Circular Letter CVM/SEP No. 02/2004: General Guidelines on Procedures

CIRCULAR LETTER/CVM/SEP/No. 02/2004
Rio de Janeiro, March 12, 2004
Subject: General guidelines on procedures

Dear Director of Investor Relations,

This circular letter aims to guide publicly held companies on procedural aspects to be observed when submitting periodic and occasional information, as well as inquiries, to the CVM.

This year, we have chosen to maintain the points already referenced in the circular letter of the previous year, with the purpose of obtaining a permanent consolidation, avoiding the need for references.

Observance of the recommendations listed below will contribute to minimizing eventual deviations and, consequently, reducing the need to formulate requirements.

1. IAN – ANNUAL INFORMATION
2. ITR – QUARTERLY INFORMATION
3. FINANCIAL STATEMENTS – FS
4. PUBLICATION OF FINANCIAL STATEMENTS
5. DISCLOSURE OF RELEVANT FACT
6. PROJECTIONS
7. CALL NOTICES FOR ASSEMBLIES
8. CAPITAL BUDGET
9. TRADING BY ADMINISTRATORS AND RELATED PARTIES
10. DISCLOSURE POLICY FOR ACT OR RELEVANT FACT
11. ELECTION OF SUPERVISORY BOARD
12. ART. 203 – LAW 6404/76
13. BANKRUPT AND LIQUIDATING COMPANIES
14. REGISTRATION UPDATING
15. CANCELLATION OF COMPANY REGISTRATION
16. INQUIRIES ABOUT PUBLICLY HELD COMPANIES
17. REQUESTS FOR PRIVATE HEARINGS
18. REQUEST FOR PROCESS VIEWS
19. COMPANY REGISTRATION

Sincerely,

ELIZABETH LOPEZ RIOS MACHADO
Superintendent of Corporate Relations

Dear
DIRECTOR OF INVESTOR RELATIONS

1. IAN – ANNUAL INFORMATION

The Annual Information (IAN) form should be understood as a dynamic document regarding the evolution of the company's business and not static, linked to a specific fiscal year, despite the fact that a date for its presentation is fixed year after year.

In this sense, CVM Instruction No. 351/2001 altered the wording of Article 16 of CVM Instruction No. 202/93, which provides for the registration of a publicly held company for the trading of its securities on a stock exchange, in the organized over-the-counter market, or in the over-the-counter market, and its updating, emphasizing the need to update the IAN form whenever any facts occur that modify the information already provided.

Therefore, it is fundamental that publicly held companies pay attention to the need to resubmit the IAN, spontaneously, whenever corporate changes are verified whose information is required in the form, especially information regarding the composition of members of the board of directors, about eventual statutory amendments, and about changes in shareholding composition.

It should be noted that, in the case of registration of public issuance of securities, the information inserted in the issuance prospectus must also be part of the IAN, and the same must be resubmitted spontaneously upon request for the mentioned registration.

We emphasize that the final deadline for submitting the IAN form is May 31 of the current year, as established in item IV of Article 16 of CVM Instruction No. 202/93, with the wording given by CVM Instruction No. 351/01, being non-extendable, since there is no express authorization in the legislation to authorize, for any reason, a request for extension of the submission deadline for the form.

A publicly held company that does not maintain its registration updated, in accordance with Articles 13, 16, and 17 of CVM Instruction No. 202, is subject to a daily coercive fine, according to the values listed in the table contained in Article 18 of the aforementioned Instruction.

2. ITR – QUARTERLY INFORMATION

The business projections eventually presented in the IAN form must be subject to systematic monitoring in the Quarterly Information (ITR) form. Thus, if the company made projections about its business in the IAN, the realization or non-realization of the planned steps must be included in the ITR, since the form is also an instrument of monitoring for investors regarding the progress of the company's projects.

The monitoring procedure referred to above applies to companies securitizing real estate receivables regarding the performance and realization of credits backing the publicly distributed certificates, in accordance with CVM Instruction No. 284/98.

Thus, securitizing companies must include in their quarterly information an explanatory note evidencing whether the credits are being settled punctually, as well as any change in risk classification, for each of the issuances in circulation.

We emphasize that the deadline for submitting the ITR forms is established in item VIII of CVM Instruction No. 202/93, and in Article 1, item V, of CVM Instruction No. 245, being non-extendable, since there is no express authorization in the legislation to authorize, for any reason, requests for extension of the submission deadline for the form.

