As filed with the Securities and Exchange Commission on May 29, 2019.
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Linx S.A.
(Exact Name of Registrant as Specified in its Charter)
Brazil
(State or other jurisdiction of incorporation or organization) |
7372
(Primary Standard Industrial Classification Code Number) |
N/A
(I.R.S. Employer Identification Number) |
Avenida Doutora Ruth Cardoso, 7,221
São Paulo SP, 05425-902, Brazil
+55 (11) 2103-1575
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)
Cogency Global Inc.
10 East 40
th
Street, 10
th
Floor
New York, NY 10016
(212) 947-7200
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to: | ||
Donald Baker, Esq. John Guzman, Esq. White & Case LLP Avenida Brigadeiro Faria Lima, 2,277 4th Floor São Paulo SP 01452-000, Brazil +55 (11) 3147-5600 |
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Grenfel S. Calheiros, Esq. Simpson Thacher & Bartlett LLP Av. Presidente Juscelino Kubitschek, 1455 12th Floor São Paulo SP 04543-011, Brazil +55 (11) 3546-1000 |
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
Emerging growth company ý
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. o
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities
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Proposed Maximum
Aggregate Offering Price (2)(3) |
Amount of
Registration Fee |
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Common shares including in the form of ADSs without par value (1)(2) |
US$100,000,000.00 | US$12,120.00 | ||
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The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We and the selling shareholder may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED , 2019
PRELIMINARY PROSPECTUS
Common Shares
Linx S.A.
(incorporated in the Federative Republic of Brazil)
Including Common Shares in the form of American Depositary Shares
This is a public offering of common shares, including in the form of American depositary shares, or the ADSs, by Linx S.A. and the selling shareholder named in this prospectus, which consists of an international offering in the United States and other countries outside of Brazil, which we refer to as the "international offering" and a concurrent offering in Brazil by way of a Brazilian prospectus in Portuguese, which we refer to as the "Brazilian offering." We refer to the international offering and the concurrent Brazilian offering as the "global offering." These common shares are being offered directly or in the form of ADSs, each of which represents common shares. The offering of the ADSs is being underwritten by the international underwriters named in this prospectus. The common shares purchased by investors located outside Brazil will be settled in Brazil and paid for in reais , and offered by the Brazilian underwriters named elsewhere in this prospectus. The offering of the common shares is being underwritten by the Brazilian underwriters. The closings of the international offering and the Brazilian offering are conditioned upon each other. We will not receive any proceeds from the sale of our common shares, including in the form of ADSs, by the selling shareholder.
Prior to this offering, there has been no public market for ADSs representing our common shares. We intend to apply to list the ADSs on The New York Stock Exchange, or the NYSE, under the symbol "LINX." Our common shares are listed on the Novo Mercado segment of the B3 S.A. Brasil, Bolsa, Balcão, or the B3, under the symbol "LINX3." The closing price of our common shares on , 2019 was R$ per common share, which is equivalent to approximately US$ based upon the exchange rate of R$ to US$1.00 reported by the Central Bank of Brazil ( Banco Central do Brasil ), or the Central Bank, on , 2019, or US$ per ADS after giving effect to the : common share: ADS ratio. See "Market Information." The price per common share and price per ADS in this offering will be determined based on the bookbuilding process and the closing price of our common shares on the B3 on the pricing date of the global offering.
The global offering will be registered on the Brazilian Securities and Exchange Commission ( Comissão de Valores Mobiliários ), or the CVM.
We are an "emerging growth company" under the U.S. federal securities laws as that term is used in the Jumpstart Our Business Startups Act of 2012 and will be subject to reduced public company reporting requirements. Investing in the ADSs involves risks. See "Risk Factors" beginning on page 18 of this prospectus.
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Per ADS |
Per
Common Share |
Total
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Initial public offering price (1) |
US$ | R$ | US$ | ||||
Underwriting discounts and commissions (1) |
US$ | R$ | US$ | ||||
Proceeds, before expenses, to us (1) (2) |
US$ | R$ | US$ | ||||
Proceeds, before expenses, to the selling shareholder (1) (2) |
US$ | R$ | US$ |
The international underwriters have an option for a period of 30 days from the date of this prospectus to purchase up to additional common shares in the form of ADSs from us, minus the number of common shares sold by us pursuant to the Brazilian underwriters' option to purchase additional shares referred to below, to cover over-allotments of ADSs, if any. The Brazilian underwriters also have an option to purchase up to additional common shares from us, minus the number of common shares in the form of ADSs sold by us pursuant to the international underwriters' option to purchase additional shares, to cover over-allotments of common shares, if any.
Neither the U.S. Securities and Exchange Commission, the CVM nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Delivery of the ADSs will be made through the facilities of The Depository Trust Company, or DTC, on or about , 2019. Delivery of our common shares not sold in the form of ADSs will be made in Brazil through the book-entry facilities of the B3 on or about , 2019.
Global Coordinators
Goldman Sachs & Co. LLC | ||||||||
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Morgan Stanley |
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Jefferies |
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BofA Merrill Lynch |
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Itaú BBA |
The date of this prospectus is , 2019.
TABLE OF CONTENTS
Neither we nor the selling shareholder have authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we may have referred you. Neither we nor the selling shareholder take responsibility for, or provide assurance as to the reliability of, any other information that others may give you. Neither we and the selling shareholder nor the underwriters have authorized any other person to provide you with different or additional information. Neither we and the selling shareholder nor the underwriters are making an offer to sell the ADSs in any jurisdiction where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of the ADSs. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.
This offering of ADSs is being made in the United States and elsewhere solely on the basis of the information contained in this prospectus. We and the selling shareholder are also offering our common shares in Brazil using a Portuguese-language prospectus. The Brazilian prospectus, which
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has been filed with the CVM, is in a format different from that of this prospectus and contains information not generally included in documents such as this prospectus.
For investors outside the United States: Neither we and the selling shareholder nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction, other than the United States, where action for that purpose is required. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the ADSs and the distribution of this prospectus outside the United States and in their jurisdiction.
No offer or sale of ADSs may be made to the public in Brazil except in circumstances that do not constitute a public offer or distribution under Brazilian laws and regulations. Any offer or sale of ADSs in Brazil to non-Brazilian residents may be made only under circumstances that do not constitute a public offer or distribution under Brazilian laws and regulations.
We own or have rights to trademarks, service marks and trade names that we use in connection with the operation of our business, including our corporate name, logos and website names. Other trademarks, service marks and trade names appearing in this prospectus are the property of their respective owners. Solely for convenience, some of the trademarks, service marks and trade names referred to in this prospectus are listed without the ® and symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks, service marks and trade names.
Unless otherwise indicated or the context otherwise requires, all references in this prospectus to "Linx," "Linx Group" or the "Company," "we," "our," "ours," "us" or similar terms refer to Linx S.A., together with its subsidiaries. The terms "selling shareholder" and "BNDESPAR" refers to "BNDES Participações S.A.".
The term "Brazil" refers to the Federative Republic of Brazil and the phrase "Brazilian government" refers to the federal government of Brazil. "Central Bank" refers to the Brazilian Central Bank ( Banco Central do Brasil ) "CMN" refers to the National Monetary Council ( Conselho Monetário Nacional ). References in the prospectus to " real ," " reais " or "R$" refer to the Brazilian real , the official currency of Brazil and references to "U.S. dollar," "U.S. dollars" or "US$" refer to U.S. dollars, the official currency of the United States.
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PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Financial Information
We maintain our books and records in reais , which is our functional currency (the currency of the primary economic environment in which we operate) as well as our presentation currency. We prepare our consolidated financial statements in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or the IASB.
Our financial information contained in this prospectus has been derived from our consolidated financial statements as of and for the three-month periods ended March 31, 2019 and 2018 and as of and for the years ended December 31, 2018, 2017 and 2016, and the respective notes thereto, included elsewhere in this prospectus.
Currency Information
All references herein to the " real ," " reais " or "R$" are to the Brazilian real , the official currency of Brazil. All references to "U.S. dollars," "dollars" or "US$" are to U.S. dollars. Solely for the convenience of the reader, we have translated certain amounts included in "Summary Financial Information," "Capitalization," "Selected Financial Information" and elsewhere in this prospectus from reais into U.S. dollars using the selling rate as reported by the Central Bank of R$3.8967 to US$1.00 as of March 31, 2019. As a result of fluctuations in the real /U.S. dollar exchange rate, the selling rate as of March 31, 2019 may not be indicative of current or future exchange rates. The U.S. dollar equivalent information presented in this prospectus is provided solely for the convenience of investors and should not be construed as implying that the amounts in reais represent, or could have been or could be converted into, U.S. dollars at such rates or at any other rate. The selling rate was R$3.8748 to US$1.00 as of December 31, 2018, R$3.3080 to US$1.00 as of December 31, 2017 and R$3.2591 to US$1.00 as of December 31, 2016 in each case, as reported by the Central Bank. See "Exchange Rates" for information regarding exchange rates for the real since January 1, 2014.
Market and Other Information
This prospectus contains information, including statistical and other information relating to the industry in which we operate, obtained from reports prepared by independent consultants, governmental agencies and general publications of the Central Bank, the Brazilian Institute of Geography and Statistics ( Instituto Brasileiro de Geografia e Estatística ), or IBGE, the Brazilian Association of Credit Card and Services Companies ( Associação Brasileira de Empresas de Cartões de Crédito e Serviços ), or ABECS, Brazilian Association of Electronic Commerce ( Associação Brasileira de Comércio Eletrônico ), or ABCOMM, the Brazilian Ministry of Labor ( Ministério do Trabalho ) and the World Bank Group.
Additionally, this prospectus contains information obtained from a report issued in 2018 by the International Data Corporation, or IDC, regarding media around the world, or the 2018 IDC Survey.
We believe that such sources of information are reasonably reliable and we have no reason to believe that any of this information is inaccurate in any material respect. The underwriters have not independently verified such information and make no representation as to the accuracy or completion of such information.
Rounding
Certain percentages and other amounts included in this prospectus have been rounded for ease of presentation. Accordingly, figures shown as totals in certain tables may not be an arithmetical aggregation of the figures that precede them.
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Special Note Regarding Non-IFRS Financial Measures
We have disclosed EBITDA, EBITDA Margin and Net Debt in this prospectus, which are non-IFRS financial measures. Generally, a non-IFRS financial measure is a numerical measure of a company's performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with IFRS. EBITDA, EBITDA Margin and Net Debt, however, should be considered in addition to, and not as substitutes for or superior to, net income, or other measures of the financial performance prepared in accordance with IFRS. For reconciliations of EBITDA, EBITDA Margin and Net Debt, see "Selected Financial Information."
We calculate EBITDA as net income plus : (1) net financial income (expense); (2) income tax and social contribution and (3) depreciation and amortization.
Because our calculation of EBITDA does not consider net financial income (expense), income tax and social contribution and depreciation and amortization, EBITDA serves as an indicator of our overall financial performance, which is not affected by changes in interest rates, income or social contribution tax rates or levels of depreciation and amortization. Consequently, we believe that EBITDA, when considered in conjunction with other accounting and financial information available, serves as a comparative tool to measure our operating performance, as well as to guide certain administrative decisions. We believe that EBITDA provides the reader with a better understanding not only of our financial performance, but also on our ability to pay interest and principal on our debt and to incur additional debt to finance our capital expenditures and our working capital. We calculate EBITDA and EBITDA margin in accordance with CVM rules.
EBITDA margin is calculated by dividing EBITDA for the period by net operating revenues for the same period.
We calculate Net Debt as the sum of current payables for the acquisition of businesses plus non-current payables for the acquisition of businesses plus current and non-current loans and financing minus cash and cash equivalents and financial assets. We believe that Net Debt is an adequate metric for assessing our capital structure and also provides useful information to our investors, market analysts and the general public that assists in the comparison of our operating performance with that of other companies, both in our sector and in other sectors. Our management believes that our current capital structure, measured principally by our Net Debt to shareholders' equity ratio, reflects our conservative leverage. Our calculation of Net Debt may differ from the calculation of Net Debt of other companies.
EBITDA, EBITDA Margin and Net Debt are not measures of financial performance under IFRS, generally accepted accounting principles in the United States or Brazilian GAAP and should not be considered as alternatives to net income as measures of operating performance, operating cash flows or liquidity. EBITDA, EBITDA Margin and Net Debt do not have standardized meanings, and our definitions of EBITDA, EBITDA Margin and Net Debt may not be comparable with those used by other companies. EBITDA, EBITDA Margin and Net Debt present limitations that limit their usefulness as measures of profitability, as a result of not considering certain costs arising from business, which may affect, significantly, our profits, as well as financial expenses, taxes and depreciation.
Certain Definitions
The following is a glossary of certain defined terms used in this prospectus:
"Customer retention rate" is the rate at which billings from existing subscribed customers at the beginning of the period continue as billings during the end of such applicable period not
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adjusted for (x) any increases or decreases in billings for pricing changes or (y) additional products or services provided to these existing subscribed customers.
"Gross Merchandise Value" is the sum of a retailer's merchandise sales volume processed through point of sale, or POS, and electronic funds transfer, or EFT, technology.
"Subscription revenue" comprises the monthly subscription fees we charge our customers for the right to use our software and for technology support, helpdesk services, software hosting services, support teams and connectivity services.
"Net dollar retention rate" is the customer retention rate adjusted for (x) any increases or decreases in billings for pricing changes and (y) additional products or services provided to existing subscribed customers.
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This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in the ADSs or our common shares. Before investing in the ADSs or our common shares, you should read this entire prospectus carefully to better understand our business, corporate structure and our common shares, including the information contained in "The Offering," "Risk Factors," "Selected Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," and our financial statements and the corresponding notes thereto, included elsewhere in this prospectus, before making a decision to invest in the ADSs or our common shares.
Overview
We are a leading cloud-based technology company in Latin America and a market leader in Brazil in terms of revenue. We are focused on developing and providing affordable, easy-to-use, reliable and seamlessly integrated software solutions to retailers in Latin America, through our software-as-a-service, or SaaS, business model. During 2018, our subscription revenue accounted for 86.8%, or R$680.8 million, of our gross operating revenue, an increase of 15.5% over 2017 in reais . During the three-month period ended March 31, 2019, our subscription revenue accounted for 89.1%, or R$180.5 million, of our gross operating revenue, an increase of 11.1% over the corresponding period in 2018 in reais . With a comprehensive offering of solutions, we are an end-to-end service provider that offers business management tools, payment solutions, e-commerce and omni-channel applications through an integrated and ever-evolving platform to retailers of all sizes and capabilities.
Since our incorporation in 1985, our consumer-centric and entrepreneurial culture has been focused on innovation, agility, and building a reliable infrastructure, all of which have enabled us to adapt to our customers' needs, deliver user-friendly software solutions and services and develop a comprehensive portfolio of integrated solutions. These capabilities have contributed to our resilient and predictable operations, with subscription revenue accounting for 86.8% of our gross operating revenue in 2018 and a quarterly customer retention rate of over 99% through the year. In addition, our growth is supported by a strong track record of adding new products to our portfolio, including our most recent Linx Pay Hub integrated payment processing solution, in order to anticipate trends and adapt to changes in our market. These ongoing efforts are exemplified by the upcoming products we intend to launch in 2019, including a QR code acceptance solution at cash registers that replaces debit cards and a digital wallet for retail customers that do not want a checking account.
As a result of our innovation capacity, ability to adapt to evolving customer needs and our cross-selling efforts, we have successfully retained and increased year-over-year the share of our services in our customers' wallet, as demonstrated in the following cohort analysis. For purposes of the following chart, we define (1) "annual cohort" as the subscription revenue generated from customers and that is added to our portfolio of customers in a given year and (2) "compound cohort growth rate" as the percentage of the subscription revenue generated by the relevant annual cohort of customers in 2018 relative to the revenue generated by the same annual cohort in the year immediately after they were added to our portfolio of customers. Compound cohort growth rates are calculated using this method to capture customer-generated revenues over a 12-month period (a full fiscal year), while also mitigating the fact that customers are added to the portfolio on different days of the year. Annual cohort revenue estimated using this metric takes into consideration both new organic customers and customers of companies that we acquire. As evidenced in the following chart, all of our annual cohorts have been kept at more than 100% of their respective initial annual revenue.
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As result of over 30 years of operations dedicated to the retail sector in Brazil, we have developed in-depth specialized knowledge and competitive advantages that have allowed us to become the leading player in the Brazilian software market. Consequently, we achieved a 41.3% market share in 2017 in terms of revenue in the retail management software solutions segment, according to the 2018 IDC Survey. We have successfully leveraged our extensive customer base to explore cross selling opportunities, resulting in greater economies of scale, greater customer loyalty (as reflected by our high customer retention rates) and lower customer acquisition costs, translating into a hard to replicate business model with strong natural barriers against the entry of competitors.
Throughout our history, we have adapted our operations to our customers' needs and market trends by expanding our product portfolio to offer a unique integrated platform with comprehensive solutions and leading to a compelling value proposition. For instance, in addition to Linx Core, our core product line that offers integrated business management systems, we launched Linx Digital in 2018, an e-commerce platform and application designed to improve the omni-channel shopping experience for both retailers and their customers. Through Linx Digital, retailers are able to interact with their clients and deliver a seamless experience across a variety of channels, including physical stores, mobile applications and the internet. Moreover, in 2018, we further adapted to our customers' ever-evolving needs and launched Linx Pay Hub to offer payment processing solutions integrated with our Linx Core and Linx Digital product lines. By providing mission critical services and integrated solutions to our customers, we are able to better understand their business performance preferences while further enhancing our portfolio of offerings with a comprehensive payment processing solution.
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The graphic below illustrates our primary product lines, each of their main services and international benchmarks.
In addition to our own organic innovation capabilities we have also increased our retail product offerings through strategic acquisitions of synergic businesses with our own operations, enabling us to further develop our product developing capabilities. From 2008 to March 31, 2019, we have completed 28 acquisitions, which we believe is a testament to our ability to identify, execute and integrate acquisitions in a consistent and disciplined manner. We believe that we are a differentiated platform with the knowledge to capitalize on consolidation opportunities in our market segment and explore new verticals as the relationship between retailers and their customers continues to evolve.
To support our growth trajectory, we successfully completed the initial public offering of our common shares in Brazil in 2013 and rapidly became one of the country's most prominent technology companies listed on the Novo Mercado segment, the listing segment of the B3 with the highest corporate governance standards. Moreover, on September 26, 2016, we completed the follow-on public offering of our common shares, using the net proceeds from the issuance to finance strategic acquisitions in the retail software sector.
Our Product Lines
We offer three primary product lines: Linx Core, Linx Digital and Linx Pay Hub. We initiated our operations through our Linx Core product line, and as part of our efforts to adapt to ever-evolving
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customer needs, we created our Linx Digital and, most recently, Linx Pay Hub product lines. The solutions we offer through our product lines are specially designed for our customers' value chain ERP/POS offerings with the objective of developing a fully integrated ecosystem and becoming an end-to-end service provider for retailers. We believe that these three verticals allow us to become a partner of choice to retailers by providing services that increase efficiencies, integrating digital and physical stores, while ensuring a flexible payment solution suitable for each.
Linx Core
Our Linx Core product line provides integrated business management systems. Linx Core products cater to the entire retail chain, from business automation software that performs all necessary operations at the POS to comprehensive enterprise resource planning, or ERP, applications, which include, among other features, inventory management, customer relationship management, or CRM, tools, financial, accounting and tax management, product lifecycle management, supply management, loyalty programs, e-receipt and other interconnected features. By offering our POS as a primary product, we are able to cross-sell many of our ERP capabilities by highlighting the seamless experience they provide. As of December 31, 2018, more than 45,000 retailers used Linx Core.
We design our Linx Core software products to enable retailers to adapt to changing business requirements through consistent innovations and frequent upgrades that provide new functionalities and support our customers' navigation of the complex Brazilian tax system as well as evolving regulatory requirements. According to the 2018 IDC Survey, spending related to software in the Brazilian retail market totaled R$2.4 billion in 2017, or 10.4% growth over 2016.
