CVM Instruction No. 319 of December 3, 1999 (Revoked)

SECURITY AND EXCHANGE COMMISSION OF BRAZIL
Seven of September Street, 111/2-5th and 23-34th Floors – Center – Rio de Janeiro - RJ – CEP: 20050-901 – Brazil Tel.: (21) 3554-8686 - www.cvm.gov.br FULL TEXT OF CVM INSTRUCTION NO. 319, OF DECEMBER 3, 1999, WITH THE CHANGES INTRODUCED BY CVM INSTRUCTIONS NOS. 320/99, 349/01 AND 565/15. CVM INSTRUCTION NO. 319, OF DECEMBER 3, 1999. Regulates merger, acquisition, and spin-off operations involving publicly-held companies.

THE PRESIDENT OF THE SECURITY AND EXCHANGE COMMISSION OF BRAZIL - CVM makes public that the Board, in a meeting held on this date, based on arts. 8, item I, 9, item I, letter "g", and item II, 11, §3, 21, §6, item I, 22, sole paragraph and items I, II, IV, VI and VII, of Law No. 6.385, of December 7, 1976, and considering arts. 8, 115, 116, 117, §1, letters b and h, 122, item VIII, 124, 136, items IV and IX, 157, §1, letter e c/c §§ 4 and 5, 158, 160, 170, 177, §3, 163, item III, 165, 223 to 230, and 264, of Law No. 6.404, of December 15, 1976, HAS RESOLVED TO ISSUE THE FOLLOWING INSTRUCTION:

ON SCOPE AND PURPOSE
Art. 1. The provisions of this Instruction regulate, with respect to merger, acquisition, and spin-off operations involving publicly-held companies:
I - the disclosure of information;
I - REVOKED
II - the economic benefit and accounting treatment of goodwill and discounts; III - the share substitution ratio for non-controlling shareholders, in acquisition operations; III - the share substitution ratio for non-controlling shareholders;

• Item with wording given by CVM Instruction No. 320, of December 6, 1999.
  III - REVOKED
  IV - the requirement for independent audit of financial statements; IV - REVOKED V - the content of the management report; V - REVOKED VI - scenarios for abusive exercise of control power; and VI - REVOKED VII - the dividend flow for non-controlling shareholders. VII - REVOKED
• Items I, III to VII of Art. 1 revoked by CVM Instruction No. 565, of June 15, 2015.

Single paragraph. The provisions of this Instruction apply, regardless of their corporate form, to commercial societies that are part of the operations referred to in the caput of this article.
§1. The provisions of this Instruction apply, regardless of their corporate form, to commercial societies that are part of the operations referred to in the caput of this article.
§2. For the purposes of this Instruction, societies benefiting from resources originating from tax incentives registered with the CVM, and other societies whose shares are admitted to trading in organized over-the-counter market entities, in accordance with CVM Instruction No. 243, of March 1, 1996, are equated to publicly-held companies.

• Paragraphs with wording given by CVM Instruction No. 320, of December 6, 1999.