A publicly held company that does not maintain its registration updated, in accordance with Articles 13, 16, and 17 of CVM Instruction No. 202, is subject to a daily coercive fine, according to the values listed in the table contained in Article 18 of the aforementioned Instruction.

3. FINANCIAL STATEMENTS – FS’s and DFP

Items "a" and "b" of item I, of Article 16 of CVM Instruction No. 202/93 establish the deadlines for submitting financial statements to the CVM.

These financial statements must be sent through the Periodic and Occasional Information system (IPE) – Economic and Financial Data – Annual Financial Statements subject to publication.

The financial statements to be sent via IPE must be accompanied by the management report and the independent auditor's opinion, in a single file in doc or pdf format, not to be confused with eventual publications in summarized form of the statement.

Attention must be paid to ensure that pdf format files present a legible formatting, which facilitates the reading, manipulation, and printing of the financial statements by interested parties.

The Standardized Financial Statements (DFP) forms must be submitted within the same deadlines fixed in item I of Article 16 of the aforementioned instruction, and must be sent via the CVMWIN system.

4. PUBLICATION OF FINANCIAL STATEMENTS:

Article 289 of Law No. 6404/76 determines that the publications ordered therein will be made in the official organ of the Union, State, or Federal District, depending on the location of the company's headquarters, and in another newspaper of large circulation published in the locality where the company's headquarters is located.

For its part, CVM Instruction No. 207/94, which regulated paragraph 1 of Article 289 of Law No. 6,404/76, obligates additional publication in a newspaper of large circulation, in the locality where the stock exchange is located where the largest amount of trading in the company's issued securities occurred in the last 2 (two) fiscal years, unless that locality coincides with the company's headquarters.

This instruction allowed for summarized publication compared to the data of the previous fiscal year, provided that, at a minimum, the information specified in its Article 3 is disclosed.

5. DISCLOSURE OF RELEVANT FACT:

In accordance with Article 3 of CVM Instruction No. 358/2002, the Director of Investor Relations must disclose and communicate to the CVM, and, if applicable, to the stock exchange and organized over-the-counter market entity where the company's issued securities are admitted to trading, any act or relevant fact occurred or related to its business, as well as guarantee its broad and immediate dissemination, simultaneously in all markets where such securities are admitted to trading.

The decision regarding the disclosure of acts or relevant facts is the competence of the company, with the CVM responsible for ensuring the quality of information brought to the market, prioritizing transparency (full disclosure) and combating information asymmetry.

Corporate law does not prevent relevant information from being communicated and discussed in meetings of trade associations, investors, analysts, or selected audiences, in the country or abroad. However, ensuring equitable treatment of all market participants, and in order to prevent, among other things, the possibility of using insider information, it requires that the relevant fact in question be disclosed, prior to or simultaneously with the meeting, to the entire market, as determined in §3 of Article 3, of CVM Instruction No. 358/02.

We alert that, in accordance with Article 18 of CVM Instruction No. 358/2002, transgression of the provisions contained therein constitutes a serious offense, for the purposes foreseen in § 3 of Article 11 of Law No. 6,385/76.

6. PROJECTIONS:

The disclosure of projections is relevant information, subject to the determinations of CVM Instruction No. 358/2002.

CVM Instruction No. 202/93, in its Article 8, allows for the presentation of business projections, determining, however, that, when disclosed, the company must adopt the following procedures:

I present, clearly, for each of the projected items and periods, the premises and calculation memos used; II present, when providing quarterly information indicated in Article 16, item VIII, a comparison between the projections prepared and the results actually obtained in the quarter, clearly and accurately indicating the reasons that led to deviations from the projections previously made; III when, in the judgment of the administrators, based on solid reasons, the projections cease to be valid or are modified, disclose the fact to the market, immediately, in the manner provided by Article 157, § 4 of Law No. 6,404, of December 15, 1976, and CVM Instruction No. 358/84, together with its reasons.

7. CALL NOTICES

In accordance with item II, of § 1, of Article 124, of Law No. 6404/76, with the wording given by Law No. 10.303/2001, the calling of a general assembly of a publicly held company shall be made by announcement published three times, at minimum, containing, in addition to the location, date, and time of the assembly, the agenda, and, in the case of statutory reform, the indication of the matter, with the deadline for the first call being 15 (fifteen) days and the second call being 8 (eight) days.

Notices for calling Ordinary and/or Extraordinary General Assemblies must explicitly enumerate, in the agenda, all matters to be deliberated, not admitting that under the heading "general matters" there are matters that require assembly deliberation, as established in CVM Instruction No. 341/2000.

