Overview

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 New Market (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 Brazilian law. These rules generally increase shareholders’ rights and enhance the quality of information provided to shareholders.

Rights attributed to Randon’s common and preferred shares

Holders of shares issued by Randon enjoy the following rights:

Each common share issued by Randon confers its holder the right to one vote at the company’s annual and extraordinary general meetings.

Randon’s preferred shares do not confer voting rights, however, holders of preferred shares enjoy all other rights attributed to the common shares on equal terms, including dividends at minimum equal to those distributed to the holders of common shares. In addition, in the event of Randon’s liquidation, holders of the preferred shares enjoy priority in the reimbursement of capital, with no premium, proportional to their interest in the company.

Holders of preferred shares with no voting rights shall effectively acquire voting rights if Randon fails to pay the minimum amount of dividends to them for a period of three consecutive fiscal years.

Randon shareholders shall enjoy, proportional to their equity interests in the company, preference in any subscription of new shares and/or securities convertible into shares. However, Randon may issue shares, debentures convertible into shares or warrants without prioritizing preferred shareholders if the placement were carried out via sale on the stock exchange, public subscription, or exchange of shares, in a public offering for acquisition of control, in accordance with the legal provisions.

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 bank representatives (independent third-party agents) 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.

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.

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