Our software products are evolving in response to performance demands and user experiences. Furthermore, through our cloud-based infrastructure we can derive even more operating leverage as we continue to grow our services and solutions, resulting in increased margins.
Through Linx Core, we believe that we have the capability to offer our customers simple and cost-effective solutions that meet their requirements, personalized for their size and their verticals. Our modular and cloud-based solutions efficiently serve both small, medium and large-scale enterprises as well as large multinational retail chains. We offer our customers in-depth operational knowledge and best practices across a variety of verticals, including clothing stores, vehicle dealerships, pharmacies, electronic goods and household appliances stores, department stores, home improvement stores, fast food chains and gas stations.
Linx Digital
Our in-depth knowledge of the Brazilian retail sector also enables us to offer focused innovative, scalable and machine-learning technology, tailored to the retail market as well as e-commerce platforms, data analytics and order management system, or OMS, technology fully integrated with our ERP software.
Our Linx Digital product line is subdivided into three categories:
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customer acquisition and loyalty. In this context, our Linx Impulse product offering is capable of analyzing consumer behavior to help our customers improve their client conversion rates by, for example, reducing the shopping cart abandon rate (which represents the rate at which shoppers select a product for purchase online but abandon the purchase prior to its consummation), personalizing campaigns to increase revenue, predicting and avoiding customer churn and lowering customer acquisition costs; and
Based on our knowledge of the retail sector, we believe that e-commerce has significant growth potential in Brazil. In addition, the e-commerce conversion rate (which represents the rate at which shoppers enter a retailer's website and ultimately purchase a product) in Brazil was only 1.4% in 2017 according to the E-commerce Radar 2017 Survey published by ABCOMM. We believe that our product and service offerings will positively impact these rates through our rapid cycle of innovation as well as our Linx Digital capabilities, including big data and machine-learning technologies, each of which form an integral part our " Linx Impulse " strategy.
Linx Pay Hub
In October 2018, we further expanded our platform to include payment solutions through Linx Pay Hub in response to our customers' ever-evolving needs. We believe that our ability to offer payments solutions powered by a full-fledged platform allows us to explore new product verticals at lower customer acquisition costs, differentiate ourselves from other commoditized and/or non-integrated solutions and increase our client loyalty. We believe these services can also be an important source of future growth given our relevant market share in the management software retail sector, high customer retention rates and superior services. In 2017, approximately R$250 billion in Gross Merchandise Volume, or GMV, were processed in our Linx Core platform, equivalent to approximately 18.4% of the industry's total purchase volume according to ABECS. Our goal is to cross-sell and convert as many of our customers into Linx Pay Hub and capture a large share of this revenue opportunity. We are confident in our ability to execute this strategy given our product portfolio integration and compelling value proposition.
Our Linx Pay Hub product line offers wide range of services and solutions to our merchants including mainly the following:
With the combination of our core and digital solutions and the capabilities of our payments platform, our customers are able to have a seamless experience.
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Key Financial and Operating Information
Our revenue streams consist of (1) subscription revenue generated from monthly subscription fees we charge our customers for the right to use our software and for continuous technology support, helpdesk services, software hosting services, support teams and connectivity service and (2) consulting service revenue (installation, implementation, customization and training services). At times, we charge one-time setup fees to our smallest enterprise customers related to our subscription service. This one-time setup fee was recognized upon the commencement of the service in 2017 and 2016. Upon adoption of IFRS 15 for 2018, this one-time setup fee is deferred over the average customer life. Our subscription revenue and consulting service revenue accounted for 86.8% and 13.2% of our gross operating revenue in 2018, respectively. The table below presents certain of our key financial and operating information for the periods indicated:
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For the Three-Month | For the Year Ended | ||||||||||||||||||||
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Period Ended March 31, |
December 31,
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2019 | 2019 | 2018 | 2018 | 2018 | 2017 |
2016
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(in millions of | (in millions of | (in millions of | (in millions of R$, unless | ||||||||||||||||||
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U.S.$, unless | R$, unless | U.S.$, unless | otherwise indicated) | ||||||||||||||||||
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otherwise | otherwise | otherwise | |||||||||||||||||||
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indicated) (1) | indicated) | indicated) (1) | |||||||||||||||||||
Financial information: |
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Net operating revenues |
45.4 | 176.8 | 158.4 | 175.9 | 685.6 | 571.6 | 494.6 | |||||||||||||||
Net income |
4.4 | 17.2 | 26.5 | 18.2 | 71.1 | 84.8 | 68.5 | |||||||||||||||
EBITDA (2) (7) |
12.7 | 49.7 | 47.6 | 43.3 | 168.8 | 144.3 | 124.5 | |||||||||||||||
EBITDA margin (%) (3) (7) |
28.1 | % | 28.1 | % | 30.1 | % | 24.6 | % | 24.6 | % | 25.2 | % | 25.2 | % | ||||||||
Subscription revenue (4) (%) |
| 89.1 | % | 89.3 | % | | 86.8 | % | 89.8 | % | 89.6 | % | ||||||||||
Operating information: |
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Customer retention rate (%) (5) |
| 99.2 | % | 99.1 | % | | 99.1 | % | 97.6 | % | 98.7 | % | ||||||||||
Net dollar retention rate (6) |
| 102.3 | % | 101.3 | % | | 110.3 | % | 106.1 | % | 114.8 | % | ||||||||||
Total number of customers |
| 46,197 | 45,144 | | 45,344 | 45,152 | 43,966 |
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Market Opportunity
We are positioned in large and fast-growing markets with important trends that are benefiting the growth and market opportunity for our solutions.
Large and growing digital retail market
According to the 2018 IDC Survey, IT retail investments in Brazil totaled R$7.4 billion in 2017. Of the total invested, software accounted for 32.5%, or R$2.4 billion. Moreover, the 2018 IDC Survey indicates that retail management software investments are expected to reach R$1.6 billion by 2021 (ERP and POS) as companies continue to invest in technology and automation through software in order to adapt to the evolving formalization and digitalization of the sector.
Relatively low e-commerce penetration in Brazil and Latin America
Both in Brazil and Latin America, e-commerce penetration is still relatively low in comparison to other countries, indicating an important path for growth.
With our increased presence in Latin America, our total addressable market has increased as well. Brazilian and other Latin American markets are witnessing the early stages of digitalization of retail channels and payments. In terms of payments, as of 2017, the penetration of credit and debit cards in Latin America was 19% and 41%, respectively, according to the World Bank Group. While approximately R$180 billion in payments were transacted through our international platform in 2017, we believe Linx Pay Hub is in a position of advantage to expand into these new markets.
Conversion of brick-and-mortar and digital retail to omni-channel
Consumers now dictate how, when and where to interact with retailers and their expectations continue to rise. As digital retail grows, consumers expect to be able to transact through multiple sales channels without compromising functionality or experience. To adapt to this change, retailers will likely demand more omni-channel solutions that integrate their digital and physical operations efficiently. We therefore see an opportunity to cross-sell our Linx Digital solutions to our Linx Core customers.
Automation as a solution to increasing labor costs
Over the past 10 years, labor costs in Brazil increased significantly. The average minimum wage increased 8.7% annually between 2008 and 2018, according to the Brazilian Ministry of Labor, compared to a 2.6% increase in the retail sales volume index in Brazil over the same period, according to IBGE. As a result of payroll expenses pressuring margins, we see an increasing demand for technologies that create opportunities for merchants to improve the experience of their clients and transact simultaneously with multiple clients in multiple locations. Accordingly, we believe Linx Core and Linx Digital are solutions that are well positioned to drive scalability and productivity gains of merchants who are not yet our clients.
Consumers moving away from cash transactions
According to ABECS, transactions using credit, debit and pre-paid cards in Brazil totaled R$1.36 trillion in 2017, an increase of 12.6% over 2016, overtaking for the first time cash transactions, which totaled R$1.31 trillion, and payments by check, which totaled R$0.8 trillion. The increase in non-cash transactions is expected to drive merchants demand for new payment solutions such as POS technology, receivables management, and integration with management systems, among others. Therefore, business models that conciliate retail management solutions and
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financial solutions, like ours, are better positioned to serve merchants and benefit from this positive environment.
Our Competitive Advantages
We have become an end-to-end technology platform for our customers
Leveraging our Linx Core product line and the launch of our Linx Digital and Linx Pay Hub product lines in 2018, we became an end-to-end platform for technology solutions for retailers to manage their businesses and points-of-sale. Through our integrated ever-evolving Linx Core, Linx Digital and Linx Pay Hub platforms we offer business management tools, payment solutions, e-commerce and omni-channel applications to retailers of all sizes and capabilities. Moreover, our seamless and costless merchant conversion process allow us to create an expedited and compelling value proposition for our customers, based on a product offering that we believe is unmatched in the industry.
Our integrated solutions enable us to exercise significant control over the customer experience, enhancing our ability to leverage cross selling opportunities. This competitive advantage has contributed to lower customer acquisition costs, which has in turn limited the ability of our competitors to replicate our success through strong natural barriers to entry.
Our customer-centric, entrepreneurial and innovative culture
We built a consumer-centric and entrepreneurial culture focused on innovation, agility and reliability. Our mission is to provide the best services and innovative solutions to address ever-evolving customer needs. As a result of these core values and our mission, we believe that through our ability to adapt we are able to embed a culture of constant innovation and proximity to customers that differentiate us from our competition.
Our drive to become the partner of choice to retailers, offer seamless experiences and foster long-term relationship with customers culminated in a virtuous cycle: the more we dedicate ourselves to our customers; the more we understand their needs; and the more rapidly we can develop and deploy integrated solutions that further strengthen our relationships.
Our belief in this culture translates into high contract renewal rates, low churn rates and high recurring revenues that we believe will foster our stable and sustained growth, and ultimately enhance our ability to accomplish our goals.
Successful track-record of acquisitions in Brazil and Latin America
We have extensive capabilities and a strong track record of identifying, negotiating and integrating successful acquisitions. Moreover, we have developed an integration model that we believe enables us to integrate the businesses we acquire in a timely and efficient manner. From 2008 to March 31, 2019, we successfully acquired 28 companies to add new retail verticals to our product offerings, expanding our operations into new regions in Brazil and Latin America and developing new technologies that accelerate the pace of our innovations.
Extensive, diversified and loyal customer base
We benefit from an extensive and diversified customer base ranging from small and mid-size businesses, or SMBs, to major retail chains such as Walmart, Nike and Forever 21, among other national and international retailers of different retail segments. As of December 31, 2018, we had more than 45,000 customers. We also benefit from low customer concentration, with our largest customer accounting for only 2% of our subscription revenue in 2018, while our 100 largest customers accounted for only 26% of our subscription revenue in the same year. We believe that our high level of customer satisfaction has allowed us to achieve quarterly customer retention rates of over 99% in 2018.
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Market leader in retail software solutions
We are the market leader in retail management software in Brazil with a 41.3% market share in 2017 in terms of revenue according to the 2018 IDC Survey. We work closely with our customers to better understand their businesses and needs. As a result of these efforts, we have developed a suite of specialized services in a fully integrated platform that we believe is difficult to replicate. In particular, our long-term presence and exclusive focus on the retail sector has allowed us to develop a set of distinctive solutions of great depth, both in terms of specific retail verticals as well as across different sizes of retailers, creating strong natural barriers against new market entrants.
Ever-evolving and comprehensive solutions for retailers
We believe we were the first company in Brazil to introduce several innovative retail software solutions integrated to a single platform, empowering Brazilian retailers to increase automation and efficiency. For example, we introduced consistent integration of ERP and POS in the 1990s, and the consistent integration of ERP, POS, connectivity and electronic payments in 2003. We are focused on continuing to lead technology migration in Brazil, enabling retailers to adopt next-generation solutions as their business needs grow, thereby increasing demand for our cloud-based, e-commerce and mobility solutions. For example, in 2018, we launched Linx Pay Hub to offer payment processing solutions integrated with our Linx Core and Linx Digital product lines as part of our ongoing commitment to adapt to our customers' needs.
Our comprehensive and integrated solutions address the needs of retailers from SMBs to the largest global retailers and leading franchisers in Brazil. Our solutions are scalable and modular, and are easily configurable to allow specific functions and functionalities for different verticals and sizes, with seamless integration of retail stores, branches and franchise locations. For example, our personalized solutions can include (1) ERP, consisting of sales order management, production control, inventory management, store management, logistics, financial management, accounting and tax software products, (2) POS, (3) CRM, (4) an e-commerce search bar and recommendation engine (i.e., the identification of additional products for purchase by the consumer), (5) payments and (6) omni-channel applications.
We design our software products to evolve in response to performance demands, user experiences and regulatory requirements applicable to our customers. By offering most of our software solutions as a cloud-based infrastructure, we enable our customers to operate the latest versions of our software without the burden of heavy initial outlays and costly upgrades, while also configuring our applications in order to meet their specific business needs.
Predictable business model with a track record of growth and profitability
In 2018, subscription revenues represented 86.8% of our gross operating revenues, compared to the three-month period ended March 31, 2019, when subscription revenues represented 89.1% of our gross operating revenues. We sell our cloud-based and on-premise solutions primarily through annual, automatically-renewable agreements pursuant to which our customers pay us a monthly fee adjusted for inflation at each renewal based on the General Market Price Index ( Índice Geral de Preços do Mercado ), or IGP-M, resulting in a high degree of recurrent and predictable results under a SaaS operating model. We believe that our portfolio of products, services and business model enable us to attain a high level of customer satisfaction, proven by a quarterly customer retention rate of over 99% in 2018.
From 2016 to 2018, our net operating revenues and our EBITDA increased at a compound annual growth rate, or CAGR, of 17.7% and 16.4% in reais , respectively. During the same period, the subscription portion of our gross revenue represented an average 88.8% of our total gross operating revenue, which we believe reflects the highly transparent and predictable nature of our
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business. In addition, our EBITDA margin was 24.6% in 2018, which provides us with flexibility to continue being competitive when negotiating contracts with our customers and continue our marketing efforts to expand our new products.
Our Strategy
Expand our customer base by continuing to penetrate the relatively underserved Brazilian retail market
We believe our business model, with its focus on retail and cloud-based software solutions for the retail sector, has the ability to generate significant value for thousands of retailers in Brazil and Latin America. As the leading provider of retail management software in Brazil in terms of market share according to the 2018 IDC Survey, we believe we are well positioned to capitalize on the increasing penetration of retail software, and we intend to further strengthen our leading market position in the region. In particular, we intend to continue to invest in our direct and indirect sales and marketing capability aimed at increasing our customer base. We believe that our cloud-based solutions allow retailers of all sizes to adopt our software solutions easily as evidenced by their option to install our solutions themselves, or with the help of our service team, depending on their specific needs. We believe that our market is still in the early stages of its development and that it has the potential to undergo rapid future growth due to the relatively low penetration of e-commerce in Brazil and Latin America.
Further expand our relationships with our existing customers through cross-selling
We intend to further expand our relationships with our existing customers through cross-selling, responding to their evolving business needs as they continue to open new stores throughout Brazil and Latin America. We intend to capture an increasing share of our customers' IT spending by selling more sophisticated products and leveraging our integrated end-to-end platform to cross-sell other products to them. For example, in 2019, we intend to develop and launch new product offerings that build on the success of our recently-introduced Linx Pay Hub payment solutions, including a QR code acceptance solution at cash registers that replaces debit cards and a digital wallet for retail customers that do not want a checking account. We believe we have a strong suite of e-commerce and mobility products to offer our existing customers as they continue to expand their sales channels. We further believe that we are at the early stages of increasing our penetration of these complementary offerings within our existing customer base. Given our successful track record in terms of cohort retention and growth, we believe these offerings will increase our growth potential in the coming years.
Continue to innovate and expand our platform
We intend to continue adapting and offering the market innovative solutions and enhanced functionality for our existing suite of comprehensive and integrated products.
Our omni-channel solutions are an important example of this strategy. This set of applications was designed to provide customer transparency across different sales channels and seamless integration between front and back offices. We enable retailers to track and better understand their clients during the life cycle of their relationship in-store, online, on mobile devices and on social networks. We believe our platform enables us to capture and analyze big data regarding the behavior of our customers' clients, which, in turn, provides our customers with actionable information, leading to a higher rate of return on our customers' marketing campaigns. This new platform also allows us to develop new partnerships in exploring marketing services and social networks, among other innovative means of contact with our customers' clients, representing an
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important opportunity to accelerate our organic growth in the coming years. Our Linx Pay Hub solution complements our portfolio of solutions making us an end-to-end platform.
As an integrated platform, our seamless consulting services (implementation, installation, customization and training services) improves our margins and also opens a growth opportunity through cross-selling, identification of future trends and development of solutions to better serve our customers.
Continue to pursue and integrate strategic acquisitions
We intend to continue to pursue selective acquisitions that are strategically aligned and compatible with our growth strategy within the retail software and payment sectors. In this context, we target acquisitions that complement our existing solutions, focusing our strategy on expanding our vertical and technology breadth while strengthening our geographic presence.
Continue to expand our geographic footprint in Latin America
Through our international expansion efforts, we have increased our presence in Latin America, particularly in Mexico, Argentina and Chile, where we have developed a strong client base that includes leading national and international companies in these countries. Our international expansion has been facilitated in large part by the extensive knowledge and experience we have gained in our home market as well as the strength of our brand, reputation and our market-leading position. We intend to continue to leverage these strengths to expand our geographic footprint in Latin America both organically and through strategic acquisitions that add value to our shareholders.
Recent Developments
Acquisition of Hiper Software S.A.
On April 2, 2019, we announced our acquisition of Hiper Software S.A., or Hiper, for an aggregate purchase price of R$17.7 million, subject to the payment of additional post-closing adjustments between 2019 and 2021 in the aggregate amount of R$32.3 million upon the attainment of certain metrics including those linked to the penetration of our EFT and Linx Pay Hub solutions into Hiper's client base. We believe that our acquisition of Hiper presents an important growth opportunity.
Summary of Risk Factors
An investment in the ADSs is subject to a number of risks, including risks relating to our business and industry, risks related to Brazil and risks related to the offering and the ADSs. The following list summarizes some, but not all, of these risks. Please read the information in the section entitled "Risk Factors" for a more thorough description of these and other risks:
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Additional Information
Our corporate headquarters are located at Avenida Doutora Ruth Cardoso, 7221, 7 th floor, São Paulo, SP, CEP 05425-902. Our telephone number at this address is +55-11-2103-1575 and our website is www.linx.com.br.
Investors should contact us for any inquiries through the address and telephone number of our corporate headquarters. Our principal website is www.linx.com.br. The information contained in, or accessible through our website is not incorporated into this prospectus or the registration statement of which it forms a part.
Implications of Being an Emerging Growth Company
As a company with less than US$1.07 billion in revenue during our last fiscal year, we qualify as an "emerging growth company" as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:
We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we (i) have more than US$1.07 billion in annual revenue, (ii) have more than US$700 million in market value of our common shares held by non-affiliates or (iii) issue more than US$1.0 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced burdens. We have not taken advantage of any of these reduced reporting burdens in this prospectus, although we may choose to do so in future filings and if we do, the information that we provide shareholders may be different than you might get from other public companies in which you hold equity.
In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. Given that we currently report and expect to continue to report under IFRS as issued by the IASB, we will not be able to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the IASB.
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This summary highlights information presented in greater detail elsewhere in this prospectus. This summary is not complete and does not contain all the information you should consider before investing in the ADSs or in the common shares, as the case may be. You should carefully read this entire prospectus before investing in the ADSs or in the common shares including "Risk Factors" and our consolidated financial statements included elsewhere in this prospectus.