ON INFORMATION DISCLOSURE
Art. 2. Without prejudice to the provisions of CVM Instruction No. 31, of February 8, 1984, the conditions of merger, acquisition, or spin-off involving a publicly-held company shall be communicated by the company, up to fifteen days before the date of the general meeting that will deliberate on the respective protocol and justification, to the CVM and to stock exchanges or organized over-the-counter market entities in which the securities issued by the company are admitted to trading, as well as disclosed in the press, through publication in newspapers habitually used by the company. §1. The communication and disclosure referred to in the caput of this article shall contain, at a minimum, the following information:
I - the motives or purposes of the operation, and the company's interest in its implementation, highlighting, notably:
a) the expected benefits, of business, asset, legal, financial nature, and any other positive effects, as well as any involved risk factors; b) if applicable, and in accordance with tax legislation, the amount of goodwill that may be amortized as a tax benefit and the conditions for its benefit by the company; and c) the estimated quantification, reasonably itemized, of the costs of implementing the operation. II - the indication of corporate and business acts that preceded the operation; III - the number, type, and class of shares that will be attributed in substitution for the extinguishing partner rights, the criteria used to determine the substitution ratios, and the reasons why the operation is considered equitable for the company's shareholders; IV - the comparison, in a demonstrative table, between the political and asset advantages of the controlling shareholder's shares and those of other shareholders before and after the operation, including changes in their respective rights; V - the shares that preferred shareholders will receive, the reasons for the modification of their rights, if any, as well as any compensatory mechanisms; VI - if it is the case of acquisition of a publicly-held company by its controlling shareholder, or of this by a controlled publicly-held company, or of merger of a controlling shareholder with a controlled one, the calculation of the share substitution ratios for non-controlling shareholders of the controlled company based on the net asset value of the shares of the controlling and controlled companies, evaluating both assets according to the same criteria and on the same date, at market prices, for the purpose of the comparison provided for in art. 264 of Law No. 6.404, of December 15, 1976; VII - the active and passive elements that will form each portion of the assets, in the case of spin-off; VIII - the criteria for evaluating net assets, the date to which the evaluation will be referred, and the treatment of subsequent asset variations; IX - the solution to be adopted regarding shares or quotas of the capital of one society held by another; X - the value of the capital of the societies to be created or of the increase or reduction of the capital of the societies that are part of the operation; XI - the composition, after the operation, according to types and classes of shares, of the capital of the companies that must issue shares in substitution for those that will be extinguished; XII - the reimbursement value of the shares to which dissenting shareholders will be entitled, if applicable; XIII - the detailed composition of the liabilities and unrecorded contingent liabilities to be assumed by the resulting company of the operation, as the legal successor; XIV - the identification of the experts or specialized company, whose appointment will be submitted to the approval of the general meeting, to evaluate the net assets of the company, with the declaration of the existence or not, with respect to them, of
any conflict or community of interests, current or potential, with the controlling shareholder of the company, or with respect to minority shareholder(s) of the same, or with respect to the other society involved, its respective partners, or concerning the operation itself; XV - whether the operation was or will be submitted to the approval of Brazilian and foreign regulatory or competition defense authorities; XVI - all other conditions to which the operation is subject, as well as other relevant information regarding future plans in the conduct of business, notably with respect to specific corporate events intended to be promoted in the company; and XVII - the indication of the locations where the draft or drafts of the bylaws, or of bylaw amendments, which must be approved to effectuate the operation, will be available, and the itemization of the other documents made available to the company's shareholders for examination and copying, from the date of publication of the information referred to in this article, observing the provisions of art. 3 of this Instruction, with the mandatory sending of a copy of the documents referred to in this item to the CVM and to the stock exchanges or organized over-the-counter market entities in which the securities issued by the company are admitted to trading. §2. The values subject to determination shall be indicated by estimate. Art. 2. REVOKED Art. 3. The protocol, justification, as well as legal, accounting, financial opinions, reports, evaluations, financial statements, studies, and any other information or documents that have been made available to the controlling shareholder or used by him in the planning, evaluation, promotion, and execution of merger, acquisition, or spin-off operations involving a publicly-held company, shall be mandatorily made available to all shareholders from the date of publication of the operation's conditions (art. 2). Single paragraph. Publicly-held companies that disclose information, financial statements, or any other additional documents abroad, or that, for any reason, have content different from that required by corporate legislation and other norms issued by the CVM, regarding the operations covered by this Instruction, shall, simultaneously, disclose them in the country and make them available to shareholders, through a notice published in the newspapers habitually used by the company, and communicate them to the CVM and to the stock exchanges and organized over-the-counter market entities in which the securities issued by the company are admitted to trading. Art. 3. REVOKED Art. 4. Final reports shall be made available to shareholders as soon as they are finalized, through a notice published in the newspapers habitually used by the company, up to the date of publication of the announcement convening the general meeting that will deliberate on them. Art. 4. REVOKED Art. 5. Companies and professionals who have issued opinions, certifications, reports, assessments,
studies, or provided any other services, with respect to merger, acquisition, or spin-off operations involving a publicly-held company, without prejudice to other applicable legal or regulatory provisions, shall:
I - clarify, prominently, in the body of their respective opinions, certifications, reports, assessments, studies, or any other documents of their authorship, if they have a direct or indirect interest in the company or the operation, as well as any other relevant circumstance that may characterize a conflict of interest; and II - inform, in the manner indicated in the preceding item, if the controlling shareholder or the company's administrators directed, limited, hindered, or committed any acts that have or may have compromised the access, use, or knowledge of information, assets, documents, or work methodologies relevant to the quality of the respective conclusions. Art. 5. REVOKED

• Arts. 2 to 5 revoked by CVM Instruction No. 565, of June 15, 2015.

