Overview

Corporate Governance Practices and Level 1

Established in December 2000 by the São Paulo Stock Exchange (Bovespa), the Special Corporate-Governance Levels are special listing segments designed to provide a trading environment that simultaneously promotes shareholders’ interests and the value of companies.

Companies listed on these segments offer higher levels of corporate-governance practices to their investors that expand the rights of minority shareholders and increase transparency through the disclosure of more and higher-quality information, making it easier to monitor the company’s performance.

The basic premise is that the adoption of good corporate-governance practices by the companies confers greater credibility to the stock market, in turn increasing the confidence and willingness of investors to acquire their stock and pay a higher price, helping to lower funding costs.

The migration of a company to the Level 1 or Level 2 special corporate-governance segments depends on the level of commitment made and is formalized through an agreement entered into by the Bovespa and the Company and its administrators, fiscal council and controlling shareholders. By signing the agreement, the parties agree to observe the Listing Regulations of the specific segment, which consolidates the requirements that the companies listed on the segment must observe. For companies migrating to Level 2, the parties involved must adopt arbitration for the resolution of any corporate conflicts.

Companies listed on the Level 1 segment agree in particular to improvements in the disclosure of information to the market and to widespread stock ownership. For example, a publicly held company listed on Level 1 has the following obligations in addition to the rules and legislation applicable to all publicly held companies:

  • Improvements in the publication of quarterly information, complementing its disclosure of the Quarterly Information (IT) - which is submitted to the Securities and Exchange Commission of Brazil (CVM) and the Bovespa and released to the public, and which contains the quarterly financial statements - with the consolidated financial statements and the cash flow statement, among other documents;
  • Improvements in its publication of information for each fiscal year, complementing its disclosure of the Standardized Financial Statements (DFP) - which is submitted by listed companies to the CVM and the Bovespa and released to the public, and which contains the annual financial statements - with the cash flow statement, among other documents;
  • Improvements in the information provided, complementing the publication of the Annual Information (IAN) - which is submitted by listed companies to the CVM and the Bovespa and released to the public, and which contains corporate information - with the number and characteristics of the securities held by the controlling shareholders, the members of the Board of Directors, the executive officers and the members of the Fiscal Council, as well as information on the variations in these positions;
  • The holding of public meetings with analysts and investors at least once a year.
  • The disclosure of an annual calendar that includes a schedule of corporate events, such as meetings, earnings releases, etc.;
  • The disclosure of the terms of agreements entered into between the company and related parties.
  • The disclosure on a monthly basis of the trades by the controlling shareholders in securities and derivatives issued by the company;
  • Maintaining in circulation a minimum portion of shares equivalent to 25% (twenty-five percent) of the company’s capital stock; and
  • The adoption of mechanisms to promote widespread stock ownership when carrying out public distributions of shares.

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 Bovespa, 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 Bovespa, or in the Brazilian over-the-counter market. Shares of companies listed on the Bovespa 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 Bovespa 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 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.

Rights of Bombril’s Common and Preferred Shares

The holders of Bombril’s shares are entitled to:

  • Each of the Company’s common shares grants its respective holder the right to vote in the annual and extraordinary meetings of shareholders;
  • The Company’s preferred shares are not entitled to voting rights. However, these shares are entitled all other rights of the common shares at the same conditions, including the right to dividends at minimum equal to those attributed to the common shares. In addition, in the event of the liquidation of the Company, its preferred shares have priority in reimbursement of capital, with no premium, corresponding to its interest in the Company’s capital stock;
  • Preferred shares with no voting rights shall acquire voting rights if the Company fails to pay the minimum dividends assured to preferred shareholders for three consecutive fiscal years; and
  • The Company’s shareholders, in proportion to their share position, shall be entitled to preemptive rights in the subscription of new shares and/or securities convertible into shares. However, the Company may issue shares, convertible debentures and warrants without granting preemptive rights to shareholders when placement is made via sale on the stock exchange, public subscription or exchange of shares in a public offering for the acquisition of control, pursuant to the applicable legislation.

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.