Issuer |
Linx S.A. | |
Selling Shareholder |
BNDES Participações S.A. |
|
Global Offering |
The global offering consists of the international offering and the concurrent Brazilian offering. The number of common shares offered in the international offering and the Brazilian offering is subject to reallocation between the offerings. The closings of the international offering and the Brazilian offering are conditioned upon each other. |
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International Offering |
common shares, including common shares in the form of ADSs, are being offered by us and the selling shareholder through the international underwriters (which, in the case of the common shares, are acting as placement agents on behalf of the Brazilian underwriters named elsewhere in this prospectus) in the United States and other countries outside Brazil. The common shares purchased by any investor outside Brazil will be settled in Brazil and paid for in reais , and the offering of these common shares is being made by the Brazilian underwriters. Any investor outside Brazil purchasing common shares must be authorized to invest in Brazilian securities under the requirements established by Brazilian law, especially by the CVM and the Central Bank, complying with the requirements set forth in Resolution No. 4,373, dated as of November 29, 2014, as amended, of the CMN and Instruction No. 560, dated March 27, 2015, of the CVM, as amended. |
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Brazilian Offering |
Concurrently with the international offering, common shares are being offered by the Brazilian underwriters in Brazil to Brazilian investors. The Brazilian offering will be registered with the CVM and made by means of a separate Brazilian prospectus in Portuguese. |
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International Underwriters |
Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC, Jefferies LLC, BofA Securities, Inc. and Itau BBA USA Securities, Inc. |
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Brazilian Underwriters |
Goldman Sachs do Brasil Banco Múltiplo S.A. and Banco Morgan Stanley S.A., Bank of America Merrill Lynch Banco Múltiplo S.A. and Banco Itaú BBA S.A. |
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Use of proceeds |
We intend to use the net proceeds from the primary offering to finance (1) our general working capital requirements, (2) our acquisition strategy and (3) the further development of our new initiatives, including Linx Pay Hub. |
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We will not receive any of the proceeds from the sale of our common shares and ADSs made by the selling shareholder. |
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ADSs |
Each ADS represents common shares. |
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ADSs will be issued under a deposit agreement entered into among us, The Bank of New York Mellon, as depositary, and the registered holders and beneficial owners from time to time of ADSs issued under the deposit agreement. |
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Offering price |
The public offering price for the international offering for the ADSs is set forth on the cover page of this prospectus. The offering price for the common shares, which is also set forth on the cover page, is the approximate per common share real equivalent of the offering price per ADS in the international offering, based upon the selling rate reported by the Central Bank of R$ to US$1.00 on 2019. |
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Option to purchase additional ADSs and common shares |
The international underwriters have an option for a period of 30 days from the date of this prospectus to purchase up to additional common shares in the form of ADSs from us, minus the number of common shares sold by us pursuant to the Brazilian underwriters' option to purchase additional shares referred to below, to cover over-allotments of ADSs, if any. The Brazilian underwriters also have an option to purchase up to additional common shares from us, minus the number of common shares in the form of ADSs sold by us pursuant to the international underwriters' option to purchase additional shares, to cover over-allotments of common shares, if any. |
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Voting rights |
Holders of our common shares have full voting rights, and are entitled to one vote per share in all shareholders' meetings. |
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The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and ADS holders may not be able to exercise any such rights in a timely manner. See "Risk Factors Risks Relating to the ADSs and the Offering The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to direct the vote of our common shares underlying the ADSs" and "Description of American Depositary Shares Voting Rights" elsewhere in this prospectus. |
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Listing |
Our common shares are listed on the Novo Mercado of the B3 under the symbol "LINX3." See "Market Information." We intend to apply to list the ADSs on the NYSE under the symbol "LINX." |
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Share capital before and after offering |
Our share capital consists of common shares as of the date of this prospectus (excluding treasury shares). |
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Immediately after the global offering, we will have common shares outstanding, assuming no exercise of the underwriters' option to purchase additional common shares, including common shares underlying the ADSs. |
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Dividend policy |
Brazilian Law No. 6,404, dated December 15, 1976, as amended, or the Brazilian Corporate Law, and our bylaws require us to distribute at least 25% of our annual net income (calculated in accordance with the Brazilian Corporate Law and Brazilian GAAP) unless our board of directors suspends the payment of dividends after having concluded that such distribution would be incompatible with our financial condition. |
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Holders of the ADSs will be entitled to receive dividends paid to the owners of our common shares, after deduction of the fees of the depositary and the costs of foreign exchange conversion. |
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See "Dividends and Dividend Policy," "Description of Capital Stock" and "Description of American Depositary Shares." |
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Lock-up agreements |
We have agreed with the underwriters, subject to certain exceptions, not to issue, offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any of our common stock or ADSs or any securities convertible into or exchangeable or exercisable for any of our common stock and ADSs during the 90-day period after the date of this offering. Our directors and executive officers and certain relevant equity holders have agreed to substantially similar lock up provisions, subject to certain exceptions. See "Underwriting." |
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Taxation |
For a discussion of the material Brazilian and U.S. federal income tax consequences relating to an investment in our common shares, including in the form of ADSs, see "Taxation." |
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ADS Depositary |
The Bank of New York Mellon |
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Risk factors |
See "Risk Factors" and the other information included in this prospectus for a discussion of factors you should consider before deciding to invest in the ADSs. |
Unless otherwise indicated, all information contained in this prospectus assumes no exercise of the option granted by us to the underwriters to purchase up to additional common shares, including common shares underlying the ADSs, in connection with the offering.
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The following summary financial information has been derived from our audited historical consolidated financial statements as of and for the three-month period ended March 31, 2019 and 2018 and as of and for the years ended December 31, 2018, 2017 and 2016, and the respective notes thereto, included elsewhere in this prospectus. These historical consolidated financial statements were prepared in accordance with IFRS as issued by the IASB.
The tables below present summary financial information as of and for the periods indicated. You should read this information in conjunction with the rest of this prospectus, including the sections entitled "Presentation of Financial and Other Information," "Selected Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Income Statement Data
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For the Three-Month Period
Ended March 31, |
For the Year Ended December 31,
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2019 (2) | 2019 (2) | 2018 | 2018 | 2018 | 2017 |
2016
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(in millions of | (in millions of | (in millions of | (in millions of R$) | ||||||||||||||||||
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US$) (1) | R$) | US$) (1) | |||||||||||||||||||
Net operating revenues |
45.4 | 176.8 | 158.4 | 175.9 | 685.6 | 571.6 | 494.6 | |||||||||||||||
Cost of services rendered |
(15.4 | ) | (60.0 | ) | (56.7 | ) | (63.0 | ) | (245.6 | ) | (211.6 | ) | (183.5 | ) | ||||||||
General and administrative |
(11.3 | ) | (44.0 | ) | (42.5 | ) | (43.3 | ) | (168.6 | ) | (148.1 | ) | (116.3 | ) | ||||||||
Research and development |
(4.7 | ) | (18.4 | ) | (16.2 | ) | (18.9 | ) | (73.5 | ) | (64.3 | ) | (59.9 | ) | ||||||||
Selling |
(9.1 | ) | (35.3 | ) | (22.1 | ) | (28.5 | ) | (111.0 | ) | (72.4 | ) | (62.5 | ) | ||||||||
Other operating income |
2.1 | 8.1 | 8.0 | 2.2 | 8.4 | 4.3 | 1.2 | |||||||||||||||
Other operating expenses |
(0.5 | ) | (1.9 | ) | 0.2 | (1.3 | ) | (5.1 | ) | (5.1 | ) | (5.6 | ) | |||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total operating expenses |
(38.9 | ) | (151.5 | ) | (129.2 | ) | (152.8 | ) | (595.5 | ) | (497.2 | ) | (426.4 | ) | ||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Operating income |
6.5 | 25.3 | 29.2 | 23.1 | 90.1 | 74.4 | 68.2 | |||||||||||||||
Financial income |
2.6 | 10.3 | 12.0 | 12.0 | 46.9 | 58.4 | 49.5 | |||||||||||||||
Financial expenses |
(3.1 | ) | (12.0 | ) | (8.3 | ) | (11.5 | ) | (44.8 | ) | (24.0 | ) | (24.7 | ) | ||||||||
Net financial income (expenses) |
(0.5 | ) | (1.8 | ) | 3.7 | 0.5 | 2.1 | 34.4 | 24.7 | |||||||||||||
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Income before income tax and social contribution |
6.1 | 23.6 | 32.9 | 23.6 | 92.1 | 108.8 | 92.9 | |||||||||||||||
Income tax and social contribution current |
(0.5 | ) | (2.0 | ) | (1.7 | ) | (2.6 | ) | (10.0 | ) | (9.2 | ) | (10.6 | ) | ||||||||
Income tax and social contribution deferred |
(1.1 | ) | (4.4 | ) | (4.7 | ) | (2.8 | ) | (11.1 | ) | (14.7 | ) | (13.8 | ) | ||||||||
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Net income |
4.4 | 17.2 | 26.5 | 18.2 | 71.1 | 84.8 | 68.5 | |||||||||||||||
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Balance Sheet Data
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As of March 31, |
As of December 31,
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2019 (2) | 2019 (2) | 2018 | 2018 | 2017 |
2016
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(in millions of | (in millions of | (in millions of | (in millions of R$) | |||||||||||||||
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US$) (1) | R$) | US$) (1) | ||||||||||||||||
Current Assets: |
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Cash and cash equivalents |
12.8 | 49.9 | 12.8 | 49.9 | 42.9 | 7.2 | |||||||||||||
Financial assets |
106.0 | 413.2 | 106.1 | 413.4 | 487.8 | 639.2 | |||||||||||||
Trade accounts receivable |
44.4 | 173.0 | 42.9 | 167.1 | 128.2 | 107.3 | |||||||||||||
Recoverable taxes |
8.1 | 31.6 | 9.0 | 35.1 | 33.1 | 29.7 | |||||||||||||
Other receivables |
8.4 | 32.7 | 11.1 | 43.4 | 28.1 | 12.2 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total current assets |
179.8 | 700.5 | 181.9 | 708.8 | 720.1 | 795.6 | |||||||||||||
Non-Current Assets: |
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|
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Financial assets |
| | | | 21.0 | 19.0 | |||||||||||||
Trade accounts receivable |
0.8 | 3.0 | 0.8 | 3.3 | 3.0 | 1.8 | |||||||||||||
Other receivables |
1.9 | 7.3 | 1.8 | 7.2 | 1.5 | 10.9 | |||||||||||||
Deferred taxes |
1.1 | 4.3 | 1.1 | 4.4 | 4.3 | 4.2 | |||||||||||||
Property, plant and equipment, net |
19.3 | 75.2 | 19.1 | 74.3 | 62.3 | 51.3 | |||||||||||||
Intangible assets, net |
246.0 | 958.6 | 218.0 | 849.6 | 751.9 | 600.6 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total non-current assets |
269.0 | 1,048.4 | 240.9 | 938.8 | 843.9 | 687.8 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total assets |
448.8 | 1,748.9 | 422.8 | 1,647.7 | 1,564.0 | 1,483.4 | |||||||||||||
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Current Liabilities: |
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Suppliers |
3.2 | 12.5 | 3.5 | 13.6 | 8.5 | 6.3 | |||||||||||||
Loans and financing |
13.9 | 54.1 | 10.4 | 40.7 | 31.8 | 34.5 | |||||||||||||
Labor obligations |
13.8 | 53.9 | 11.2 | 43.8 | 38.9 | 31.2 | |||||||||||||
Taxes payable |
2.9 | 11.4 | 3.5 | 13.5 | 13.2 | 6.4 | |||||||||||||
Income tax and social contribution |
0.4 | 1.7 | 0.3 | 1.2 | 0.5 | 2.9 | |||||||||||||
Payables for the acquisition of businesses |
12.7 | 49.5 | 14.7 | 57.1 | 56.1 | 23.5 | |||||||||||||
Deferred revenue |
10.5 | 41.0 | 10.3 | 40.1 | 8.5 | 7.2 | |||||||||||||
Dividends payable |
0.7 | 2.8 | 0.7 | 2.8 | 4.2 | 1.1 | |||||||||||||
Other liabilities |
4.5 | 17.4 | 2.1 | 8.0 | 7.6 | 4.1 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total current liabilities |
62.7 | 244.2 | 56.6 | 220.7 | 169.2 | 117.1 | |||||||||||||
Non-Current Liabilities: |
|
|
|
|
|
|
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Loans and financing |
71.0 | 276.8 | 53.7 | 209.3 | 65.5 | 96.3 | |||||||||||||
Labor obligations |
0.2 | 0.6 | | | | | |||||||||||||
Payables for the acquisition of businesses |
11.7 | 45.5 | 14.2 | 55.4 | 74.7 | 57.1 | |||||||||||||
Deferred taxes |
19.8 | 77.2 | 18.6 | 72.6 | 80.3 | 57.2 | |||||||||||||
Deferred revenue |
3.5 | 13.7 | 4.9 | 19.2 | | | |||||||||||||
Other liabilities |
0.5 | 2.0 | 0.6 | 2.3 | 1.0 | 1.9 | |||||||||||||
Provision for contingencies |
3.2 | 12.3 | 2.8 | 11.0 | 2.8 | 0.5 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total non-current liabilities |
109.9 | 428.1 | 94.9 | 369.8 | 224.3 | 213.0 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total liabilities |
172.5 | 672.3 | 151.5 | 590.5 | 393.5 | 330.1 | |||||||||||||
Shareholders' Equity: |
|||||||||||||||||||
Capital |
125.4 | 488.8 | 125.4 | 488.5 | 486.0 | 480.8 | |||||||||||||
Capital reserves |
95.5 | 372.2 | 94.9 | 369.9 | 479.8 | 512.3 | |||||||||||||
Period income |
4.4 | 17.2 | | | | | |||||||||||||
Profit reserves |
46.1 | 179.8 | 46.1 | 179.5 | 186.1 | 141.3 | |||||||||||||
Additional dividends proposed |
5.7 | 22.2 | 5.7 | 22.2 | 18.8 | 18.9 | |||||||||||||
Other comprehensive income (loss) |
(0.9 | ) | (3.7 | ) | (0.7 | ) | (2.8 | ) | (0.2 | ) | | ||||||||
| | | | | | | | | | | | | | | | | | | |
Total shareholders' equity |
276.3 | 1,076.5 | 271.3 | 1,057.2 | 1,170.5 | 1,153.3 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total liabilities and shareholders' equity |
448.8 | 1,748.9 | 422.8 | 1,647.7 | 1,564.0 | 1,483.4 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
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Investing in the ADSs or in our common shares involves a high degree of risk. You should carefully consider the risks described below before making an investment decision regarding the ADSs or in our common shares. Our business, financial condition, results of operations, cash flows and/or prospects could be adversely affected by any of these risks, among others. The market price of the ADSs, including the common shares underlying the ADSs, could decline due to the occurrence of any of these risks or other factors, and you may lose all or part of your investment. The risks described below are those that we currently believe may materially affect us. Additional risks and uncertainties not currently known to us, or those that we currently deem to be immaterial, may also materially and adversely affect our business, financial condition, results of operations, cash flow and/or prospects, and/or the price of the ADSs or our common shares.
For purposes of this section, when we state that a risk, uncertainty or problem may, could or will have an "adverse effect" on us or "adversely affect" us, we mean that the risk, uncertainty or problem could have an adverse effect on our business, financial condition, results of operations, cash flow and/or prospects, and/or the trading price of the ADSs or our common shares, except as otherwise indicated. You should view similar expressions in this section as having similar meaning.
Risks Relating to Our Industry and Us
We are substantially dependent on revenue generated from services related to our integrated enterprise management software, including monthly subscription fees.
Our revenue is substantially dependent on our integrated enterprise retail management software licensing and ongoing services related to them. The significant majority of our revenue is derived from the monthly subscription fees for the use of our software, which comprise almost all of our gross operating revenue (89.1%, 86.8%, 89.8% and 89.6% for the three-month period ended March 31, 2019, and for the years ended December 31, 2018, 2017 and 2016, respectively). As a result, a reduction in revenue from this source, whether due to increased competition, adverse market conditions or a general reduction in demand for integrated enterprise management software and services or other factors, could materially adversely affect our operational results, cash flows and liquidity.
The software industry is highly competitive and we may be unable to compete effectively.
We compete in markets characterized by vigorous competition, changing technology, changing client and end-consumer needs, evolving industry standards and frequent introductions of new products and services. We compete with several companies that operate in the global, regional and local software industries, including providers of integrated enterprise management software, developers of free software, payment processing and companies providing consulting services and outsourcing. Some of our current or potential competitors may be engaged in a greater range of businesses, have a larger installed base of customers for their existing products and services or have greater financial, technical, sales or other resources than us. We expect competition to intensify in the future as traditional, non-traditional and new competitors introduce new services or enhance existing services. We may lose market share if our competitors introduce or acquire new products that compete with our software and related services or add new features to their products or if new entrants emerge in the market. Any of these events could cause a material adverse effect on our business, financial condition, results of operation or cash flows.
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Our success depends on our ability to develop new products and services, integrate acquired products and services, improve our existing products and services and keep up with technological developments.
The market in which we operate is characterized by constant technological advances, changing hardware requirements, rapid development in software and communications infrastructure, increasingly complex customer requirements and frequent introductions of new products and improvements of existing products. If we fail to improve our products and services to accommodate such technological evolution, as well as any corresponding legislative changes, including changes to tax legislation, in a timely manner or to position and price our products and services to meet market demand, our customers may stop purchasing new software licenses and services from us and we may lose our ability to attract and retain customers.
In addition, internet and network protocols and other industry standards are subject to rapid change and we cannot guarantee that the industry standards that we adopt in developing new products will enable us to compete effectively for new business opportunities in the markets in which we operate. Any of these events could materially adversely affect our revenue and cash generation.
We may experience difficulties in achieving our acquisition strategy.
We have acquired, and may from time to time acquire, businesses, products, services and technologies. The success of an acquisition or investment will depend on our ability to make accurate assumptions regarding the valuation, operations, growth potential, integration and other factors related to that business. Our acquisitions or investments may not produce the results that we expect at the time we enter into or complete a given transaction. The risks that we may face in connection with these acquisitions include the following:
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We may spend time and capital on acquisitions that do not increase our revenue. To the extent we pay the purchase price of any acquisition in cash, any such purchase would reduce our cash reserves, and to the extent the purchase price is paid with any of our shares, could be dilutive to our shareholders. To the extent we pay the purchase price with proceeds from the incurrence of debt, any such purchase would increase our level of indebtedness and could negatively affect our liquidity, restrict our operations and materially adversely affect our results of operations. Our competitors may be willing or able to pay more than us for acquisitions, which may cause us to be unable to take advantage of certain acquisition opportunities.
The occurrence of any of these events could materially adversely affect our business, operational results, financial condition or cash flow, especially with respect to a large acquisition or several concurrent acquisitions.
We are subject to risks and liability relating to system failures, the non-authorized or incorrect use of third-party data used by and/or made available to our systems.
Our systems may receive third-party data. Our efforts to protect such data used by and/or made available to our systems may be insufficient and may not ensure that we are in compliance with applicable rules and regulations related to the collection, treatment and use of users' data. Any non-compliance with applicable laws may subject us to penalties, such as fines, particularly in relation to (1) the express consent of users for the collection and treatment of their data, (2) the term provided by law for storing and excluding users' data and (3) the adoption of the required security standards for the conservation and protection of the collected and stored data. Accordingly, the incorrect use of third-party data in our systems and/or the lack of measures to protect such data may (1) result in significant costs to us and the reallocation of our resources and (2) divert the attention of our management and technology team, which may adversely affect our business, competitive position, financial situation, results of operations and cash flows.
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Additionally, we retain billing data, intellectual property, personally identifiable information and other sensitive information from our customers on our networks. Our infrastructure and the third-party infrastructure we use to host our solutions may be vulnerable to hacker attacks or other problems, which may overcome the security measures we adopt. In particular, our cloud infrastructure may be vulnerable to security breaches, computer viruses or similar problems, and these systems are also subject to telecommunications failures, power loss and other system failures. Unimpeded access to the cloud servers is fundamental to the provision of services to our SaaS customers. Any of these occurrences, whether intentional or accidental, could lead to interruptions, delays or suspension of our SaaS data center operations and may compromise the information stored on our networks. Such an occurrence could materially adversely affect our reputation as a reliable supplier and host of such solutions and negatively affect the market perception of the safety or reliability of our products or services and, as to SaaS, may cause some of our customers to cancel their subscriptions to our cloud applications and subject us to indemnification payments.