ON THE ACCOUNTING TREATMENT OF GOODWILL AND DISCOUNTS Art. 6. The amount of goodwill or discount, as the case may be, resulting from the acquisition of control of the publicly-held company that will acquire its controlling shareholder shall be accounted for, in the acquiring company, as follows:
I - in the accounts representing the assets that gave rise to them – when the economic basis has been the difference between the market value of the assets and their book value (CVM Instruction No. 247/96, art. 14, § 1); II - in a specific fixed asset account (goodwill) – when the economic basis has been the acquisition of the right to exploration, concession, or permission delegated by the Public Power (CVM Instruction No. 247/96, art. 14, § 2, letter b); and III - in a specific deferred asset account (goodwill) or in a specific future exercise result account (discount) – when the economic basis has been the expectation of future results (CVM Instruction No. 247/96, art. 14, § 2, letter a). §1. The goodwill referred to in the caput of this article shall have as a counterpart a special goodwill reserve in the acquisition, contained in the net assets. §1. The recording of the goodwill referred to in item I of this article shall have as a counterpart a special goodwill reserve in the acquisition, contained in the net assets, and the company shall observe, with respect to the recordings referred to in items II and III, the following treatment:
a) constitute a provision, in the acquired company, at least in the amount of the difference between the value of the goodwill and the tax benefit resulting from its amortization, which will be presented as a reduction of the account in which the goodwill was recorded; b) record the net value (goodwill minus provision) as a counterpart to the reserve account referred to in this paragraph; c) reverse the provision referred to in letter "a" above to the period's result, proportionally to the amortization of the goodwill; and d) present, for the purposes of disclosing financial statements, the net value referred to in letter "a" in the current and/or long-term receivable assets, according to the expectation of its realization.

• Paragraph with wording given by CVM Instruction No. 349, of March 6, 2001.
  §2. The reserve referred to in the previous paragraph may only be incorporated into the share capital, to the extent of the amortization of the goodwill that gave rise to it, for the benefit of all shareholders, except as provided in art. 7 of this Instruction.
  §3. After the acquisition, the goodwill or discount will continue to be amortized observing, insofar as applicable, the provisions of CVM Instructions No. 247, of March 27, 1996, and No. 285, of July 31, 1998.
  Art. 7. The protocol for the acquisition of a controlling shareholder by a controlled publicly-held company may provide that, in cases where the company will derive a tax benefit, due to the amortization of the goodwill referred to in item III of art. 6 of this Instruction, the portion of the special goodwill reserve in the acquisition corresponding to such benefit may be subject to capitalization for the benefit of the controlling shareholder. §1. In the hypothesis provided for in the caput of this article, observing the provisions of art. 170 of Law No. 6.404/76, the right of preference shall always be assured to the other shareholders, and, if applicable, the amounts paid by them shall be delivered to the controlling shareholder. §2. The capitalization of the portion of the special reserve referred to in the caput of this article, corresponding to the tax benefit, may only be carried out at the end of each fiscal year and to the extent that this benefit represents an actual reduction of the taxes paid by the company. Art. 8. The company shall perform and disclose, at the end of each fiscal year, an analysis on the recovery of the value of the goodwill, even if recorded in the manner of items II and III of art. 6 of this Instruction, in order to:
  a) record the losses in the value of the applied capital when it is evident that there will not be sufficient results to recover this value; or b) revise and adjust the criteria used to determine its economic useful life and for the calculation and term of its amortization.

ON SUBSTITUTION RATIOS
Art. 9. In acquisition operations of a publicly-held company by its controlling shareholder, or of this by a controlled publicly-held company, the calculation of the share substitution ratio for non-controlling shareholders must exclude the balance of goodwill paid in the acquisition of the controlled company. Single paragraph. The provisions of the caput of this article also apply to merger operations of a controlling shareholder with a controlled one. Art. 10. In the calculation of the share substitution ratios for non-controlling shareholders, which will be extinguished, established in the operation's protocol, the existence of types and classes of shares with differentiated rights must be recognized, and it is forbidden to favor, directly or indirectly, another type or class of shares. Art. 10. REVOKED Art. 11. The adoption, in the share substitution ratios for non-controlling shareholders, in the operations covered by this Instruction, of the stock exchange quotation of the shares of the involved companies is prohibited, unless these shares are part of general indices representative of share portfolios admitted to trading on futures exchanges. Art. 11. REVOKED

