In 2000, the Bovespa introduced three special listing segments, known as Levels 1 and 2 of Differentiated Corporate Governance Practices and the Novo Mercado, aimed at fostering a secondary market for securities issued by Brazilian companies with securities listed on the Bovespa, by prompting these 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.
On the occasion of its IPO, the Company, its controlling shareholder and its management entered into an agreement with the São Paulo Stock Exchange (Bovespa) in order to comply with Level 2 listing rules.
Estácio Participações, in line with the best corporate governance practices and aiming to create value for its shareholders, approved at the Extraordinary Shareholders’ Meeting held on June 13, 2008 the migration and the consequent amendments to the Company’s Bylaws, in order to align them with the regulations of the Novo Mercado.
To be listed on the Novo Mercado, in addition to the obligations imposed by current Brazilian law, an issuer must meet all of the following requirements:
- Issue only common shares;
- Grant tag-along rights to all shareholders in connection with a transfer of control of the company, the acquirer being required to hold a public offer for acquisition of the shares to the other shareholders, at the same price per share paid for the controlling block;
- Ensure that shares of the issuer representing at least 25% of its total capital are effectively available for trading;
- Adopt offering procedures that favor widespread ownership of shares whenever making a public offering;
- Comply with minimum quarterly disclosure standards;
- Follow stricter disclosure policies with respect to transactions made by controlling shareholders, directors and officers involving securities issued by the issuer;
- Submit any existing shareholders´ agreements and stock option plans to the Bovespa;
- Disclose a schedule of corporate events to the shareholders;
- Have a board of directors comprised of at least five members with a term limited to one year;
- Within two years after listing shares on the Novo Mercado, prepare annual financial statements in English, including cash flow statements, in accordance with international accounting standards, such as U.S. GAAP or International Financing Report Accounting Standards (IFRS);
- Adhere exclusively to the arbitration rules of the Bovespa, pursuant to which the Bovespa, the company, the controlling shareholder, the management and the members of fiscal council, if any, agree to resolve by arbitration any dispute or controversy related to the Novo Mercado listing rules;
- Hold public meetings with financial analysts and any other interested third parties at least once a year to present information regarding its financial and economic position, projects and prospects; and
- If a decision to delist from the Novo Mercado is made, the issuer´s controlling shareholder must launch a tender offer for the acquisition of all outstanding shares at a minimum price to be established based on an independent appraisal.
The Código de Melhores Práticas de Governança Corporativa, or Code of Best Corporate Governance Practices, published by the IBGC, aims at (i) increasing the value of the company; (ii) improving its performance; (iii) facilitating its access to capital at a lower cost; and (iv) contributing to its continuity. The basic principles of this practice are transparency, equitable treatment, accountability and corporate responsibility. Estácio Participações’ has adopted the following corporate governance best practices recommended by the IBGC in its Code of Best Corporate Governance Practices:
- Independent auditors to review the Company’s balance sheets and financial statements;
- Clearly worded bylaws as to (i) procedure for giving notice of shareholders’ meetings; and (ii) the voting system, election, removal and terms of office of the members of Estácio Participações’ board of directors and board of executive officers;
- Transparent disclosure of the annual management reports;
- definition of the place where the Company’s shareholders’ meetings will be held to facilitate the attendance by its shareholders or their representatives;
- Record of all the dissenting votes in the minutes of the shareholders’ meetings, when required;
- Prohibition of use of privileged information and existence of a policy of disclosure of relevant information;
- Bylaws’ determination of arbitration as a way to solve any conflict among the shareholders and the Company;
- directors with experience in operational and financial issues and experience as a member in other boards of directors; and
- Bylaws’ provision prohibiting the access to information and voting right of the directors whenever there is a conflict of interest.
According to the Brazilian corporation law, neither Estácio´s by-laws nor actions taken at a shareholders´ meeting may deprive a shareholder of the following rights:
- The right to vote at the Company’s Annual Shareholders’ Meetings;
- right to annual dividend not less than 50% of the period‘s adjusted net income, pursuant to article 202 of the Lei das Sociedades por Ações (the Brazilian company law), as envisaged in the shareholders‘ agreement of the Company of June 4, 2008;
- In case of direct or indirect sale of the Company for valuable consideration, whether through a single or consecutive operations, the right to sell their shares under the same conditions guaranteed to the Controlling Shareholders (100% tag along rights);
- If the publicly-held company is delisted or its listing in the Bovespa’s Novo Mercado segment is cancelled, the right to sell shares through a public tender offer to be made by the Controlling shareholders, at the economic value of the shares as determined by the valuation report prepared by a specialized independent company with proven experience and chosen at the Shareholders’ Meeting, from a list submitted (in triplicate) by the Board of Directors. The cost of preparing said valuation report should be borne entirely by the Controlling Shareholders; and
- All other rights of Shares under the Bovespa’s Novo Mercado Regulations, the Bylaws of Estácio Participações and the Lei das Sociedades por Ações (Brazilian company law).
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.
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.
Investors residing outside Brazil, including institutional investors, are authorized to purchase equity instruments, including Estácio Participações’s shares , on Bovespa 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 Estácio Participações’s 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.
The Company, its shareholders, management and members of the Fiscal Council, when instated, hereby undertake to resolve by means of arbitration, any and all disputes or controversies that may arise among them, related to or deriving from, and especially due to the application, validity, effectiveness, construal, infringement and their effects, of the provisions set forth in the Brazilian Corporation Law, the Bylaws, the rules issued by the Brazilian Monetary Council (CMN), the Brazilian Central Bank (Bacen) and the Brazilian Securities and Exchange Commission (CVM), as well as any other rules applicable to the operation of the capital market in general, in addition to the Novo Mercado Listing Rules, the Arbitration Rules of the Market Arbitration Panel and the Novo Mercado Listing Rules.
On June 17, 2011, Estácio Participações launched the level I ADR Program with the objective of expanding the possibilities for investors, mainly those residing abroad, to invest in the Company and increase the liquidity of the stock. Each ADR corresponds to one common share (“ESTC3”) and is traded in the US OTC market under the ticker “ECPCY”.