Sales to our customers are made through systems that we have developed, and in the case of our cloud-based solutions, stored on our servers. Any interruption in the operation of these systems may result in a loss of sales from our customers. Furthermore, any error in billing or in issuing the invoice or accounting products sold by our customers could result in substantial losses to them, which could materially adversely affect our results of operations, financial condition and our reputation.
A failure to adequately protect personal data may materially adversely affect us.
We manage and maintain the personal data of our customers, employees and suppliers in the normal course of our business. Unauthorized disclosures or security breaches may subject us to legal action and penalties that may materially adversely us. In addition, in the course of our business activities, we are exposed to possible risks of noncompliance with policies, improper conduct of our employees or negligence and fraud, which may result in serious reputational or financial damage.
Currently, the processing of personal data in Brazil is regulated by a diverse and complex body of legislation. Our efforts to protect personal data that we process may not guarantee the adequate protection of such data or compliance with the personal data protection rules established under the current legislative regime.
The Brazilian General Data Protection Act (Federal Law 13,790/2018) was published in the Federal Official Gazette on August 15, 2018 and was amended by Provisional Measure No. 869, issued by the President of Brazil in December 2018, or the MP 869/2018. As amended by the MP 869/2018, the Brazilian General Data Protection Act will take effect in August 2020. This legislation is expected to transform the current legislative regime applicable to personal data protection in Brazil. The Brazilian General Data Protection Act establishes a new legal framework for the processing of personal data and provides for the rights of holders of personal data, legal standards applicable to the protection of personal data, requirements for obtaining consent, obligations and requirements related to security incidents, data leaks and data transfers, as well as the creation of a national data protection authority. We may face difficulties in complying with the Brazilian General Data Protection Act due to the quantity and complexity of the new obligations it will introduce. In the event of non-compliance with the General Data Protection Law, we may be subject to penalties including warnings, the requirement to remove personal data from our system and fines of up to two percent of our economic group's total most-recently reported annual net revenue and up to a maximum of R$50.0 million per infraction.
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The absence of sufficient measures to protect the personal data processed by us, or our inability to comply with applicable legislation, may materially adversely affect us.
We depend on suppliers of telecommunications, internet and data centers for our "software-as-a-service," or SaaS, cloud and on-premise infrastructure, and any fluctuation or interruption in the provision of these services may materially adversely affect our abilities to serve our customers and profitability.
Providers of telecommunications, internet and data centers are a fundamental part of our infrastructure of SaaS, cloud and on-premise software and services. We depend on them to provide such services and they constitute a key element in our business strategy and infrastructure. It is crucial that the infrastructure that we use to host our software products remains safe, does not suffer system failures and is perceived by our customers and partners to be safe and reliable. Instability or interruptions of our services due to failures by our suppliers are usually perceived by our customers as our responsibility and may adversely affect the market's perception of the quality of our products or services, including with respect to SaaS, cloud and on-premise software and services, which may cause some of our customers to cancel their subscriptions to our services and affect our ability to increase our sales.
Our investments in research and development may not result in increased revenue.
The investment in the development of software products through research-driven product development and expansion of our knowledge base is costly and may not provide financial returns. Additionally, products with accelerated releases or with short life cycles require high levels of spending on research and development. We believe that we must continue to dedicate a significant amount of resources for research and development to maintain our competitive position. Our investments in research and development may not prove efficient and may not result in increased revenue or growth and, consequently, our financial condition and results of operations could be materially adversely affected. For additional information regarding our investments in research and development, see "Management's Discussion and Analysis of Financial Condition and Results of Operations Capital Expenditures."
Our growth depends on the continued contributions of certain key members of senior management and our ability to continue to attract and retain qualified personnel.
Our performance depends on the efforts and capabilities of certain key members of senior management who are responsible for making most of the critical decisions that guide our business, particularly regarding the implementation of our strategies and development of our operations. If we lose any of these executives, for any reason, we may have problems in defining and executing our business strategy and our financial condition and results of operations could be materially adversely affected.
In addition, if any key members of our senior management leave our company for any reason, we may incur significant costs to attract new highly qualified professionals as replacements. There is significant competition in the global market for qualified personnel in the commercial, technical and other areas. Consequently, we may be required to pay higher compensation in order to attract and maintain qualified personnel, which may adversely affect our operating and financial results.
We are subject to partial or total failures or interruptions in our services and software related to IT infrastructure, which is highly complex.
We require a highly complex technology infrastructure for our operations and depend on the efficient and uninterrupted operation of numerous systems, including our computer systems,
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software, data centers and telecommunications networks, as well as the systems of third parties. We are subject to partial or total failures or interruptions in our services and software that could give rise to loss of revenue, loss of customers, possible actions for damages from our customers, additional operating and development costs and diversion of technical and other resources, among others, adversely affecting our reputation among our customers and the markets in which we operate. In addition, depending on the degree of the damage caused, we may be subject to regulatory penalties, such as the loss of certain approvals to operate our software.
We may be subject to errors, delays or failures of security of our products and services.
Our software may contain errors or security flaws, especially at the launch of new products or release of new versions of existing products. The errors in our software may affect the ability of our products to work with other hardware or software, as well as delay the development or release of new products or new versions or undermine the reputation of our products in the market. Our systems and operations could suffer damage or interruption from natural disasters, acts of terrorism, power shortages, telecommunications failure, cyberattacks, sabotage, unauthorized entry, computer viruses and physical or electronic break-ins and similar disruptions from unauthorized tampering with our computer systems and data centers, among others. If we experience errors or delays in the launch of new products or new versions of our existing products, we may lose customers or incur opportunity costs, which may have a material adverse effect on our financial condition, cash flows and operational results.
Additionally, errors and security flaws in our software products may expose us to liability for product performance complaints and warranty claims, as well as damage to our reputation, which could impact future sales of our products and services. Moreover, addressing problems and complaints associated with actual or alleged errors or security flaws may require a significant amount of time and attention from our management team, resulting in high costs, which may have a material adverse effect on our business, financial condition and operational results.
As a holding company, we are dependent on dividends and other distributions from our subsidiaries, which we may not receive.
As a holding company, our ability to comply with financial obligations and to pay dividends or other distributions to our shareholders and holders of the ADSs in the future will depend on our cash flows and our subsidiaries' results of operations, as well as the distribution of such results of operations to us in the form of dividends or interest on equity. The amount of any dividends or distributions which may be paid to us from time to time will depend on many factors including, for example: such subsidiaries results of operations and financial condition; limits on dividends under applicable law; its constitutional documents; documents governing any indebtedness; applicability of tax treaties; and other factors which may be outside our control. There is no guarantee that such resources will be actually available to us or sufficient for us to comply with our financial obligations and to pay dividends or other distributions to our shareholders and holders of the ADSs.
If we are unable to properly manage our growth, our results may be adversely affected.
We may fail to correctly estimate, qualitatively or quantitatively, the costs and risks associated with our expansion, and can offer no assurance that our systems, procedures, business processes and management controls are sufficient to support the expected rapid expansion of our operations, including expansion to new markets and verticals. We cannot assure you that our current and planned systems, procedures and controls, personnel and third-party relationships will be adequate to support our future operations. In addition, we have entered and may enter into new lines of business that may involve complexities associated with the new products, services and regulations, which could place a strain on our management and operational and financial resources in the
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future. If we fail to successfully manage growth, our results of operations may be adversely affected.
Certain of our financing agreements contain cross-default clauses.
Some of our financing agreements contain cross-default clauses or cross-acceleration clauses. Accordingly, the occurrence of an event of default under one of the contracts governing our outstanding debt could trigger an event of default on other debt or allow the creditors of our other debt to accelerate repayment to become immediately due and payable, which could materially adversely affect the results of our operations, cash availability and the price of our shares.
Additionally, we have entered into credit facilities in which the Brazilian National Economic and Social Development Bank ( Banco Nacional de Desenvolvimento Econômico e Social ), or BNDES, imposed several restrictions on us, including the need for prior approval from BNDES for: (1) our or our subsidiaries' direct lending to individuals or entities which may or may not have shared corporate interests with us; (2) borrowing from individuals or entities which have shared corporate interests with us; (3) providing guarantees of any kind in operations with other creditors, in the event the guarantees have not also been provided to BNDES under the same conditions and having the same priority and (4) making investments in companies in Brazil or abroad. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Indebtedness."
Losses not covered by our insurance policies may have a material adverse effect on us.
We are subject to risks for which we do not have adequate or any insurance coverage, including risks not managed by our backup systems and contingency plans. For instance, we have not obtained insurance to protect against cybersecurity risks. Furthermore, the quantification of risk exposure in existing clauses in our insurance policies may be inadequate or insufficient, and may lead to a lower-than-expected insurance repayment. In addition, our insurance policy coverage is conditional on the payment of premiums under such policies. Our failure to pay these premiums together with the occurrence of a claim may put us at risk, as the relevant insurer would not be liable to cover us for any losses we incurred. We cannot assure you that we will be able to maintain our insurance policies in the future or that we will be able to renew them at reasonable prices or on acceptable terms. Thus, if certain damaging events occur and we are not adequately insured against them, they may, individually or together, adversely affect our results of operations and require us to commit significant cash resources to cover such losses. See "Business Insurance."
We are subject to unfavorable results in judicial or administrative proceedings that may adversely affect our results and financial condition.
We are a party to certain legal and administrative proceedings. Unfavorable decisions in these proceedings may adversely affect our results and financial condition in the event our resulting liability exceeds any amounts we have provisioned or guarantees we have deposited in respect of these proceedings. See "Business Legal and Administrative Proceedings."
Any significant interruption in our cloud-based platform could materially adversely affect our business and harm our reputation, forcing us to provide credits or refunds and may cause customers to terminate their contracts with us prior to their stated maturity, which may adversely affect us.
Our cloud-based platform is a critical part of our business operations. Any significant interruption in our services, products and/or infrastructure may give rise to claims by our customers, which may negatively affect the results of our operations and our financial condition, as well as our reputation with our customers.
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We may suffer losses due to defaults by our customers.
A default by one or more of our subscribed customers or by one or more groups of customers, could have a material adverse effect on our business, results of operation, financial condition and cash flows.
Potential interruptions in payment by customers could be caused by a customer's financial difficulties including bankruptcy, among other factors. In addition, a failure on our part to properly analyze the credit or financial condition of these customers may result in the failure to properly identify and make provisions for default by customers.
Substantially all of our revenues are derived from customers concentrated in the retail sector, which is sensitive to unfavorable economic cycles and decreases in the purchasing power of consumers.
Our activities are exclusively focused on the retail sector and substantially all of our revenues are derived therefrom. Historically, the Brazilian retail sector has been prone to periods of economic downturn resulting in an overall decline in consumer spending. The success of retail sector operations depends on several factors relating to consumer spending, including the general business climate at the time, interest rates, inflation, the availability of consumer credit, taxation, consumer confidence in future economic conditions, levels of employment and wages. Unfavorable conditions in the Brazilian economy can therefore significantly reduce consumer spending, which could materially adversely affect our sales, results of operations and financial condition.
We may experience unfavorable conditions in our industry or the global economy that result in reductions in spending on IT that could limit our ability to grow and develop our business, thereby adversely affecting our results of operations.
Our results of operations may vary according to the impact of changes in our industry or global economy on us or our customers. Increases in revenue and profitability of our business depend on demand for our software and related services.
In light of the fact that we are a service provider, part of our revenue results from the number of new users of our software, which in turn is influenced by general employment levels. Insofar as unfavorable economic conditions cause our customers and potential customers to merely maintain or even reduce their demand for our services, our revenue may be adversely affected. Historically, economic downturns have resulted in overall reductions in IT spending, as well as pressure for longer billing cycles, as occurred during the recession of 2016. If economic conditions deteriorate or do not improve significantly, our customers and potential customers may choose to reduce their IT solutions, which would limit our ability to expand our business and could materially adversely affect our results of operations.
Our business and results of operations could be harmed if we are unable to protect and enforce our intellectual property rights.
Measures we have taken to protect our intellectual property may be inadequate to prevent misappropriation, resulting in the misuse of our products and forcing us to protect our intellectual property through legal or administrative proceedings. The misuse of our products or the measures we are required to take to protect our intellectual property rights could result in substantial costs to us and divert the resources and attention of our management and technical team, which could materially adversely affect our business, competitive position, financial condition, results of operations and cash flows.
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We are subject to the risk of lawsuits involving alleged violations of intellectual property rights of third parties, due in part to the recent increase in the number of patents and copyrights by technology companies.
We may be required to change, in whole or in part, certain of our products that have allegedly infringed upon the intellectual property rights of third parties and may be required to pay significant amounts of penalties, royalties or licensing fees for the use of others' patents or copyrighted materials. Any changes to our products or to revenue attributable to any of our products that are in violation of others' intellectual property rights may materially adversely affect our results of operations, reputation and the demand for our products. In addition, such changes may require attention from our management, cause us to incur additional legal expenses, or in some cases, require us to create reserves, all of which may materially adversely affect us.
We benefit from Brazilian government tax incentive programs, which may be terminated or reduced in the future.
We benefit from certain tax incentives related to research and development and technological innovation, established by Law No. 11,196, dated November 21, 2005, as amended, or Lei do Bem , and regulated by Decree No. 5,798, dated June 7, 2006. Our ability to benefit from these incentives depends on our compliance with certain obligations.
Failure on our part to comply with certain obligations in accordance with the applicable rules or to provide the documentation required to substantiate such tax credits could result in the loss of such incentives that have not yet been used and claims by the Brazilian tax authorities of the amount corresponding to taxes not paid as a result of the incentives already used, in addition to penalties and interest under Brazilian tax laws. If any of our tax benefits expires, terminates or is cancelled, we may not be successful in obtaining new tax benefits that are equally favorable, which may materially adversely affect us. For more information, see "Management's Discussion and Analysis of Financial Condition and Results of Operation Description of Principal Statement of Income Line Items Current and Deferred Income Tax and Social Contribution."
Our business automation software and electronic invoice ( Nota Fiscal Electronica ), or NFE, services are provided pursuant to approvals by the Brazilian Internal Revenue Service ( Secretaria da Fazenda ), or Sefaz, of each Brazilian state.
We offer business automation software and the use of NFEs and electronic tax receipts ( Nota Fiscal Consumidor Electronica ), or NFCEs, customized to meet the requirements of the tax laws of different Brazilian states. Such business automation solutions must be approved by the tax authorities of each Brazilian state to certify regulatory adherence. If we do not receive or are at any point denied any of these approvals, we will be prevented from continuing our business automation software and NFEs and NFCEs activities in the state where approval has been denied, which could have a material adverse effect on our financial results.
We or our directors could be accused of facilitating tax evasion by our customers in which case we could be held responsible, along with the customer, for back taxes due to Brazilian tax authorities.
In Brazil, enterprise management systems are required to be structured so as not to allow for tax evasion. However, we cannot guarantee that our systems are not susceptible to security breaches that could enable tax evasion by a customer.
If such an event were to occur, Brazilian tax authorities could conclude that our software allows our customers to avoid compliance with their tax obligations and that we had acted in bad faith. Any such conclusion may require us to pay the unpaid taxes of our customers, plus interest
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and penalties, as well as subject us and our management to civil and criminal liabilities, depending on the magnitude of tax evasion committed by our customer, which could materially adversely affect our results.
The simplification of Brazilian tax rules would reduce the barriers to entry of international competitors.
The complexities of Brazilian tax rules largely discourage entry of international competitors into the Brazilian retail market for the software industry, as a strong familiarization of the applicable tax laws of each state and of the Brazilian government is required to function in the sector. The Brazilian government has indicated that it may simplify the tax rules, which would remove an important entry barrier to our foreign competitors and could result in increased competition and materially adversely affect our financial results.
We may experience difficulties in expanding our products or in expanding into new lines of business, industries and/or foreign markets.
We may face challenges in connection with the expansion of our products as well as our expansion into new lines of business, industries and/or new geographic regions within or outside of Brazil. In particular, as we expand into new lines of business, such as Linx Pay Hub, we may face challenges associated with entering into a line of business in which we have limited or no experience and in which we may not be well-known. Offering new products and services or offering existing products in new industries or new geographic regions may require substantial expenditures and takes considerable time, and we may not recover our investments in new markets in a timely manner or at all. For example, we may be unable to attract a sufficient number of merchants as customers, fail to anticipate competitive conditions or fail to adapt and tailor our services to different markets.
Currently, we have customers in markets other than Brazil (representing 5.6% of our net operating revenue as of December 31, 2018), and our long-term strategies include further expansion in these markets. We may experience the following difficulties related to the foreign markets in which we currently operate or will operate in the future, among others:
Should one or more of these risks materialize, and we are not able to overcome these difficulties, we may be unable to implement our international expansion strategy.
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A decline in the use of credit, debit or prepaid cards as a payment mechanism for consumers or adverse developments with respect to the payment processing industry in general could have a materially adverse effect on revenues which we expect to derive from our new line of business, Linx Pay Hub.
If consumers do not continue to use credit, debit or prepaid cards as a payment mechanism for their transactions or if there is a change in the mix of payments between cash, credit, debit, prepaid cards and other accepted method of payments that is adverse to Linx Pay Hub, the revenue we expect to derive from Linx Pay Hub may be materially adversely affected. We believe future growth in the use of credit, debit and prepaid cards and other electronic payments will be driven by the cost, ease-of-use, and quality of services offered to consumers and businesses. In order to consistently increase and maintain our profitability, end-consumers and businesses must continue to use electronic payment methods including, credit, debit and prepaid cards. Moreover, if there is an adverse development in the payments industry or Brazilian market in general, such as new legislation or regulation that makes it more difficult for our merchants to do business or utilize such payment mechanisms, the revenue we expect to derive from Linx Pay Hub may be materially adversely affected.
Furthermore, we pay transaction fees to payment schemes, banks, acquiring payment institutions and other intermediaries that vary according to the method chosen by consumers to fund payment transactions. These transaction fees are higher when consumers fund payments using credit cards, and lower when consumers fund payments with debit cards. The financial success of Linx Pay Hub will be, therefore, sensitive to changes in the proportion of its business funded by consumers using credit and debit cards, which would increase its costs if we are unable to adjust the rates we charge our merchants accordingly.
Brazilian laws, CMN resolutions, circulars promulgated by the Central Bank, as well as future regulations and changes in tax rules affecting the payment industry in Brazil may materially adversely affect us in the event Linx Pay commences merchant acquisition operations.
Due to the importance of the payment industry in Brazil, the Central Bank issued several new regulations in 2018 designed to increase the use of electronic payments, increase competitiveness in the sector, strengthen market governance, encourage supply and the differentiation of products for consumers as well as strengthen the use of credit and debit cards as a means of payment. Among the measures taken to effect these changes, the Central Bank issued the following noteworthy circulars:
In addition to existing regulations, the Brazilian congress is currently considering several legislative initiatives that aim to modify the regulatory framework of the electronic payments sector, including changes in the period in which a card issuer makes payment to a commercial establishment and changes in the general rules of the Brazilian National Financial System ( Sistema
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Financeiro Nacional ). These initiatives are currently in varying stages of deliberation by the Brazilian congress and create significant uncertainty relating to the regulatory framework we may face in coming years. Brazilian laws, CVM resolutions, circulars or regulations resulting from such initiatives may materially adversely affect us.
We and our independent registered public accounting firm have identified material weaknesses in our internal control over financial reporting and, if we fail to implement and maintain effective internal controls over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.
In connection with the audit of our consolidated financial statements for the year ended December 31, 2018, we and our independent registered public accounting firm identified material weaknesses in our internal controls as noted below:
If we are unable to properly maintain our internal controls, we may not be able to accurately report our financial results or prevent the occurrence of inappropriate or erroneous practices.
