Corporate Governance Practices and Novo Mercado

Aliansce is listed on the BM&FBOVESPA’s Novo Mercado segment, exclusively intended for companies meeting minimum requirements and agreeing to adhere to differentiated corporate governance rules. Some of the key points of the Novo Mercado listing segment include: (i) not issue or maintain preferred or founder’s shares; (ii) at least 25.0% of the Company’s capital stock must be outstanding shares; (iii) include cash flow statements (publicly-held company and consolidated) in Aliansce’s annual and quarterly reports; and (iv) publish, in English, the full financial statements, management reports and explanatory notes, prepared in accordance with Brazilian GAAP, accompanied by an additional explanatory note regarding the reconciliation of year-end results and shareholders’ equity calculated in accordance with Brazilian GAAP and U.S. GAAP or IFRS, as the case may be, which must include the main differences between the accounting principles used and the independent auditors’ report. Aliansce hás also adapted its bylaws to the rules of the BM&FBOVESPA’s Novo Mercado segment.

Among those practices recommended by the Brazilian Institute of Corporate Governance (IBGC) in its Code of Best Practices in Corporate Governance, Aliansce has adopted the following:

  • capital stock consisting of common shares only, ensuring that all shareholders have voting rights;
  • in addition to the attributes set forth in Brazilian Corporate Law, it is incumbent on the Shareholders’ Meetings to: (a) elect or remove, at any time, members of the Board of Directors and Fiscal Council; (b) determine the overall annual compensation of the Board of Directors and Board of Executive Officers, as well as the Fiscal Council, if installed; (c) amend the Bylaws; (d) deliberate on the transformation, merger, incorporation, spin-off, dissolution or liquidation of the Company; (e) attribute bonuses in shares and decide on any eventual stock splits or reverse splits; (f) approve any stock option or share subscription plans for the Company’s directors, executive officers and employees, as well as the directors, executive officers and employees of other companies directly or indirectly controlled by the Company; (g) deliberate on management proposals for the allocation of annual net income and the payment of dividends; (h) in the case of the Company’s liquidation, elect the liquidator and the Fiscal Councilfor the duration of the liquidation period; (i) deliberate on the Company’s delisting from the Novo Mercado trading segment of the BM&FBOVESPA ; (j) deliberate on the Company’s delisting as a publicly-held company before the CVM, except when determined otherwise by the Bylaws; (l) select from among those companies indicated by the Board of Directors the specialized company responsible for preparing the evaluation report on Aliansce’s shares, in the event of the Company’s delisting as a publicly-held company or withdrawal from the Novo Mercado, as determined by the Bylaws; and (m) deliberate on any other matter submitted by the Board of Directors;
  • in the case of a transfer of the Company’s control, the purchase offer must be extended to all shareholders and not just the members of the controlling block. All shareholders must have the right to sell their shares under equal conditions and the price must be transparent. If the entire controlling block is sold, tag-along rights must be extended to all shareholders;
  • the hiring of independent auditors to audit the balance sheets and financial statements;
  • statutory provisions for the installation of an Fiscal Council;
  • the choice of a location for the Shareholders’ Meetings that will facilitate the presence of all shareholders or their representatives;
  • a clear definition in the Bylaws of (a) the means for convening a Shareholders’ Meeting and (b) the means for electing and removing members of the Board of Directors, as well as determining their term of office;
  • the non-election of alternate members of the Board of Directors;
  • transparency in the public disclosure of management’s annual report;
  • open access to company information and installations by members of the Board of Directors; and
  • the resolution, through arbitration, of any eventual conflicts that may arise between the Company, its shareholders, directors, executive officers and members of the Fiscal Council.

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 BM&FBOVESPA 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 Aliansce’s common shares by non-residents of Brazil

Investors residing outside Brazil, including institutional investors, are authorized to purchase equity instruments, including Aliansce’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 Aliansce’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.

Rights of Aliansce’s common shares

Each of the Company’s common shares entitles its holder to one vote at any extraordinary or annual shareholders’ meeting. Pursuant to the Novo Mercado Participation Agreement entered into between Aliansce, its management and BM&FBOVESPA in connection with the listing of the Company’s shares on the Novo Mercado, Aliansce is prohibited from issuing non-voting shares or shares with restricted voting rights.

Holders of Company’s common shares are entitled to dividends or other distributions made in respect of its common shares in proportion to their portion of the amount of the dividend or distribution. In addition, upon Aliansce’s liquidation and after discharging all of its liabilities, holders of its common shares are entitled to receive any remaining assets as capital reimbursement ratably in accordance with their respective participation in the total amount of the Company’s issued and outstanding shares. Holders of Aliansce’s common shares have the right, but not the obligation, to subscribe to its future capital increases.

According to Brazilian Corporate Law and the Company’s bylaws, neither its bylaws nor actions taken at a shareholders’ meeting may deprive a shareholder of the following rights:

  • the right to participate in Aliansce’s distribution of profits ratably;
  • in the event of the Company’s liquidation, the right to participate in the distribution ratably in accordance with their respective participation in the total amount of its issued and outstanding common shares;
  • the right to monitor Aliansce’s management, in accordance with applicable law;
  • the preemptive rights to subscribe for shares, convertible debentures or warrants, except in some specific circumstances under Brazilian law; and
  • the right to withdraw from the Company in the events provided in Brazilian Corporate Law.

Arbitration Clause

Under Novo Mercado Adhesion Contract and the Company’s bylaws, Aliansce, its shareholders, Senior Managers and Fiscal Board members, if instated, undertake to resolve, by means of arbitration, any and all disputes or controversies that may arise between them in connection with or deriving from, among others, the applicability, validity, effectiveness, construction, violation (and its effects) of the provisions contained, in the Bylaws, in the provisions of the Corporation Law, in the rules issued by the National Monetary Council, by the Central Bank of Brazil and by the Brazilian Securities Commission and in the other rules applying to the capital markets in general, in addition to those set out in the Listing Regulations of Novo Mercado, in the Arbitration Rules of the Market Arbitration Chamber, instituted by BM&FBOVESPA, and Novo Mercado Adhesion Contract.

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