
III - Provisional Measure # 8
Securities Commission Autonomy and Other changes
v The CVM is created as an autonomous government agency
(...) with a fixed mandate, stable administrators (...).
v Article 18: The Brazilian Securities Commission shall be
responsible for the conditions for organization and liquidation
of Futures Exchanges, their corporate form and governing
bodies.
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18. Further Actions
IV- CVM
v Enforcement:
I) 2001 was a record year of trials with 37 cases judged
by CVM (Average of 20 cases per year in past 5 years);
II) Consent Decrees: 5 cases
III) Availability on the Internet of all legal opinions issued
by CVM and (by March) all trial records and votes
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19. Further actions
VI- Adapting to the New Law (1)
Instruction# 358 (Previously covered on Inst. #31)
u “Insiders” (directors, owners and members of the Board)
are required to inform CVM and Bovespa whenever they
buy or sell shares.
u The obligation to supply material information is extended
to owners, director and members of the board, in such
case where they are asked to do so by the Investors
Relation Director (IRD), or should the IRD fail to disclose
such information
u Obliges all shareholders to publish news of the acquisition
or sales of a capital share equal to or greater than 5% of
any type or class of stocks;( in the past only controlling
shareholder)
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20. Further actions
Instruction# 358
u Creates the possibility of publishing in a newspaper a short
version of the “material information”, provided its full version is
posted at the internet;
u The disclosure must take place either before the opening or
after the closing of the national and foreign markets (article 5).
Should this not be possible, trading may only be suspended
provided all the markets can be simultaneously closed.
u Owners, Management and board members are prohibited from
trading shares during the 15 days preceding the release of
quarterly or annual financial statements.
u If there is any restriction on the tender offer, the acquirer is
obliged to disclose the material information, making it clear
whether or not the offer will be maintained .
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21. Further actions
Adapting to the New Law (2)
New Ruling covering tender and mandatory offers
u Shares acquisition/ “OPA” (to replace instructions
# 229, 299, 345): currently in public hearing;
v In order to delist a company more than 2/3 of the free-
float have to be in favor of the delisting;
v The tender offer shall take place via an auction where
the controller can make an unlimited number of offers
raising the price.
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22. Further actions
Shares acquisition/ “OPA” (# 345):
v The controller has to deliver a valuation report disclosing
the price under 3 criteria: net worth, average of stock
price, and economic value;
v The person performing the process of valuation has to
certify that there is no conflict of interest, inform which
criteria is in his opinion the fairest, and must inform the
CVM how much he/she has received from the company or
acquirer in the previous 12 months.
v The shareholder list is now included as a necessary
document to be delivered to the CVM. In order to increase
the minority shareholder´capacity to organize, the list must
be available to the public during the offer.
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23. Further actions
Adapting to the New Law - Examples (3)
v New Ruling on Public Offers (Instruction #13)
To be available for public hearing within 3 weeks ;
v Regulation of Futures Exchanges June;
v Explanatory Notes covering:
v T a g- Along (Article 254) March
v Shareholder Agreements (Article 118) March
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24. Further actions
New Bill under Discussion
v Bill # 3.741 - Financial Statements
u Alignment with best international accounting
practices
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