INDEPENDENT AUDIT
Art. 12. The financial statements that serve as the basis for merger, acquisition, and spin-off operations involving a publicly-held company must be audited by an independent auditor registered with the CVM.
Single paragraph. The provisions of this article also apply to the share acquisition cases provided for in art. 252 of Law No. 6.404/76.
Art. 12. REVOKED
Art. 13. The financial statements referred to in the previous article must be prepared in accordance with the provisions of corporate legislation and CVM norms and shall also observe the identical accounting criteria adopted by the publicly-held company, regardless of the corporate form of the other society involved. Art. 13. REVOKED

ON THE MANAGEMENT REPORT
Art. 14. In the management report, relative to the fiscal year in which any merger, acquisition, and spin-off operation involving a publicly-held company was carried out, a chapter or specific part, duly highlighted, shall be dedicated, item by item, listing all transaction costs borne by the company due to the operation, as well as the quantity of savings and other advantages already derived from it. Single paragraph. The report referred to in the caput of this article and the reports of the two following fiscal years shall contain, without prejudice to other required information, a detailed exposition of the changes occurred in the administration and conduct of business, related to or resulting from the operation. Art. 14. REVOKED

ON THE ABUSIVE EXERCISE OF CONTROL POWER
Art. 15. Without prejudice to other legal or regulatory provisions, the following are scenarios for abusive exercise of control power:
I - the direct or indirect benefit, by the controlling shareholder, of the value of the goodwill paid in the acquisition of control of a publicly-held company in the calculation of the share substitution ratio for non-controlling shareholders, upon its acquisition by the controlling shareholder, or in the operations of acquisition of a controlling shareholder by a controlled publicly-held company, or of merger of a controlling shareholder with a controlled one; II - the assumption, by the company, as legal successor, directly or indirectly, of indebtedness associated with the acquisition of its own control, or of any other type of debt contracted in the exclusive interest of the controlling shareholder; III - the non-recognition, in the calculation of the share substitution ratios for non-controlling shareholders established in the operation's protocol, of the existence of types and classes of shares with differentiated rights, with the attribution of shares, with reduced rights, in substitution for those that will be extinguished, in order to favor, directly or indirectly, another type or class of shares; IV - the adoption, in the share substitution ratios for non-controlling shareholders, of the stock exchange quotation of the shares of the involved companies, which do not integrate general indices representative of share portfolios admitted to trading on futures exchanges; V - the non-evaluation of the entirety of both assets at market prices, in operations of acquisition of a publicly-held company by its controlling shareholder, or of this by a controlled publicly-held company, and in operations of merger between controlling and controlled companies, for the purpose of the comparison provided for in art. 264 of Law No. 6.404/76 and in item VI of art. 2 of this Instruction; and VI - the omission, inconsistency, or unjustified delay in the disclosure of information or documents that have been made available to the controlling shareholder or used by him in the planning, evaluation, promotion, and execution of merger, acquisition, or spin-off operations involving a publicly-held company. Art. 15. REVOKED

• Arts. 10 to 15 revoked by CVM Instruction No. 565, of June 15, 2015.

ON DIVIDEND FLOW
Art. 16. Dividends attributed to shares held by non-controlling shareholders shall not be reduced by the amount of goodwill amortized in each fiscal year.

ON SERIOUS OFFENSES
Art. 17. A serious offense, for the purposes of art. 11, § 3, of Law No. 6.385, of December 7, 1976, is considered to be the violation of the provisions of arts. 170, 223, 224, 225, 226, 227, 228, 229, 230, 231, and 264, of Law No. 6.404/76, as well as the violation of obligations and non-compliance with the deadlines provided for in this Instruction, and the practice of acts with abusive exercise of control power. Single paragraph. The penalties provided by law, as the case may be, are subject to the publicly-held company, the members of the boards of directors and audit committees, and the executive board, the members of their technical or advisory bodies, as well as any other natural or legal persons who have contributed to the offense. Art. 17. REVOKED

• Art. 17 revoked by CVM Instruction No. 565, of June 15, 2015.

FINAL PROVISIONS
Art. 18. The provisions of arts. 6, items I to III and §3, 8, 14, and 16 of this Instruction apply to operations already concretized, without prejudice to the determination of any practice of abusive exercise of control power.
Art. 19. The provisions of arts. 2, 3, caput, 5, 6, §§ 1 and 2, 7, 9, 10, and 11 of this Instruction shall not apply to operations preceded, in the last sixty days, by a voluntary public offer to purchase shares, directly related to the operation to be carried out. Art. 20. This Instruction enters into force on the date of its publication in the Official Gazette of the Union. Signed original by FRANCISCO DA COSTA E SILVA President