Additionally, it should be noted that, in the case of the election of the Board of Directors with the adoption of the multiple voting system, in accordance with Article 141, of Law 6404/76, the minimum percentage of participation in voting capital necessary to request the adoption of multiple voting must be included, obligatorily, in the call notice for the Assemblies destined for the election of members of the Board of Directors of publicly held companies, as determined by CVM Instruction No. 165/91, amended by CVM Instruction No. 282/98.

8. CAPITAL BUDGET

The capital budget submitted to the General Assembly by the administration bodies with the justification of the eventual retention of profits being proposed, in the manner provided in Article 196, of Law No. 6404/76, must include indications of all sources of resources and applications of the capital to which that portion of net profit will be destined. It is not, therefore, a mere mathematical demonstration, but rather a substantiated demonstration regarding the uses and sources of resources of the current fiscal year.

9. TRADING BY ADMINISTRATORS AND RELATED PARTIES

With the objective of having complete and reliable information, the individual and consolidated information, subject to Article 11, of CVM Instruction No. 358/02, must be sent monthly to the CVM, until 10 (ten) days after the end of each month, even in the case where no movement or alteration in the positions of administrators and related parties was verified. In this case, the individual form must be filled out with the information that in that competence there was no trading of administrators with securities of the company, its subsidiary, its holding company, or its affiliate, repeating the initial balance values in the final balance.

The information must be sent in only two files, one of which must contain the forms of individual positions held by administrators and related parties, which will be available only to authorized CVM employees, and the other, the consolidated position of each group (executive board, board of directors, and technical or advisory bodies), which will be available on the CVM's page on the worldwide computer network.

10. DISCLOSURE POLICY FOR ACT OR RELEVANT FACT

The disclosure policy for act or relevant fact is a mandatory document established in Article 16 of CVM Instruction No. 358/02 for all publicly held companies.

CVM Instruction No. 358/02 did not make any restriction or exception to the obligation to adopt the document. Therefore, it is sufficient for the company to be regularly registered with the CVM, regardless of corporate organization and the nature of the securities issued, to have the duty to adopt the disclosure policy.

Thus, publicly held companies that have not yet approved their policy in accordance with the aforementioned instruction must do so, under penalty of applying a coercive fine, in accordance with Article 23 of the aforementioned instruction.

11. ELECTION OF SUPERVISORY BOARD

Law No. 6,404/76 established, in Article 161, § 4, letter "a", that holders of preferred shares without voting rights or with restricted voting rights shall have the right to elect, in a separate vote, one member and respective alternate; the same right shall have minority shareholders, provided that they represent, together, ten percent or more of the shares with voting rights.

In interpreting the aforementioned provision, the CVM has already expressed its understanding, through CVM Advisory Opinion No. 19/90, in the sense that in order not to become merely nominal the right attributed by law to preferred shareholders, it should be understood that, in the separate vote of these shareholders for the election of their representative on the Supervisory Board, controlling shareholders may not participate, even if they also hold preferred shares. Such participation, if admitted, would result in an effective restriction of the essential right to monitor and in inequitable representation of interests, often contrary, which the law sought to protect.

In this sense, the understanding of the Superintendent of Corporate Relations, in consonance with the provisions of Advisory Opinion No. 19/90, is that, in the separate election for the supervisory board by preferred shareholders (Article 161 of Law 6,404/76), no shareholders who do not fall within the concept of minority that the law sought to protect should participate (elect), that is, in addition to controllers, persons linked to them should also not participate.

12. ART. 203 – LAW 6404/76

Article 203 of Law 6,404/76 determines that the provisions in Articles 194 to 197, and 202, will not prejudice the right of preferred shareholders to receive fixed or minimum dividends to which they have priority, including arrears, if cumulative.

Consequently, the reserves mentioned in Articles 194 to 197 cannot be constituted to the detriment of fixed or minimum dividends, nor can the provisions of Article 202, all of Law No. 6,404/76, come to prejudice this distribution. Thus, if there is profit, even if unrealized, fixed or minimum dividends must be distributed.

13. BANKRUPT AND LIQUIDATING COMPANIES

Publicly held companies must pay attention to compliance with legal requirements imposed, among them, the presentation of periodic and occasional information, as provided notably in CVM Instruction No. 202/93 and CVM Instruction No. 358/02, observing the provisions of CIRCULAR LETTER/CVM/SGE/No. 01/03, of 22.01.2003.