Under Section 404 of the Sarbanes-Oxley Act of 2002, our management is not required to assess or report on the effectiveness of our internal control over financial reporting in our annual report on Form 20-F for the fiscal year ending December 31, 2019. We are only required to provide such a report for the fiscal year ending December 31, 2020. At that time, our management may conclude that our internal control over financial reporting is not effective. In addition, until we cease to be an "emerging growth company" as such term is defined in the JOBS Act, which may not be until after five full fiscal years following the date of this offering, our independent registered public accounting firm is not required to attest to and report on the effectiveness of our internal control over financial reporting. Even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may disagree with our assessment or may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company in the United States, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.
During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. If we fail to achieve and maintain an effective
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internal control environment, we could suffer material misstatements in our financial statements, fail to meet our reporting obligations or fail to prevent fraud, which would likely cause investors to lose confidence in our reported financial information. This could, in turn, limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of the ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the NYSE, regulatory investigations and civil or criminal sanctions.
In the event that Linx Pay commences merchant acquisition operations, it may be subject to losses arising from such operations due to the possibility that credit card issuers default on their obligations to merchant acquirers.
While we are currently not a merchant acquirer, we intend to expand our Linx Pay operations into this area in the future. As a merchant acquirer, Linx Pay would be subject to the risk that credit card issuers may default on their obligation to pay Linx Pay the amounts required to complete a cardholder's transaction and process the corresponding payment to the applicable merchant. Merchant acquirers are also subject to the risk that cardholders may default on their obligations to credit card issuers.
The extent to which Linx Pay, upon commencing merchant acquirer operations, becomes subject to these risks is dependent on the risk/guarantee model that the credit card brand adopts for credit card issuers and credit card holders. Each credit card brand has developed its own model for guarantees that are detailed in its regulations.
Linx Pay may also be exposed to the risk that affiliated sub-merchant acquirers may not pass on the amounts received from us under credit card transactions to their affiliated establishments.
The realization of any of these risks may materially adversely affect our business, results of operations or financial condition.
In the event that Linx Pay commences merchant acquisition operations, our operational results may be adversely affected by fraudulent transactions committed by third parties that are processed by us.
In the event that Linx Pay becomes a merchant acquirer, we will be exposed to the risk of fraudulent transactions carried out by third parties using our credit and debit cards. Failure to effectively manage such risk and prevent fraud may increase our chargeback liability as well as other liabilities and materially adversely affect our business, results of operations or financial condition.
Our customers are charged for the use of certain of our products based on a percentage of the amount they bill to their clients, which may result in seasonal fluctuations that impact our quarterly results of operations.
In recent years, we have experienced seasonal fluctuations in our revenues from the retail sector as a result of consumer spending patterns. Most of our revenues are not tied to the percentage of the amount our customers bill to their clients. Following the launch of our OMS and Linx Pay e-commerce platform, however, we have increased the number of products in our portfolio that generate revenue based on the amount our customers bill their clients. Historically, sales have been stronger during the last quarter of the year as a result of the holiday season in Brazil. This is due to the increase in the number and transaction volumes of digital transactions and electronic payments related to seasonal retail events. With the increase in the aforementioned products as a percentage of our revenue, adverse events that occur during these months may have a disproportionate effect on our results of operations throughout the fiscal year. As a result of
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quarterly fluctuations caused by these and other factors, comparisons of our results of operations between different fiscal quarters may not be indicative our future performance.
Significant and increasing competition within the payment industry may materially adversely affect us.
Linx Pay may face competitive pressure on the fees it charges its clients. Linx Pay's competitors have already achieved a significant share of the markets in which Linx Pay operates. As a result, these competitors, particularly those that have relationships with financial institutions, can reduce their fees, offering rates that are more favorable to their current and potential clients, thereby impeding our growth in the market. If as a result of competition, Linx Pay is forced to reduce its fees, we may need to intensify our cost control efforts in order to maintain and expand our market share. An intensification of competition may cause us to lose current customers and may make it difficult for us to attract new customers, which may materially adversely affect our business, financial condition and results of operations.
Risks Relating to Brazil
Brazilian economic and political conditions and perceptions of these conditions in the international market have a direct impact on our business and our access to international equity and debt markets, and could materially adversely affect our results of operations and financial condition .
Our operations are primarily conducted in Brazil, and we sell a material portion of our products to customers in Brazil. Accordingly, our financial condition and results of operations are substantially dependent on economic conditions in Brazil, and we cannot assure you that Brazilian gross domestic product, or GDP, will remain stable or grow in the future. Brazilian GDP, in real terms, decreased 3.6% in 2015, decreased 3.3% in 2016 and increased 1.1% and 1.1% in 2017 and 2018, respectively. Future developments in the Brazilian economy may affect Brazil's growth rates and, consequently, the consumption of our products. As a result, these developments could impair our business strategies, results of operations and financial condition.
The Brazilian government frequently intervenes in the Brazilian economy and occasionally makes material changes in policy and regulations. The Brazilian government's modifications to laws and regulations according to political, social and economic interests have often involved, among other measures, increases or decreases in interest rates, changes in fiscal and tax policies, wage and price controls, foreign exchange rate controls, blocking access to bank accounts, currency devaluations, capital controls and import restrictions. We have no control over and cannot predict the measures or policies that the Brazilian government may take in the future. Our business, results of operations and financial condition may be adversely affected by changes in government policies as well as general economic factors, including:
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Inflation, and the Brazilian government's measures to combat inflation, may significantly contribute to economic uncertainty in Brazil and may have material adverse effects on our business and results of operations.
Brazil has historically experienced high rates of inflation. Inflation, as well as the Brazilian government's efforts to combat inflation, have had significant negative effects on the Brazilian economy, particularly prior to the introduction of comprehensive currency reform (the Plano Real ) in July 1994. In more recent years 2016, 2017 and 2018, rates reached 6.3%, 2.9% and is expected by the Central Bank (according to the Focus Report dated December 28, 2018) to be 3.69%, respectively, measured by the Extended National Consumer Price Index ( Índice de Preços ao Consumidor Amplo ), or IPCA, according to the IBGE.
Inflationary pressures continue to persist and the Brazilian government's measures to combat them, as well as speculation about any such future measures, have generated over the last few years a climate of economic uncertainty in Brazil and heightened volatility the Brazilian capital markets. Brazil may experience high levels of inflation in the future.
As of March 31, 2019, 11.3% of our total loans and financing, including indebtedness outstanding and payables for the acquisition of businesses, were subject to varying rates of inflation IGP-M, IPCA and the Consumer Price Index ( Índice de Preço ao Consumidor ), or IPC. Increases in inflation could therefore adversely affect our financial expenses in the event of an unfavorable change in inflation. Additionally, inflationary pressures could lead to government intervention in the economy, including the introduction of policies that may adversely affect the overall performance of the Brazilian economy, which, in turn, could adversely affect the operations and the market value of the ADSs.
Developments and changes in the investors' perception of risk in other countries, particularly in the United States, Europe and other emerging markets, may materially and adversely affect the market value of securities, including the market value of the ADSs .
The market for securities issued by Brazilian companies is influenced by, to varying degrees, economic and market conditions in other countries, including the United States, Europe and other emerging markets. Although the economic conditions in these countries are significantly different from the economic condition in Brazil, the reaction of investors to developments in these countries may adversely affect the market value of securities issued by Brazilian companies. Crises in other emerging markets may reduce investor interest in shares from Brazilian issuers, including the ADSs. This could materially adversely affect the market price of the ADSs.
In addition, the financial crisis and political instability in the United States, Europe and other countries have affected the global economy, producing several effects that, directly or indirectly, impact the Brazilian capital market and economy, such as fluctuations in the price of securities issued by listed companies, reductions in credit supply, deterioration of the global economy, fluctuation in currency exchange rates and inflation, among others, which may, directly or indirectly, adversely affect us. In June 2016, the United Kingdom called a referendum in which a majority of its population voted for the United Kingdom to exit the European Union. We have no control over and cannot predict the effect of the United Kingdom's exit from the European Union nor over whether
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and the extent to which other member states will decide to exit the European Union in the future. On January 20, 2017, Donald Trump became the President of the United States. We have no control over and cannot predict the effect of Donald Trump's administration or policies. These developments, as well as potential crises and forms of political instability arising therefrom or any other unforeseen development, may adversely affect us and the market value of the ADSs.
Political and economic instability in Brazil may adversely affect our business and results of operations.
Brazil's political environment has historically influenced, and continues to influence, the performance of the country's economy. Political crises have affected and continue to affect investor confidence and that of the general public, which resulted in economic deceleration and heightened volatility in the securities issued by Brazilian companies.
The recent economic instability in Brazil has contributed to a reduction in market confidence in the Brazilian economy and to the aggravation of the situation of the domestic political environment. Furthermore, several ongoing investigations into accusations of money laundering and corruption being conducted by the Brazilian Federal Public Prosecutor's Office, including the largest such investigation known as "Car Wash" ( Lava Jato ), have had a serious negative impact on the Brazilian economy and political landscape.
A number of senior politicians, including current and former members of Congress and the Executive Branch, and high-ranking executive officers of major corporations and state-owned companies in Brazil were arrested, convicted of various charges relating to corruption, entered into plea agreements with federal prosecutors and/or have resigned or been removed from their positions as a result of these Lava Jato investigations. These individuals are alleged to have accepted bribes by means of kickbacks on contracts granted by the government to several infrastructure, oil and gas and construction companies. The profits of these kickbacks allegedly financed the political campaigns of political parties forming the previous government's coalition that was led by former President Dilma Rousseff, which funds were unaccounted for or not publicly disclosed. These funds were also allegedly destined toward the personal enrichment of certain individuals. The effects of Lava Jato as well as other ongoing corruption-related investigations resulted in an adverse impact on the image and reputation of those companies that have been implicated as well as on the general market perception of the Brazilian economy, political environment and the Brazilian capital markets. We have no control over, and cannot predict, whether such investigations or allegations will lead to further political and economic instability or whether new allegations against government officials will arise in the future.
Amidst this background of recent political uncertainty, in August 2016, the Brazilian Senate approved the removal from office of Brazil's of then-President Dilma Rousseff, after completion of legal and administrative impeachment proceedings, on the grounds of violation of budgetary laws. Michel Temer, the former Vice President, who had been serving as acting president since Ms. Rousseff's removal in May 2016 and assumed the presidency for the remainder of the presidential term, which ended in 2018. Throughout Mr. Temer's presidency, his approval ratings remained historically low and he faced scrutiny over other matters, including allegations of bribery and other corrupt acts, which contributed to the uncertain political and economic environment in Brazil. After a polarized presidential campaign, Jair Bolsonaro, a former member of the military and three-decade congressman, was elected as the president of Brazil on October 28, 2018 and took office on January 1, 2019. We cannot predict if, and for how long, the political divisions in Brazil that emerged before the election will continue and impact his presidency. It is also not clear what effects, if any, such political division will have on the ability of President Bolsonaro to govern Brazil and implement reforms. Any continuation of such division could result in an impasse in Brazil's Congress, political unrest and massive protests and/or strikes that could adversely affect our
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operations. Uncertainty regarding the implementation by the new government of related changes in monetary, fiscal and pension policies, as well as pertinent legislation, could contribute to economic instability. These uncertainties and new measures could increase the volatility of Brazilian securities markets, including in relation to our securities.
We cannot foresee whether President Bolsonaro will adopt policies or changes to current policies that may have a material adverse effect on us. Political and economic uncertainty resulting from the presidential elections or otherwise may have a material adverse effect on our business, results of operations and financial condition.
Uncertainty over whether the Brazilian government will implement changes in policy or regulation affecting these or other factors in the future may contribute to economic uncertainty in Brazil and to heightened volatility in the securities issued abroad by Brazilian companies. Historically, the political scenario in Brazil has influenced the performance of the Brazilian economy; in particular, political crises have affected the confidence of investors and the public in general, which adversely affected the economic development in Brazil.
We are subject to fluctuations in interest rates.
The Central Bank establishes the basic interest rate for the Brazilian banking system. As of March 31, 2019, 91.4% of our total indebtedness, including outstanding loans and financing and payables for the acquisition of businesses (excluding present value adjustments relating to payables for the acquisition of businesses), were denominated in reais and subject to fluctuations in interest rates. The interest rate risk arises from the portion of our debt referenced to the Brazilian long term interest rate ( taxa de juros de longo prazo ), or TJLP, and Interbank Certificate of Deposit ( Certificado de Depósito Interbancário ), or CDI, which may adversely affect revenue or expenses in the event of an unfavorable change in interest rates and inflation. Any increase in interest rates could increase the cost of our borrowings, reduce demand for our products or have a materially adverse impact on our financial expenses and results of operations.
The volatility of the real against the U.S. dollar and other currencies may have a materially adverse effect on our business and the market price of the ADSs.
Historically, Brazilian currency has suffered frequent devaluations. The Brazilian government has implemented various economic plans and utilized a number of exchange rate policies, including sudden devaluations, periodic mini-devaluations during which the frequency of adjustments has ranged from daily to monthly, a floating exchange rate, exchange controls and parallel market exchange rates. From time to time, there have been significant fluctuations in the exchange rate between the real , the U.S. dollar and other currencies. According to Central Bank data, at the end of years 2016, 2017 and 2018, the exchange rates between the real and the U.S. dollar were R$3.2591, R$3.3080 and R$3.8748, respectively. As of May 28, 2019, the exchange rate between the real and the U.S. dollar was R$4.0275 per US$1.00.
Uncertainty over whether the Brazilian government will implement changes in policy or regulation affecting these or other factors in the future may contribute to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets and in the securities issued abroad by Brazilian issuers. Therefore, these uncertainties and developments in the Brazilian economy may adversely affect us and the market price of the ADSs.
Many of our customers are either foreign companies or multinational companies operating in Brazil and are exposed to exchange rate variations that could create an adverse effect on these companies. Additionally, the interest rate on our some of loans has been indexed to exchange rates. Any exchange rate fluctuations could therefore result in a materially adverse effect on our operations and financial results.
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Depreciation of the real relative to the U.S. dollar could negatively affect the growth of the Brazilian economy as a whole and harm our financial condition and results of operations.
Depreciations of the real relative to the U.S. dollar could create additional inflationary pressures in Brazil and cause increases in interest rates, which could negatively affect the growth of the Brazilian economy as a whole and harm our financial condition and results of operations. On the other hand, appreciation of the real relative to the U.S. dollar and other foreign currencies could lead to a deterioration of the Brazilian foreign exchange current accounts, as well as dampen export-driven growth. Depending on the circumstances, either depreciation or appreciation of the real could materially and adversely affect the growth of the Brazilian economy and us.
In addition, we believe that an increase in interest rates may cause an increase in financial expenses, negatively affecting our financial results. Similarly a reduction in interest rates may cause a decrease in financial income, which would also negatively affect our financial results.
Any further downgrading of Brazil's credit rating could adversely affect the market price of the ADSs.
Credit ratings affect investors' perceptions of risk and, as a result, the yields required on future debt issuance in the capital markets. Rating agencies regularly evaluate Brazil and its sovereign ratings, which are based on a number of factors including macroeconomic trends, fiscal and budgetary conditions, indebtedness metrics and the perspective of changes in any of these factors. Brazil has lost its investment-grade sovereign debt credit rating by the three main U.S. based credit rating agencies, Standard & Poor's, Moody's and Fitch.
Any further downgrade of Brazil's sovereign credit ratings could heighten investors' perception of risk and, as a result, increase the future cost of debt issuance and adversely affect the market price of the ADSs.
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Risks Relating to the ADSs, our common shares and the Offering
The volatility and illiquidity of the Brazilian securities market may substantially limit the ability of investors to sell the ADSs or our common shares at their preferred time and price.
Prior to this offering, there has been no public market for the ADSs. Our common shares underlying the ADSs trade on the Novo Mercado segment of the B3. Although we have applied to have the ADSs listed on the NYSE, we cannot assure you that a liquid public market for the ADSs will develop.
The investment in securities trading in emerging markets such as Brazil (or in ADSs of companies with securities also trading in emerging markets) frequently involves a higher risk compared to other global markets, as investments in emerging markets are generally considered more speculative in nature. Risks associated with emerging markets may substantially limit the capacity of holders of our common shares or the ADSs to sell them at their preferred time and price.
With respect to our common shares, the Brazilian securities market is substantially smaller, less liquid, more concentrated and more volatile than some major international securities markets such as the United States and Europe. For example, as of December 31, 2018, the market capitalization of the B3 was approximately R$3.6 trillion (U.S.$929.1 billion at an exchange rate of U.S.$1.00 to R$3.8748), according to information published by the B3, and in 2018 it had an average daily trading volume of R$12.3 billion (U.S.$3.2 billion at an exchange rate of U.S.$1.00 to R$3.8748). Additionally, the Brazilian capital markets are significantly concentrated. The top ten stocks traded in terms of volume on the B3 accounted for approximately 46.0% of its total trading volume in 2018. In contrast, the market capitalization of the New York Stock Exchange was approximately U.S.$24.4 trillion as of December 31, 2018.
In addition, the NYSE has from time to time experienced significant price and volume fluctuations that have affected the market prices for the securities of technology companies, particularly internet-related companies. As a result, investors in our securities may experience a decrease in the value of our common shares or the ADSs regardless of our operating performance or prospects. In the past, following periods of volatility in the market price of a company's securities, shareholders have often instituted securities class actions against that company. If we are involved in a class-action lawsuit, it could divert the attention of our senior management and, if adversely determined, could have a material adverse effect on our business, financial condition and results of operations.
Changes in Brazilian tax laws may have an adverse impact on the taxes applicable to a disposition of our common shares, including in the form of ADSs.
Law No. 10,833, dated as of December 29, 2003, provides that the disposition of assets located in Brazil by a non-resident to either a resident or a non-resident of Brazil is subject to taxation in Brazil, regardless of whether the disposition occurs outside or within Brazil. This provision results in the imposition of income tax on the gains arising from a disposition of our common shares by a non-resident of Brazil to either a resident or a non-resident of Brazil. However, since currently there is no judicial guidance determining whether the ADSs should be considered assets located in Brazil, we are unable to predict whether Brazilian courts may decide that income tax under Law No. 10,833 applies to gains realized on dispositions of the ADSs. In the event that the disposition of assets located in Brazil is interpreted to include the disposition of the ADSs, this tax law would result in the taxation of non-residents of Brazil on any gain or loss recognized on the disposition of ADSs. Any gain or loss recognized by a U.S. holder (as defined in "Taxation Material U.S. Federal Income Tax Considerations for U.S. Holders") on the disposition of common shares, including in the form of ADSs, generally will be treated as U.S. source gain or loss for U.S.
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foreign tax credit purposes. Thus, a U.S. holder may not be able to benefit from a foreign tax credit for Brazilian income tax imposed on the disposition of common shares, including in the form of ADSs, unless the U.S. holder can apply the credit against U.S. federal income tax payable on other income from foreign sources. See "Taxation Material U.S. Federal Income Tax Considerations for U.S. Holders Sale, Exchange or Other Disposition of Common Shares or the ADSs."
The Brazilian government may impose exchange controls and significant restrictions on remittances of reais abroad, which would adversely affect your ability to convert and remit dividends or other distributions or the proceeds from the sale of our common shares our capacity to make dividend payments or other distributions to non-Brazilian investors and would reduce the market price of our common shares, including in the form of ADSs, and our capacity to comply with payment obligations in foreign currency.
In case of serious imbalances, the Brazilian Government may restrict the remittance abroad of proceeds of investments in Brazil and the conversion of the real into foreign currencies. The Brazilian government last imposed such remittance restrictions for a brief period in 1989 and early 1990. We cannot assure you that the Brazilian government will not take similar measures in the future. The return of any such restrictions would hinder or prevent your ability to convert dividends or other distributions or the proceeds from any sale of our common shares into U.S. dollars and to remit U.S. dollars abroad, our capacity to make dividend payments or other distributions to non-Brazilian investors, and our capacity to comply with payment obligations in foreign currency. The imposition of any such restrictions would have a material adverse effect on the stock market price of our common shares, including in the form of ADSs, and on our capacity to access foreign capital markets.
If you surrender your ADSs and withdraw common shares, you risk losing the ability to remit foreign currency abroad and certain Brazilian tax advantages.
As an ADS holder, you benefit from the electronic certificate of foreign capital registration obtained by the custodian for our common shares underlying the ADSs in Brazil, permitting the custodian to convert dividends and other distributions with respect to our common shares into non-Brazilian currency and remit the proceeds abroad. If you surrender your ADSs and withdraw common shares, you will be entitled to continue to rely on the custodian's electronic certificate of foreign capital registration for only five business days from the date of withdrawal. There-after, upon the disposition of distributions relating to our common shares, unless you obtain your own electronic certificate of foreign capital registration, or you qualify under Brazilian foreign investment regulations that entitle certain foreign investors to buy and sell shares on Brazilian stock exchanges without obtaining separate electronic certificates of foreign capital registration, you would not be able to remit abroad non-Brazilian currency. In addition, if you do not qualify under the foreign investment regulations, you will generally be subject to less favorable tax treatment of dividends and distributions on, and the proceeds from any sale of, our common shares.
We may need to raise additional funds in the future and may issue additional common shares or convertible securities, which may result in a dilution of your interest in our common shares underlying the ADSs. In addition, a dilution of your interest in our common shares underlying the ADSs may occur in the event of our merger, consolidation or any other corporate transaction of similar effect in relation to companies that we may acquire in the future.
We may have to raise additional funds in the future through private or public offerings of shares or other securities convertible into shares issued by us. The funds we raise through the public distribution of shares or securities converted into shares may be obtained with the exclusion of right of first refusal of our existing shareholders, including investors in our common shares
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underlying the ADSs, as provided by the Brazilian Corporate Law, which may dilute the interest of our then-existing investors. In addition, a dilution of your interest in our common shares underlying the ADSs may occur in the event of merger, consolidation or any other corporate transaction of similar effect in relation to companies that we may acquire in the future.
The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to direct the vote of our common shares underlying the ADSs.
Holders of ADSs do not have the same rights as our registered shareholders. As a holder of ADSs, you will not have any right to attend general meetings of our shareholders or to cast any votes at such meetings. You will only be able to exercise the voting rights with respect to the underlying common shares represented by your ADSs indirectly by giving voting instructions to the depositary in accordance with the provisions of the deposit agreement. Under the deposit agreement, you may vote only by giving voting instructions to the depositary. If we instruct the depositary to ask for your instructions, then upon receipt of your voting instructions, the depositary will try, as far as is practicable, to vote the underlying common shares that are represented by the ADSs, in accordance with your instructions. If we do not instruct the depositary to ask for your instructions, the depositary may still vote in accordance with instructions you give, but it is not required to do so. You will not be able to directly exercise your right to vote with respect to our underlying common shares represented by the ADSs unless you withdraw the shares and become the registered holder of such shares prior to the record date for the general meeting. We cannot guarantee that the process for the cancellation and exchange of the ADSs will be completed prior to the record date for the general meeting.
When a general meeting is convened, you may not receive sufficient advance notice of the meeting to withdraw our common shares underlying your ADSs and to vote directly with respect to any specific matter or resolution to be considered and voted upon at the general meeting.
If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We have agreed to give the depositary no less than 15 days' prior notice of shareholder meetings. Nevertheless, we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote our underlying common shares represented by the ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to direct how our common shares underlying the ADSs are voted and you may have no legal remedy if the common shares underlying the ADSs are not voted as you requested.
Your right to participate in any future offerings may be limited, which may result in the dilution of your interest in our capital stock.
We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register both the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. In particular, holders of our common shares, including our common shares underlying the ADSs benefit from certain preemptive rights in connection with future issuances by us of our common shares or securities convertible into our common shares. Holders of our common shares, including in the form of ADSs, will be unable to exercise the preemptive rights relating to our common shares unless a registration statement under the Securities Act is effective with respect to those preemptive rights or an exemption from registration requirement under the Securities Act is otherwise available.
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In addition, under the deposit agreement, the depositary will not make rights available to you unless both the rights and the underlying securities to be distributed to ADS holders are either registered under the Securities Act or exempt from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective and we may not be able to establish a necessary exemption from registration under the Securities Act.
Accordingly, you may be unable to participate in our rights offerings or additional offerings of our common shares in the future and may experience dilution in your holdings.
If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, the market price and trading volume of our common shares, including in the form of ADSs, could decline.
The trading market for our common shares, including in the form of ADSs, depends in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our common shares, including in the form of ADSs, could decline, which might cause the market price and trading volume of our common shares, including in the form of ADSs to decline.
We and the depositary are entitled to amend the deposit agreement and to change the rights of ADS holders under the terms of such agreement, and we may terminate the deposit agreement, without the consent of the ADS holders.
We and the depositary are entitled to amend the deposit agreement and to change the rights of the ADS holders under the terms of such agreement, without the consent of the ADS holders. We and the depositary may agree to amend the deposit agreement in any way we decide is necessary or advantageous to us. Amendments may reflect, among other things, operational changes in the ADS program, legal developments affecting ADSs or changes in the terms of our business relationship with the depositary. In the event that the terms of an amendment are disadvantageous to ADS holders, ADS holders will only receive 30 days' advance notice of the amendment, and no consent of the ADS holders is required under the deposit agreement. Furthermore, we may decide to terminate the ADS facility at any time for any reason. For example, terminations may occur when we decide to list our shares on a non-U.S. securities exchange and determine not to continue to sponsor an ADS facility or when we become the subject of a takeover or a going-private transaction. If the ADS facility is to be terminated, ADS holders will receive at least 90 days' prior notice, but no consent is required from them. In the event that we decide to make an amendment to the deposit agreement that is disadvantageous to ADS holders or terminate the deposit agreement, the ADS holders may choose to sell their ADSs or surrender their ADSs and become direct holders of our underlying common shares, but will have no right to any compensation whatsoever.
ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.
The deposit agreement governing the ADSs representing our common shares provides that, to the fullest extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our common shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws. If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether
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the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, by a federal or state court in the City of New York, which has non-exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before entering into the deposit agreement.
If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and/or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action.
Nevertheless, if this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.
Holders of ADSs may not receive any dividends or interest on equity.
Our bylaws require us to pay our shareholders a mandatory dividend of at least 25.0% of our annual adjusted net income, as calculated under Brazilian GAAP and as adjusted according to Brazilian Corporate Law, distributed as dividends or interest on equity. Our net income may be capitalized, used to offset losses or retained under the terms of Brazilian Corporate Law and may not be fully available for the payment of dividends or interest on equity. In addition, Brazilian Corporate Law allows publicly-held companies, like us, to suspend the required minimum distribution of dividends. The payment of dividends may be suspended if our board of directors reports at a general shareholders' meeting that such distribution would be incompatible with our financial condition. If the abovementioned occurs, holders of the ADSs underlying our common shares may not receive dividends or interest on equity.
To the extent we distribute dividends or interest on equity, the depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our common shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of common shares your ADSs represent. However, the depositary may, at its discretion, decide that it is inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In such instances, the depositary may decide not to distribute such property to you.
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We do not have a controlling shareholder or a control group that holds more than 50% of our common shares, which may leave us susceptible to shareholder alliances, conflicts among shareholders and other events arising from the absence of a controlling shareholder or a group of controlling shareholders that holds more than 50% of our common shares.
We do not have a controlling shareholder or a control group that holds more than 50% of our common shares. As of the date of this prospectus, our founding shareholders jointly hold a minority interest of 16.46% of our capital stock. Accordingly, shareholder alliances may be formed or shareholders' agreements may be entered into, which may result in the creation of a control group. In the event that a controlling group emerges and has decision-making power, we may suffer sudden and unexpected changes to our corporate policies and strategies, including the replacement of our executive officers. In addition, we may become more vulnerable to hostile attempts to acquire control and conflicts resulting therefrom.
The absence of a controlling group with more than 50% of our common shares, on the other hand, could make certain decision-making processes more difficult, as the minimum quorum required by law for certain deliberations may not be reached. In the absence of a control group, we and our minority shareholders may not have the same protection provided by the Brazilian Corporate Law against abuses by other shareholders and, thus, may face certain difficulties in seeking indemnification for damages arising therefrom.
Any sudden and unexpected changes to our management, corporate policies and strategies, hostile attempts to acquire control or any other dispute among our shareholders relating to their rights as shareholders may materially adversely affect us.
Our bylaws contain provisions for protection against a hostile takeover, which may prevent or delay transactions that may be of interest to you.
Our bylaws contain provisions that make hostile takeover attempts difficult without prior negotiations with our controlling shareholders. One such provision requires a shareholder that becomes a holder of 25.0% or more of our capital stock to conduct a public offering to purchase all of our shares at a price calculated according to our bylaws, the Brazilian Corporate Law and applicable regulations. The same obligation exists when any person acquires certain rights over 30.0% or more of our capital stock. These provisions may prevent or delay takeover attempts and may discourage, delay or prevent takeover attempts that our controlling shareholders would deem inadvisable, including public tender offers for our common shares in which our shareholders would receive a premium.
Following completion of this offering, the same group of shareholders who exercise minority control over us will continue to exercise such control, and their interests may conflict with the interests of our other shareholders.
The group of minority shareholders who effectively control us has the power to, among other matters, elect the majority of the members of our board of directors and determine the result of any decision that requires shareholder approval, provided there is no conflict of interest in relation to their voting rights, including with respect to related-party transactions, corporate restructuring, asset sales, partnerships and time of payment of any future dividends, subject to the mandatory minimum dividend required by the Brazilian Corporate Law. The group of minority shareholders who effectively control us may have conflicts of interest amongst themselves and/or with our other shareholders.
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Common shares, including common shares underlying ADSs, eligible for future sale may cause the market price of the ADSs to decline significantly.
The market price of the ADSs and our common shares underlying the ADSs may decline as a result of sales of a large number of ADSs or common shares in the market after this offering or the perception that these sales may occur. These sales, or the possibility that these sales may occur, also may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
Following the completion of this offering, we will have outstanding common shares, including common shares underlying the ADSs, assuming the underwriters do not exercise their option to purchase additional ADSs. Subject to the lock-up agreements described below, the ADSs sold in this offering, including our common shares underlying the ADSs, will be freely tradable without restriction or further registration under the Securities Act by persons other than our affiliates within the meaning of Rule 144 of the Securities Act.
Our common shares underlying the ADSs trade on the Novo Mercado segment of the B3. A significant sell-off of our common shares on the B3 may materially adversely affect the market price of the ADSs. In addition, the perception in the public markets that sales by holders of our common shares might occur may also cause the market price of the ADSs to decline.
We have agreed with the underwriters, subject to certain exceptions, not to issue, offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any of our common stock or ADSs or any securities convertible into or exchangeable or exercisable for any of our common stock and ADSs during the 90-day period after the date of this offering. Our directors and executive officers and certain relevant equity holders have agreed to substantially similar lock up provisions, subject to certain exceptions. However, the underwriters may, in their sole discretion and without notice, release all or any portion of the shares from the restrictions in any of the lock-up agreements described above. In addition, these lock-up agreements are subject to the exceptions described in "Common Shares Eligible for Future Sale," including the right for our company to issue new shares if we carry out an acquisition or enter into a merger, joint venture or strategic participation.
Sales of a substantial number of our common shares, or the ADSs, upon expiration of the lock-up agreements, the perception that such sales may occur, or early release of these lock-up periods, could cause our market price to fall or make it more difficult for you to sell your ADSs at a time and price that you deem appropriate.
As our initial public offering price is substantially higher than our net tangible book value per share, you will experience immediate and substantial dilution.
If you purchase ADSs in this offering, you will pay more for your ADSs than the amount paid by existing shareholders for our common shares on a per ADS basis. As a result, you will experience immediate and substantial dilution of approximately US$ per ADS (assuming no exercise of outstanding options to acquire common shares), representing the difference between our pro forma net tangible book value per ADS of US$ as of , 2019 after giving effect to this offering, and the assumed initial public offering price per share of US$ per ADS (the midpoint of the estimated initial public offering price range set forth on the front cover page of this prospectus). In addition, you may experience further dilution to the extent that our common shares are issued upon the exercise of share options. Substantially all of our common shares issuable upon the exercise of currently outstanding share options will be issued at a purchase price on a per ADS basis that is less than the initial public offering price per ADS in this offering. See "Dilution" for a more complete description of how the value of your investment in the ADSs will be diluted upon the completion of this offering.
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Transformation into a public company in the United States may increase our costs and disrupt the regular operations of our business.
This offering will have a significant transformative effect on us. Our business historically has operated as a publicly-held company in Brazil, and we expect to incur significant additional legal, accounting, reporting and other expenses as a result of having ADSs publicly-traded in the United States.
We also anticipate that we will incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as rules implemented by the SEC and the NYSE. We expect these rules and regulations to increase our legal and financial compliance costs and make some management and corporate governance activities more time-consuming and costly, particularly after we are no longer an "emerging growth company." These rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. This could have an adverse impact on our ability to recruit and bring on a qualified independent board.
The additional demands associated with being a public company in the United States may disrupt regular operations of our business by diverting the attention of some of our senior management team away from revenue producing activities to management and administrative oversight, adversely affecting our ability to attract and complete business opportunities and increasing the difficulty in both retaining professionals and managing and growing our businesses. Any of these effects could harm our business, financial condition and results of operations.
We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of the ADSs and our underlying common shares. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, results of operations and financial condition. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value. See "Use of Proceeds."
As a foreign private issuer and an "emerging growth company" (as defined in the JOBS Act), we will have different disclosure and other requirements than U.S. domestic registrants and non-emerging growth companies.
As a foreign private issuer and emerging growth company, we may be subject to different disclosure and other requirements than domestic U.S. registrants and non-emerging growth companies. For example, as a foreign private issuer in the United States, we are not subject to the same disclosure requirements as a domestic U.S. registrant under the Exchange Act, including the requirements to prepare and issue quarterly reports on Form 10-Q or to file current reports on Form 8-K upon the occurrence of specified significant events, the proxy rules applicable to domestic U.S. registrants under Section 14 of the Exchange Act or the insider reporting and short-swing profit rules applicable to domestic U.S. registrants under Section 16 of the Exchange Act. In addition, we intend to rely on exemptions from certain U.S. rules which will permit us to follow Brazilian legal requirements rather than certain of the requirements that are applicable to U.S. domestic registrants.
Furthermore, foreign private issuers are required to file their annual report on Form 20-F within 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are
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required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information, although we will be subject to Brazilian laws and regulations having substantially the same effect as Regulation Fair Disclosure. As a result of the above, even though we are required to file reports on Form 6-K disclosing the limited information which we have made or are required to make public pursuant to Brazilian law, or are required to distribute to shareholders generally, and that is material to us, you may not receive information of the same type or amount that is required to be disclosed to shareholders of a U.S. company.
The JOBS Act contains provisions that, among other things, relax certain reporting requirements for emerging growth companies. Under this act, as an emerging growth company, we will not be subject to the same disclosure and financial reporting requirements as non-emerging growth companies. For example, as an emerging growth company we are permitted to, and intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Also, we will not have to comply with future audit rules promulgated by the U.S. Public Company Accounting Oversight Board, or PCAOB, (unless the SEC determines otherwise) and our auditors will not need to attest to our internal controls under Section 404(b) of the Sarbanes-Oxley Act. We may follow these reporting exemptions until we are no longer an emerging growth company. As a result, our shareholders may not have access to certain information that they deem important. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual revenue of at least US$1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common shares, including common shares underlying the ADSs, held by non-affiliates exceeds US$700.0 million as of the prior June 30, and (2) the date on which we have issued more than US$1.0 billion in non-convertible debt during the prior three-year period. Accordingly, the information about us available to you will not be the same as, and may be more limited than, the information available to shareholders of a non-emerging growth company.
We could be an "emerging growth company" for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our common shares, including common shares underlying the ADSs, held by non-affiliates exceeds US$700 million as of any June 30 (the end of our second fiscal quarter) before that time, in which case we would no longer be an "emerging growth company" as of the following December 31 (our fiscal year end). We cannot predict if investors will find the ADSs less attractive because we may rely on these exemptions. If some investors find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and the price of the ADSs and our common shares may be more volatile.
We are a foreign private issuer and, as a result, in accordance with the listing requirements of the NYSE we rely on certain home country governance practices from Brazil, rather than the corporate governance requirements of the NYSE.
We report under the Exchange Act as a non-U.S. company with foreign private issuer status. The NYSE rules provide that foreign private issuers are permitted to follow home country practice in lieu of certain NYSE corporate governance standards. The standards applicable to us are considerably different than the standards applied to U.S. domestic issuers. For instance, we are not required to:
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As a foreign private issuer, we may follow our home country practice in Brazil in lieu of the above requirements. Therefore, the approach to governance adopted by our board of directors may be different from that of a board of directors consisting of a majority of independent directors, and, as a result, our management oversight may be more limited than if we were subject to all of the NYSE corporate governance standards. Accordingly, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers. See "Description of Capital Stock Principal Differences between Brazilian and U.S. Corporate Governance Practices."
We may lose our foreign private issuer status which would then require us to comply with the Exchange Act's domestic reporting regime and cause us to incur significant legal, accounting and other expenses.
In order to maintain our current status as a foreign private issuer, either (a) more than 50% of our common shares, including common shares underlying the ADSs, must be either directly or indirectly owned of record by non-residents of the United States or (b)(i) a majority of our executive officers or directors must not be U.S. citizens or residents, (ii) more than 50% of our assets cannot be located in the United States and (iii) our business must be administered principally outside the United States. If we lose this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and NYSE rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the costs we will incur as a foreign private issuer.
Total return swap and hedge transactions may influence the demand and the price of our common shares.
The underwriters or their respective affiliates may subscribe for our common shares underlying the ADSs in order to hedge transactions involving our common shares. These transactions may influence the demand and the price per ADS and reduce liquidity of our common shares, including the common shares underlying the ADSs, in the secondary market.
The protections afforded to minority shareholders in Brazil are different from those in the United States and may be more difficult to enforce.
Under Brazilian law, the protections afforded to minority shareholders are different from those in the United States. In particular, the legal framework and case law pertaining to disputes between shareholders and us, our directors and officers or our shareholders is less developed in Brazil than it is in the United States and there are different procedural requirements for bringing shareholder lawsuits, such as shareholder derivative suits, which differ from those you may be familiar with under U.S. or other laws. There is also a substantially less active plaintiffs' bar for the enforcement of shareholders' rights in Brazil than there is in the United States. As a result, in practice it may be
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more difficult for our minority shareholders to enforce their rights against us or our directors or officers or shareholders than it would for shareholders of a U.S. domestic issuer.
Investors may experience difficulty in effecting service of process or enforcing judgments on us, our directors and/or our officers within the United States in connection with this offering.
We are a corporation ( sociedade anônima ) incorporated under the laws of Brazil. All of our directors and officers reside outside the United States and a majority of our assets are located outside the United States. As a result, it may not be possible or it may be difficult for investors to effect service of process upon us or these other persons within the United States or to enforce judgments obtained in United States courts against us, our directors or our officers, including those predicated upon the civil liability provisions of the federal securities laws of the United States. Also, because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if certain conditions are met, you may face greater difficulties in protecting your interests in the case of actions against us or our board of directors or executive officers than would shareholders of a U.S. corporation. See "Enforcement of Judgments and Service of Process."