In this sense, it should be emphasized that the fact that the company is bankrupt or in liquidation does not exempt it from complying with legal requirements imposed on publicly held companies, notably the provisions of §2 of Article 16 of CVM Instruction 202/93.

14. REGISTRATION UPDATING

As highlighted in the previous item, publicly held companies must pay attention to compliance with legal requirements imposed, especially regarding the maintenance of their updated registration.

The Securities and Exchange Commission has been publishing, semi-annually, in accordance with CVM Deliberation No. 178/95, to market participants, the name of publicly held companies that have had their company registration, referred to in Article 21 of Law No. 6,385/76, as established in CVM Instruction No. 202/93, outdated for more than 6 (six) months.

Furthermore, in accordance with Article 1, item I, of CVM Instruction No. 251/96, it constitutes a hypothesis of objective nature offense, in which a summary administrative process procedure may be adopted, when administrators of a publicly held company and, if applicable, the receiver, trustee, or liquidator fail to adopt the procedures listed in items I and II of Article 13 of CVM Instruction No. 202/93, remembering that, in accordance with item III of the sole paragraph of Article 19 of CVM Instruction 202, the recurrence of the aforementioned objective nature offense constitutes a serious offense.

15. CANCELLATION OF PUBLICLY HELD COMPANY REGISTRATION

For the cancellation of the registration of a wholly-owned subsidiary, it is necessary to submit a request for cancellation of registration, formalizing the plea, without which the company, although a wholly-owned subsidiary, remains subject to all obligations and penalties provided in current regulation, including those regarding the maintenance of the updated registration maintained with this CVM, except for the provisions of Articles 17 and 18 of CVM Instruction No. 361/02.

16. INQUIRIES ABOUT PUBLICLY HELD COMPANIES

Inquiries regarding the application of norms and regulations issued by the CVM and the understanding of provisions of Laws No. 6,385/76 and 6,404/76 and subsequent amendments, must be submitted in writing, via protocol, by the Director of Investor Relations to the Superintendent of Corporate Relations, with the identification of the publicly held company. If the inquiry is made by legal representatives of the companies, it must be accompanied by their respective powers of representation.

The formulation of the inquiry must be clear regarding its object, avoiding generic form and theoretical inquiries, orienting towards the presentation of all elements and arguments deemed important for the conclusive manifestation of the CVM.

17. REQUESTS FOR PRIVATE HEARINGS

Requests for scheduling meetings with organizational components of the CVM must be submitted electronically, through the CVM's page on the worldwide computer network, selecting, for this purpose, the option PRIVATE HEARING. In this request, the specification of the subject matter to be treated must be included, with the necessary condition, in the case of company inquiries, their prior submission, as described in the previous item.

18. REQUEST FOR PROCESS VIEWS

Requests for process views must be submitted to this Superintendency by presenting a signed request, specifying that it is only for granting views and/or copies, with the qualification of the signatories and, in the case of company representatives, accompanied by their respective powers.

The requests will be analyzed on a case-by-case basis, with the requesters having, in the event of denial of the request, an appeal to the CVM Collegiate Body, in accordance with CVM Deliberation No. 463/03.

For approved requests, the processes will be made available in the Documentation Management (GAD) of this Autarchy, with the indication of the availability period through a letter in response to the request.

19. COMPANY REGISTRATION

Recently, a registration updating system was developed with the objective of correcting errors and inconsistencies between the information sent by companies through electronic forms and the GENERAL REGISTRATION system (available on the CVM's electronic page, under the link "Market Participants" – "General Registration").

Through Circular Letter/SEP/No. 01/04, of February 16, 2004, DRIs received an access password and guidance on how to proceed with the registration update.

Objects of registration update by this system are: social and commercial name, date of company constitution, address, telephone, fax, email, securities trading institution, activity sector, trading market, and information about the current independent auditor. The DRI update continues to be made via IPE. Any of these changes must be made subsequently to the submission of the act (minutes of assembly or board meeting) of alteration via IPE, as the system will only accept alterations if the IPE protocol number is indicated.

We inform that a specific activity sector has been included for securitizing companies, which includes, among other companies, companies issuing certificates of real estate receivables (CVM Instruction No. 284/98) and publicly held companies that have as their sole corporate object the realization of receivables securitization operations.

Consequently, companies that fall under the new sector must immediately proceed with registration updating, observing the new classification system.

We alert for the proper maintenance of company data in this system, in order to avoid information discrepancies in electronic forms.

Contact the CVM