We may be a passive foreign investment company for U.S. federal income tax purposes in any year, which could result in adverse U.S. federal income tax consequences to U.S. holders
In general, if for any taxable year 75% or more of our gross income consists of passive income or 50% or more of the average quarterly value of our assets consists of assets that produce, or are held for the production of, passive income, we would be characterized as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. Passive income generally includes dividends, interest, rents, royalties and gains from the disposition of investment assets, subject to various exceptions. Based upon the current and anticipated composition of our gross income and gross assets, the market value of our assets and the nature of our business, we do not believe that we were treated as a PFIC for the taxable year ending on December 31, 2018 or will be treated as a PFIC in 2019 or in the foreseeable future. However, a company's PFIC status is a factual determination that is made on an annual basis and depends on the composition of a company's income and assets and the market value of its assets from time to time. If we are a PFIC for any taxable year during which a U.S. holder (as defined in "Material U.S. Federal Income Tax Considerations for U.S. Holders") owned our common shares or ADSs, such U.S. holder may be subject to certain adverse U.S. federal income tax consequences, including increased tax liability on gains from dispositions of our common shares or ADSs and certain distributions and a requirement to file annual reports with the Internal Revenue Service. See "Taxation Material U.S. Federal Income Tax Considerations for U.S. Holders Passive Foreign Investment Company Rules" for more information. Potential U.S. holders are urged to consult their tax advisors with respect to whether we may be treated as a PFIC and the tax consequences if we are so treated.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The statements included in this prospectus regarding our plans, forecasts, expectations of future events, strategies, projections, results of operations and financial trends affecting our business, as well as statements regarding other information, in particular under the sections "Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," include estimates and forward-looking statements.
Our estimates and forward-looking statements are mainly based on our current expectations and estimates about future events and trends, which affect or may affect our business, results of operations, cash flow margins, financial condition, prospects and the trading price of our common shares underlying the ADSs, and the industry in which we operate. These estimates are subject to several risks and uncertainties. They are made in light of information currently available to us and are not guarantees of future performance.
Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to risks and uncertainties, and are based on information currently available to us. As a result of the risks and uncertainties involved, the estimates and forward-looking statements discussed in this prospectus might not prove accurate or correct and our future results and our performance may differ materially from those expressed in these forward-looking statements due to, among others, the factors below, many of which are beyond our control or ability to predict. Because of these uncertainties, you should not place undue reliance on these forward-looking statements to make a decision to invest in our common shares.
Our estimates and forward-looking statements may be affected by several factors, including, but not limited to, the following:
Statements that depend on or are related to events, future or uncertain conditions or that include the words "believe," "anticipate," "continue," "expect," "estimate," "would," "plan,"
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"could," "will," "may," "shall," "intend," "foresee," "project" and other variations, as well as similar words, are intended to identify forward-looking statements. Forward-looking statements and estimates speak only as of the date they are made, and we do not undertake any obligation to update or revise any forward-looking statements to reflect new information, future events or other factors.
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We estimate the net proceeds to us from our sale of common shares in the global offering, including common shares in the form of ADSs, will be approximately US$ million (or approximately US$ million if the underwriters' option to purchase additional shares is exercised in full), after deducting estimated underwriting discounts and commissions and estimated offerings payables by us. This estimate assumes (1) an offering price of R$ per common share in the Brazilian offering, which is the closing price per common share reported on the B3 on , 2019 (or US$ when converted at an exchange rate of R$ to US$1.00 as reported by the Central Bank on , 2019) and (2) that ADSs are offered in the international offering at times that price, reflecting the ratio of common shares per ADS).
Each US$1.00 increase (decrease) in the assumed public offering price of US$ per ADS would increase (decrease) the net proceeds to us by approximately US$ , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1.0 million in the number of ADSs we are offering would increase (decrease) the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, by approximately US$ million, assuming the assumed initial public offering price stays the same.
We intend to use the net proceeds from the primary offering to finance (1) our general working capital requirements, (2) our acquisition strategy and (3) the further development of our new initiatives, including Linx Pay Hub as set forth in the table below:
Use of Proceeds |
Percentage |
Estimated Amount
|
|||||
| | | | | | | |
|
(in millions of reais ) (1)(2) | ||||||
Finance working capital requirements |
% | ||||||
Finance our acquisition strategy |
% | ||||||
Finance the development of new initiatives |
% | ||||||
| | | | | | | |
Total |
% | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
We will have broad discretion in allocating the net proceeds from this offering. With respect to the financing of our acquisition strategy, we constantly analyze market acquisition opportunities as they arise and are currently analyzing such opportunities in the ordinary course of our business. As of the date of this prospectus, no such opportunity has progressed to advanced discussions or has otherwise reached a level in negotiations such that we would deem the acquisition to be probable.
Although we currently anticipate that we will use the net proceeds from this offering as described above, there may be circumstances where a reallocation of funds is necessary. The amounts and timing of our actual expenditures will depend upon numerous factors, including the risk factors described under "Risk Factors." Accordingly, our management will have flexibility in applying the net proceeds from this offering. An investor will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use the proceeds.
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Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, interest-bearing instruments and Brazilian and U.S. government securities.
We will not receive any proceeds from the sale by the selling shareholder of its common shares including in the form of ADSs in the global offering.
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History of Dividend Payments and Net Income Retention
Set forth in the table below are our historical dividend payments made in the years ended December 31, 2018, 2017 and 2016:
|
For the Year Ended December 31,
|
|||||
| | | | | | |
|
2018 | 2017 |
2016
|
|||
| | | | | | |
|
(in R$ thousands unless otherwise indicated) | |||||
Net income |
71,055 | 84,845 | 68,501 | |||
Dividends declared and interest on equity over net income for the period (%) |
56.29% | 47.14% | 52.55% | |||
Dividends declared and interest on equity in relation to the equity of the Issuer (%) |
6.72% | 7.25% | 5.94% | |||
Total dividends declared and interest on equity |
40,000 | 40,000 | 36,000 | |||
Profit retention |
31,055 | 44,845 | 32,501 | |||
Date of the retention approval |
April 24, 2019 | April 16, 2018 | April 7, 2017 |
Amounts Available for Distribution
At each annual shareholders' meeting, our board of directors is required to advise on the allocation of our net income for the preceding year. The Brazilian Corporate Law and our bylaws in effect as of the date of completion of this offering require that we distribute annually to our shareholders a mandatory dividend, which is the mandatory distribution of a minimum percentage of our net income for the prior fiscal year, unless our board of directors recommends against such distribution due to considerations relating to our then financial condition.
Also, according to the Brazilian Corporate Law, a corporation's net income may be allocated to profit reserves and to the payment of dividends.
Our bylaws provide that an amount equal to at least 25% of our annual net profit, after deducting allocations to the legal reserve, statutory reserve, contingency reserve and other reserves, if any, or reversing contingency reserve amounts from prior years, if any, and unrealized profit reserve amounts, upon their realization and if not absorbed by subsequent losses, if any, should be available for distribution as mandatory dividends or interest on equity.
Payment of Dividends and Interest on Equity
The Brazilian Corporate Law requires that the bylaws of a Brazilian corporation specify a minimum percentage of income available for the annual distribution of dividends, known as the mandatory dividend, which must be paid to shareholders either as dividends or interest on equity.
Pursuant to the Brazilian Corporate Law and our bylaws in effect as of the date of completion of this offering, at least 25.0% of our adjusted net income should be allotted for the distribution and payment of the mandatory dividend to our shareholders. Our net income for this purpose is adjusted by reducing net income allocated to our legal reserve and other reserves, and by increasing net income by any reversals of the reserves.
While we are required under the Brazilian Corporate Law to pay a mandatory distribution every year, we are also allowed to suspend the mandatory distribution of dividends if the board of directors reports to our annual shareholders' meeting that the distribution would be inadvisable given our financial condition. In addition, our management must submit a report setting out the reasons for the suspension to the CVM. Net income not distributed by virtue of a suspension is
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allocated to a separate reserve and, if not absorbed by subsequent losses, is required to be distributed as soon as the financial condition of the company permits such payments.
Dividends
We are required, pursuant to the Brazilian Corporate Law, to hold a shareholders' meeting by no later than the fourth month after the end of each fiscal year, at which, among other matters, the shareholders shall decide on the yearly dividend distribution. The yearly dividend payment is based upon our audited financial statements for the immediately preceding fiscal year.
Any holder of record of shares at the time a dividend is declared is entitled to receive dividends. Under the Brazilian Corporate Law, dividends are generally required to be paid within 60 days following the date on which the dividend is declared, unless a shareholders' resolution established another payment date, which, in any event, must occur before the end of the year in which the dividend is declared.
Shareholders have a three-year period from the date of the resolution for the payment of dividends to claim the dividends or interest on equity, after which the aggregate amount of any unclaimed dividend legally reverts to us.
Pursuant to our bylaws, our board of directors may declare interim dividends or interest attributable to shareholders' equity based on realized profits verified in semi-annual financial statements. The board of directors may also declare dividends based on financial statements prepared in shorter periods, provided that the total amount of dividends paid in each semester does not exceed the amounts accounted for in our capital reserve account set forth in paragraph 1 of Article 182 of the Brazilian Corporate Law.
Interest on equity
Since January 1, 1996, Brazilian companies have been authorized to pay interest on equity to shareholders, and to treat those payments as a deductible expense for purposes of calculating corporate income tax and, since 1998, the social contribution. Payment of this interest on equity shall be made at the discretion of the board of directors, subject to the approval by shareholders at a general meeting.
The amount of the tax deduction in each year is limited to the greater of 50.0% of our net income (after the deduction of any allowances for social contribution tax, but before considering allowances for corporate income tax and interest on equity) for the period in respect of which the payment is made and 50.0% of our accumulated profits and profit reserves at the beginning of the relevant period. Payments of interest on equity, net of withholding income tax, may be considered as part of the mandatory dividend distribution. The rate applied in calculating interest on equity cannot exceed the pro rata die variation of the TJLP. Under applicable law, we are required to pay to our shareholders an amount sufficient to ensure that the net amount they receive in respect of interest on equity, after payment of any applicable withholding tax, plus the amount of distributed dividends, is at least equivalent to the minimum mandatory dividend amount.
Dividend Policy
The destination of our accrued profits is determined by our shareholders at the general shareholders' meeting, observing the limits set by applicable law and our bylaws. We maintain a legal reserve as well as a profit retention reserve that aims to strengthen our financial position and enable our organic growth. Five per cent of our net income must be allocated to our legal reserve, which may not exceed 20% of our capital stock, unless another destination cannot be determined
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at the general shareholders' meeting. The maximum limit of our profit retention reserve is equal to the value of our capital stock minus the balances of our other reserves.
Reserve Accounts
Capital reserves
Under the Brazilian Corporate Law, our capital stock reserves consists of: the premium on the issuance of shares, special premium reserve from mergers, disposition of warrants, debentures issuance premium, tax incentive and donations. The amounts accounted as our capital stock reserve are disregarded for the purpose of determination of mandatory dividends. While listed under the Novo Mercado , we may not issue participation bonuses ( partes beneficiárias ). Capital stock reserves may only be applied to, (1) absorb losses that exceed accumulated earnings and profit reserves; (2) redeem, repay or purchase our common shares; (3) redeem the shares of our founding shareholder; (4) increase our capital stock and (5) pay dividends to preferred shares, when applicable. Amounts credited to our capital reserve are not included in the calculation of the minimum mandatory dividend.
Legal reserve
Under the Brazilian Corporate Law and our bylaws in effect as of the date of completion of this offering, we are required to maintain a legal reserve to which we must allocate 5% of our net profit for each fiscal year, after certain deductions permitted by law, until the aggregate amount of the reserve equals 20% of our paid-in capital. However, we are not required to make any allocations to our legal reserve in a fiscal year in which the legal reserve, when added to our other capital reserves, exceeds 30% of our capital stock. The amounts to be allocated to such reserve must be approved by our shareholders in a shareholders' meeting, and may be used only for the increase of our capital stock or to offset net losses. Therefore, funds in our legal reserve are not available for the payment of dividends.
Profit retention reserve
Pursuant to the Brazilian Corporate Law, our shareholders may decide at the annual shareholders' meeting to retain a portion of our net income for investments in the company. The amount retained must be used as provided for in a capital expenditure budget previously approved by our shareholders. If encompassing more than one year, this budget must be reviewed annually. The allocation of funds to this reserve cannot jeopardize the payment of the mandatory dividends.
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The table below sets forth our cash and cash equivalents, and our total capitalization (defined as total current and non-current loans and financings plus shareholders' equity) as of March 31, 2019, as follows:
Investors should read this table in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus, with the sections of this prospectus entitled "Selected Financial Information," with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with other financial information contained in this prospectus.
|
As of March 31, 2019
|
||||||||||||
| | | | | | | | | | | | | |
|
Actual |
As Adjusted
|
|||||||||||
| | | | | | | | | | | | | |
|
(in millions of US$) (1) | (in millions of R$) | (in millions of US$) (1) | in millions of R$) | |||||||||
Current loans and financings |
13.9 | 54.1 | |||||||||||
Non-current loans and financings |
71.0 | 276.8 | |||||||||||
Current payables for the acquisition of businesses |
12.7 | 49.5 | |||||||||||
Non-current payables for the acquisition of businesses |
11.7 | 45.5 | |||||||||||
Total shareholder equity (2) |
276.3 | 1,076.5 | |||||||||||
| | | | | | | | | | | | | |
Total capitalization (2)(3) |
385.6 | 1,502.4 | |||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
An increase (decrease) of 1.0 million in the number of our common shares sold in the global offering by us would increase (decrease) (1) the value of our total shareholders' equity by US$ million, and (2) our total capitalization by US$ million, assuming an initial public offering price of US$ per common share and after deducting estimated underwriting discounts and commissions and the estimated offering expenses payable by us.
Other than as set forth above, there have been no material changes to our capitalization since March 31, 2019.
The selling shareholder will receive all net proceeds from the sale of our common shares held by it. Therefore, we will not receive any net proceeds from their secondary offering and our capitalization will not be impacted by such net proceeds.
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As of March 31, 2019, our shareholders' equity was R$1,076.5 million and our total capital stock consisted of 166,308,960 common shares. Based on our shareholders' equity as of March 31, 2019, our book value per common share as of March 31, 2019 was R$6.78. Book value represents our total assets less our total liabilities. Book value per common share as of March 31, 2019 is determined by dividing our total book value as of such date by the number of our common shares (not including our treasury shares) outstanding as of such date.
After giving effect to the sale by us of common shares offered by us in the global offering, and assuming (1) an offering price of R$ per common share, the closing price per common share as reported on the B3 on , 2019 (and assuming that ADSs are offered in the global offering at times that price, reflecting the ratio of common shares per ADS) and (2) no exercise of the underwriters' option to purchase additional common shares, including common shares underlying the ADSs, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our estimated shareholders' equity as of the date of this prospectus would have been approximately R$ million, representing R$ per common share, or US$ per ADS. This represents an immediate increase in book value of R$ per common share or US$ per ADS to existing shareholders and an immediate dilution in book value of R$ per common share, or US$ per ADS to new investors purchasing common shares or ADSs in this offering. Dilution for this purpose represents the difference between the price per common share or ADS paid by these purchasers and the book value per common share or ADS immediately after the completion of the offerings.
The following table illustrates this dilution to new investors purchasing common shares, including common shares in the form of ADSs, in the global offering:
Each R$1.00 increase (decrease) in the offering price per common share would increase (decrease) the net book value after this offering by R$ per common share or US$ per ADS assuming no exercise of the underwriters' option to purchase additional common shares, including common shares underlying the ADSs, and the dilution to investors in the offering by R$ per common share or US$ per ADS, assuming that the number of common share offered in the Brazilian offering and the number of ADSs offered in the international offering, as set forth on the cover page of this prospectus, remain the same.
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Stock Option and Restricted Share Plans
We approved (1) our stock option plans at our general shareholders' meetings held on December 4, 2012, April 27, 2016 and January 23, 2019 and (2) our restricted share plans at our general shareholders' meetings held on April 27, 2016 and January 23, 2019, or the Stock Plans.
As of the date of this prospectus, 946,123 stock options and 2,045,714 restricted shares have been granted but not yet exercised under the Stock Option and Restricted Shares Plans.
Our directors, senior executives and other key employees are eligible to participate in the Stock Plans. The total number of our common shares issued or which may be issued under the Stock may not exceed 5% of our total capital stock as of the date of the approval of each program under the Stock Plans. For more information, see "Management Compensation Share-Based Compensation."
The table below illustrates the hypothetical effect of the exercise of all stock options and common shares granted under the Stock Plans as of on March 31, 2019, considering: (1) an exercise price of R$13.84 for stock options issued under our first option plan, representing the weighted average exercise price of all stock options granted under our first stock option plan; (2) an exercise price of R$16.53 for stock options under our second option plan, representing the weighted average exercise price of all stock options granted under our second stock option plan; and (3) an exercise price of R$21.38 for stock options under our third option plan, representing the weighted average exercise price of all stock options granted under our third stock option plan.
|
(in US$, except
percentages) (3) |
(in R$, except
percentages) |
|||||
| | | | | | | |
Price per common share (1) |
US$ | R$ | |||||
Book value per common share as of March 31, 2019 |
|||||||
Book value per common share as of March 31, 2019, taking into consideration the global offering and the exercise of all stock options and common shares granted under our Stock Option Plans |
|||||||
Increase in book value per common share attributable to existing investors |
|||||||
Dilution per common share to new investors, taking into consideration the global offering and the exercise of all stock options and common shares granted under our Stock Option Plans |
|||||||
Percentage of immediate dilution to our investors, considering this offering and the exercise of all stock options and common shares granted under our Stock Option Plans |
% | % |
Common Share Purchase Price Comparison
The following table summarizes the number of common shares acquired from us, the total cash consideration paid and the average price per common share paid to us in the past five years by our senior management or affiliated persons and the public contribution by investors in the
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global offering. This information is based on the initial public offering price of US$ per common share, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us in connection with the global offering.
|
Common
Shares Purchased |
Total
Consideration |
Average
price per common share |
|||||||
| | | | | | | | | | |
|
(US$) (3) | |||||||||
Senior management and affiliates (1) |
1,001,258 | (2) | ||||||||
Investors in the global offering |
(4) |
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The Brazilian foreign exchange system allows the purchase and sale of foreign currency and the international transfer of reais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures.
The real depreciated against the U.S. dollar from mid-2011 to early 2016. In particular, during 2015, due to the poor economic conditions in Brazil, including as a result of political instability, the real depreciated at a rate that was much higher than in previous years. On September 24, 2015, the real fell to its lowest level since the introduction of the currency, at R$4.1945 per US$1.00. Overall in 2015, the real depreciated 32.0%, reaching R$3.9048 per US$1.00 on December 31, 2015. In 2016, the real fluctuated significantly, primarily as a result of Brazil's political instability, appreciating 19.8% to R$3.2591 per US$1.00 on December 31, 2016. In 2017, the real depreciated 1.5% against the U.S. dollar, ending the year at an exchange rate of R$3.3080 per US$1.00. In 2018, the real depreciated 14.6% against the U.S. dollar, ending the year at an exchange rate of R$3.8748 per US$1.00, primarily as a result of lower interest rates in Brazil, which reduced the volume of foreign currency deposited in Brazil in the "carry trade," as well as uncertainty regarding the Brazilian presidential elections held in October 2018. The real /U.S. dollar exchange rate reported by the Central Bank was R$3.6519 per US$1.00 on January 31, 2019, which reflected a 3.4% depreciation in the real against the U.S. dollar in that month. There can be no assurance that the real will not depreciate or appreciate further against the U.S. dollar.
The Central Bank has intervened occasionally in the foreign exchange market to attempt to control instability in foreign exchange rates. We cannot predict whether the Central Bank or the Brazilian government will continue to allow the real to float freely or will intervene in the exchange rate market by re-implementing a currency band system or otherwise. The real may depreciate or appreciate substantially against the U.S. dollar in the future. Furthermore, Brazilian law provides that, whenever there is a serious imbalance in Brazil's balance of payments or there are serious reasons to foresee a serious imbalance, temporary restrictions may be imposed on remittances of foreign capital abroad. We cannot assure you that the Brazilian government will not place restrictions on remittances of foreign capital abroad in the future. In addition, Exchange rate fluctuations will affect the U.S. dollar equivalent of any distributions we make in respect of our common shares including our common shares underlying the ADSs, which will be made in reais . See also, "Risk Factors Risks Related to Brazil The volatility of the real against the U.S. dollar and other currencies may have a materially adverse effect on our business and the market price of our common shares."
The following tables set forth the selling rate, expressed in reais per U.S. dollar (R$/US$) for the periods indicated, as reported by the Central Bank:
Year Ended December 31, |
Period-end |
Average for
Period (1) |
Low |
High
|
|||||||||
| | | | | | | | | | | | | |
|
(R$ per US$) | ||||||||||||
2014 |
2.6562 | 2.3547 | 2.1974 | 2.7403 | |||||||||
2015 |
3.9048 | 3.3387 | 2.5754 | 4.1949 | |||||||||
2016 |
3.2591 | 3.4833 | 3.1193 | 4.1558 | |||||||||
2017 |
3.3080 | 3.1925 | 3.0510 | 3.3362 | |||||||||
2018 |
3.8748 | 3.6658 | 3.1391 | 4.1879 |
Source: Central Bank
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|
Average for | ||||||||||||
Month |
Period-end | Period (1) | Low |
High
|
|||||||||
| | | | | | | | | | | | | |
|
(R$ per US$) | ||||||||||||
November 2018 |
3.8633 | 3.7867 | 3.6973 | 3.8925 | |||||||||
December 2018 |
3.8748 | 3.8851 | 3.8285 | 3.9330 | |||||||||
January 2019 |
3.6519 | 3.7417 | 3.6519 | 3.8595 | |||||||||
February 2019 |
3.7385 | 3.7236 | 3.6694 | 3.7756 | |||||||||
March 2019 |
3.8967 | 3.8465 | 3.7762 | 3.9682 | |||||||||
April 2019 |
3.9453 | 3.8962 | 3.8345 | 3.9725 | |||||||||
May 2019 (through May 28) |
4.0275 | 4.0065 | 3.9344 | 4.1056 |
Source: Central Bank
As of May 28, 2019, the U.S. dollar selling rate published by the Central Bank was R$4.0275 per US$ 1.00.
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Prior to this offering, there has been no public market for the ADSs. We cannot assure you that an active trading market will develop for the ADSs, or that the ADSs will trade in the public market subsequent to the global offering at or above the initial public offering price. Each ADS will represent common shares. The principal trading market for our common shares is the B3. Our common shares are listed on the B3 under the symbol "LINX3." As of March 31, 2019, we had 5,005 registered owners of our common shares.
Trading Price of Our Common Shares
The following table shows the low, average and high trading prices of our common shares for the periods indicated:
|
Average Daily |
Price per Common Share
|
|||||||||||
| | | | | | | | | | | | | |
Period |
Volume | Low | Average (1) |
High
|
|||||||||
| | | | | | | | | | | | | |
|
(R$ thousand) | (R$) | |||||||||||
2016 |
|||||||||||||
First Quarter |
7,346,982 | 14.80 | 15.95 | 17.46 | |||||||||
Second Quarter |
4,444,952 | 14.70 | 15.82 | 17.11 | |||||||||
Third Quarter |
6,186,379 | 16.13 | 17.77 | 19.52 | |||||||||
Fourth Quarter |
9,751,310 | 15.86 | 18.03 | 19.99 | |||||||||
2017 |
|||||||||||||
First Quarter |
8,627,877 | 16.05 | 17.15 | 18.40 | |||||||||
Second Quarter |
11,029,423 | 16.05 | 17.67 | 19.45 | |||||||||
Third Quarter |
11,442,615 | 16.86 | 18.29 | 21.00 | |||||||||
Fourth Quarter |
12,966,196 | 19.44 | 21.15 | 22.60 | |||||||||
2018 |
|||||||||||||
First Quarter |
17,810,400 | 18.61 | 20.26 | 22.12 | |||||||||
Second Quarter |
12,212,320 | 16.99 | 19.92 | 22.28 | |||||||||
Third Quarter |
12,778,382 | 15.24 | 17.31 | 19.14 | |||||||||
Fourth Quarter |
41,475,452 | 16.18 | 25.41 | 32.60 | |||||||||
2019 |
|||||||||||||
First Quarter |
40,666,439 | 26.00 | 30.35 | 37.00 | |||||||||
April |
63,608,333 | 31.20 | 35.30 | 38.77 | |||||||||
May (through May 5) |
45,316,342 | 31.40 | 31.95 | 32.95 |
Source: B3.
Calculated as the average of the closing price for the period.
Regulation of the Brazilian Securities Market
Pursuant to Law No. 6,385, of December 7, 1976, as amended, or the Brazilian Securities Law, and the Brazilian Corporate Law, the Brazilian securities market is regulated and supervised by the CMN, which has general authority over the stock exchanges and securities markets. The CMN regulates and supervises the activities of the CVM and has, among other powers, licensing authority over brokerage firms and also regulates foreign investment and foreign exchange transactions, according to the provisions of the Brazilian Securities Law and Law No. 4,595, dated December 31, 1964, as amended. These laws and other rules and regulations together set the requirements for disclosure of information applying to issuers of securities listed on stock exchanges, the criminal penalties for insider trading and price manipulation, the protection of minority shareholders,
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licensing procedures, supervision of brokerage firms and the governance of Brazilian stock exchanges.
Under the Brazilian Corporate Law, a company may be either publicly held ( companhia aberta ), like us, or privately held ( companhia fechada ). A company is publicly held when it has registered as such with the CVM, thereby becoming subject to reporting and regulatory requirements. A company registered with the CVM may trade its securities either on the B3 or on the Brazilian over-the-counter market. The shares of a listed company may also be traded privately, subject to certain limitations.
The over-the-counter market is divided into two categories: (1) organized over-the-counter market, in which the transactions are supervised by self-regulating entities authorized by the CVM and (2) non-organized over-the-counter market, in which the transactions are not supervised by self-regulating entities authorized by the CVM. In either case, transactions are directly traded among persons, outside the stock exchange market, through a financial institution authorized by the CVM. The institution shall be registered with the CVM (and in the relevant over-the-counter market), but there is no need for a special license to trade securities of a publicly held company on the over-the-counter market.
The trading of securities on the B3 may be suspended at the request of a company in anticipation of an announcement of a material event. Trading may also be suspended by the B3 or the CVM based on or due to a belief that a company has provided inadequate information regarding a material event or has provided inadequate responses to inquiries by the CVM or the B3, among other reasons.
Trading on Brazilian stock exchanges by non-residents of Brazil is subject to certain restrictions under the Brazilian foreign investment legislation. See " Investment in Our Common Shares by Non-Residents of Brazil."
Trading on the B3
Trading on the B3 is conducted every business day between 10:00 a.m. and 5:00 p.m. and between 10:00 a.m. to 6:00 p.m. during daylight savings time in Brazil on an automated system known as Megabolsa . The B3 also permits trading, except during daylight savings time in Brazil, from 5:30 p.m. to 6:00 p.m. on an online system called the "after market," which is connected to traditional and online brokers. Trading on the "after market" is subject to regulatory limits on price volatility and on the volume of shares transacted through Internet brokers.
When investors trade shares on the B3, the settlement occurs in three business days after the trade date and no adjustments for inflation are made. Generally, the seller is required to deliver the shares to the B3 on the third business day following the trade date. Delivery of, and payment for, shares are made through the facilities of a clearing house, the Central Depositária of the B3.
For a more efficient control of volatility of the BOVESPA Index, the B3 has adopted a circuit breaker system that suspends trading for 30 minutes or one hour whenever the BOVESPA Index falls below the limits of 10% and 15%, respectively, compared with the level at the close of trading during the preceding trading session. If the BOVESPA Index falls below the limit of 20%, the B3 may suspend trading for a period of time to be defined by the B3 at the time of such event.
The Novo Mercado
In 2000, the B3 introduced three special stock market segments for the trading of shares, named Level 1, Level 2 and the Novo Mercado (the latter was last amended in October 2017). These stock market segments have the purpose of prompting public companies to (1) disclose information to the market and their shareholders in connection with their business in addition to the information required by law and (2) adopt corporate governance practices, such as best practices for management, transparency and protection of minority shareholders.
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Our common shares are listed on the Novo Mercado . To have its shares listed on the Novo Mercado , a company, its management, controlling shareholder and the B3 must enter into the Novo Mercado Participation Agreement and the company's bylaws must comply with the rules of the Novo Mercado .
Companies listed on the Novo Mercado are voluntarily subject to stricter rules than those provided for under the Brazilian Corporate Law, such as requirements to:
Moreover, the board of directors of companies listed on the Novo Mercado must have members elected at a shareholders' meeting, with a term of up to two years, subject to reelection. At least two members or 20.0%, whichever is greater, of the members of the board of directors must be independent directors (and their independence must be demonstrated). Furthermore, the rules of the Novo Mercado do not permit the same individual to simultaneously hold the positions of chairman of the board of directors and chief executive officer (or comparable position), except when there is a vacancy in either position which cannot otherwise be filled.
Companies listed on the Novo Mercado are required to, among other things:
Corporate governance practices
This section presents information on corporate governance practices adopted by us, and should be read in conjunction with "Description of Capital Stock."
According to the Brazilian Institute of Corporate Governance ( Instituto Brasileiro de Governança Corporativa ), or IBGC, corporate governance is the system for managing and overseeing companies and it involves relationships between the company's shareholders, the board
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of directors, the board of executive officers, the independent auditors and the fiscal council. The basic principles of corporate governance are: (1) transparency; (2) equity; (3) accountability and (4) corporate responsibility.
The principle of transparency requires that management provide to the market not only information about the company's financial performance but also with regard to other factors (even if intangible) which guide corporate actions. Equity means fair and equitable treatment of all minority groups, employees, customers, suppliers or creditors. Accountability refers to the fact that management must report to bodies which elected or appointed them and take full responsibility for their actions. Finally, corporate responsibility represents a broader view of corporate strategy, incorporating social and environmental considerations into the definition of business and operations.
Among the corporate governance practices that we have adopted, the following stand out:
Investment in Our Common Shares by Non-Residents of Brazil
Investors who are non-residents in Brazil must register their investment in shares under Law No. 4,131, dated September 3, 1962 (as amended), or CMN Resolution No. 4,373, dated September 29, 2014 (as amended), and CVM Instruction No. 560 of March 27, 2015 (as amended).
CMN Resolution No. 4,373 affords favorable tax treatment to foreign investors who are not residents in a low or nil tax jurisdiction, as defined by Brazilian tax laws (please refer to the section "Taxation Material Brazilian Tax Considerations" for further discussion on the concept of a low or nil tax jurisdiction under Brazilian law).
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Under CMN Resolution No. 4,373, investors who are non-residents in Brazil may invest in almost all financial assets and engage in almost all transactions available in the Brazilian financial and capital markets, provided that certain requirements are met. CMN Resolution No. 4,373 covers investors who are individuals, companies, mutual funds and other collective investment entities domiciled or headquartered outside of Brazil. Under CMN Resolution No. 4,373, an investor under this category must:
In addition, an investor operating under the provisions of CMN Resolution No. 4,373 must be registered with the Brazilian internal revenue service pursuant to its Normative Ruling No. 1,863/2018. This registration process is undertaken by the investor's legal representative in Brazil.
Securities and other financial assets held by non-Brazilian investors pursuant to CMN Resolution No. 4,373 must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Central Bank or the CVM. In addition, securities trading is restricted to transactions carried out in the stock exchanges or through organized over-the-counter markets licensed by the CVM, except for transfers resulting from a corporate reorganization, or occurring upon the death of an investor by operation of law or will.
Non-Brazilian investors may also invest directly under Law No. 4,131 and may sell their shares in both private and open market transactions, but these investors are subject to less favorable tax treatment on gains than Resolution No. 4,373 investors. A non-Brazilian direct investor under Law No. 4,131 must:
If a holder of ADSs decides to exchange ADSs for the underlying common shares, the holder will be entitled to (i) sell the common shares on the B3 and rely on the depositary's electronic registration for five business days from the date of exchange to obtain and remit U.S. dollars abroad upon the holder's sale of our common shares, (ii) convert its investment into a foreign portfolio investment under of CMN Resolution No. 4,373, or (iii) convert its investment into a foreign direct investment under Law No. 4,131/62.
If a holder of ADSs wishes to convert its investment into either an foreign portfolio investment under of CMN Resolution No. 4,373 or a foreign direct investment under Law No. 4,131/62, it should begin the process of obtaining foreign investor registration with the Central Bank or with the CVM as the case may be, in advance of exchanging the ADSs for common shares.
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The custodian is authorized to update the depositary's electronic registration to reflect conversions of ADSs into foreign portfolio investments under CMN Resolution No. 4,373. If a holder of ADSs elects to convert its ADSs into a foreign direct investment under Law 4,131/62, the conversion will be effected by the Central Bank after receipt of an electronic request from the custodian with details of the transaction.
If a foreign direct investor under Law No. 4,131/62 wishes to deposit its shares into the ADR program in exchange for ADSs, such holder will be required to present to the custodian evidence of payment of capital gains taxes. The conversion will be effected by the Central Bank after receipt of an electronic request from the custodian with details of the transaction. Please refer to "Taxation Material Brazilian Tax Considerations" for a description of the tax consequences to an investor residing outside Brazil of investing in our common shares in Brazil.
For additional information on Brazilian tax consequences of investing in our common shares, see "Taxation Material Brazilian Tax Considerations."
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SELECTED FINANCIAL INFORMATION
The following selected financial information has been derived from our audited historical consolidated financial statements as of and for the three-month period ended March 31, 2019 and 2018 and as of and for the years ended December 31, 2018, 2017 and 2016, and the respective notes thereto, included elsewhere in this prospectus. These historical consolidated financial statements were prepared in accordance with IFRS as issued by the IASB.
The tables below present selected financial information as of the periods indicated. You should read this information in conjunction with the rest of this prospectus, including the sections entitled "Presentation of Financial and Other Information," "Summary Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Income Statement Data
|
For the Three-Month Period
Ended March 31, |
For the Year Ended
December 31, |
||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
|
2019 (2) | 2019 (2) | 2018 | 2018 | 2018 | 2017 |
2016
|
|||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
|
(in millions of
US$) (1) |
(in millions of R$) |
(in millions of
US$) (1) |
(in millions of R$) | ||||||||||||||||||
Net operating revenues |
45.4 | 176.8 | 158.4 | 175.9 | 685.6 | 571.6 | 494.6 | |||||||||||||||
Cost of services rendered |
(15.4 | ) | (60.0 | ) | (56.7 | ) | (63.0 | ) | (245.6 | ) | (211.6 | ) | (183.5 | ) | ||||||||
General and administrative |
(11.3 | ) | (44.0 | ) | (42.5 | ) | (43.3 | ) | (168.6 | ) | (148.1 | ) | (116.3 | ) | ||||||||
Research and development |
(4.7 | ) | (18.4 | ) | (16.2 | ) | (18.9 | ) | (73.5 | ) | (64.3 | ) | (59.9 | ) | ||||||||
Selling |
(9.1 | ) | (35.3 | ) | (22.1 | ) | (28.5 | ) | (111.0 | ) | (72.4 | ) | (62.5 | ) | ||||||||
Other operating income |
2.1 | 8.1 | 8.0 | 2.2 | 8.4 | 4.3 | 1.2 | |||||||||||||||
Other operating expenses |
(0.5 | ) | (1.9 | ) | 0.2 | (1.3 | ) | (5.1 | ) | (5.1 | ) | (5.6 | ) | |||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total operating expenses |
(38.9 | ) | (151.5 | ) | (129.2 | ) | (152.8 | ) | (595.5 | ) | (497.2 | ) | (426.4 | ) | ||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Operating income |
6.5 | 25.3 | 29.2 | 23.1 | 90.1 | 74.4 | 68.2 | |||||||||||||||
Financial income |
2.6 | 10.3 | 12.0 | 12.0 | 46.9 | 58.4 | 49.5 | |||||||||||||||
Financial expenses |
(3.1 | ) | (12.0 | ) | (8.3 | ) | (11.5 | ) | (44.8 | ) | (24.0 | ) | (24.7 | ) | ||||||||
Net financial income (expenses) |
(0.5 | ) | (1.8 | ) | 3.7 | 0.5 | 2.1 | 34.4 | 24.7 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Income before income tax and social contribution |
6.1 | 23.6 | 32.9 | 23.6 | 92.1 | 108.8 | 92.9 | |||||||||||||||
Income tax and social contribution current |
(0.5 | ) | (2.0 | ) | (1.7 | ) | (2.6 | ) | (10.0 | ) | (9.2 | ) | (10.6 | ) | ||||||||
Income tax and social contribution deferred |
(1.1 | ) | (4.4 | ) | (4.7 | ) | (2.8 | ) | (11.1 | ) | (14.7 | ) | (13.8 | ) | ||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Net income |
4.4 | 17.2 | 26.5 | 18.2 | 71.1 | 84.8 | 68.5 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
66
Balance Sheet Data
|
As of March 31, |
As of December 31,
|
|||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
|
2019 (2) | 2019 (2) | 2018 | 2018 | 2017 |
2016
|
|||||||||||||
| | | | | | | | | | | | | | | | | | | |
|
(in millions of
US$) (1) |
(in millions
of R$) |
(in millions
of US$) (1) |
(in millions of R$) | |||||||||||||||
Current Assets: |
|||||||||||||||||||
Cash and cash equivalents |
12.8 | 49.9 | 12.8 | 49.9 | 42.9 | 7.2 | |||||||||||||
Financial assets |
106.0 | 413.2 | 106.1 | 413.4 | 487.8 | 639.2 | |||||||||||||
Trade accounts receivable |
44.4 | 173.0 | 42.9 | 167.1 | 128.2 | 107.3 | |||||||||||||
Recoverable taxes |
8.1 | 31.6 | 9.0 | 35.1 | 33.1 | 29.7 | |||||||||||||
Other receivables |
8.4 | 32.7 | 11.1 | 43.4 | 28.1 | 12.2 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total current assets |
179.8 | 700.5 | 181.9 | 708.8 | 720.1 | 795.6 | |||||||||||||
Non-Current Assets: |
|
|
|
|
|
|
|||||||||||||
Financial assets |
| | | | 21.0 | 19.0 | |||||||||||||
Trade accounts receivable |
0.8 | 3.0 | 0.8 | 3.3 | 3.0 | 1.8 | |||||||||||||
Other receivables |
1.9 | 7.3 | 1.8 | 7.2 | 1.5 | 10.9 | |||||||||||||
Deferred taxes |
1.1 | 4.3 | 1.1 | 4.4 | 4.3 | 4.2 | |||||||||||||
Property, plant and equipment, net |
19.3 | 75.2 | 19.1 | 74.3 | 62.3 | 51.3 | |||||||||||||
Intangible assets, net |
246.0 | 958.6 | 218.0 | 849.6 | 751.9 | 600.6 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total non-current assets |
269.0 | 1,048.4 | 240.9 | 938.8 | 843.9 | 687.8 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total assets |
448.8 | 1,748.9 | 422.8 | 1,647.7 | 1,564.0 | 1,483.4 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Current Liabilities: |
|||||||||||||||||||
Suppliers |
3.2 | 12.5 | 3.5 | 13.6 | 8.5 | 6.3 | |||||||||||||
Loans and financing |
13.9 | 54.1 | 10.4 | 40.7 | 31.8 | 34.5 | |||||||||||||
Labor obligations |
13.8 | 53.9 | 11.2 | 43.8 | 38.9 | 31.2 | |||||||||||||
Taxes payable |
2.9 | 11.4 | 3.5 | 13.5 | 13.2 | 6.4 | |||||||||||||
Income tax and social contribution |
0.4 | 1.7 | 0.3 | 1.2 | 0.5 | 2.9 | |||||||||||||
Payables for the acquisition of businesses |
12.7 | 49.5 | 14.7 | 57.1 | 56.1 | 23.5 | |||||||||||||
Deferred revenue |
10.5 | 41.0 | 10.3 | 40.1 | 8.5 | 7.2 | |||||||||||||
Dividends payable |
0.7 | 2.8 | 0.7 | 2.8 | 4.2 | 1.1 | |||||||||||||
Other liabilities |
4.5 | 17.4 | 2.1 | 8.0 | 7.6 | 4.1 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total current liabilities |
62.7 | 244.2 | 56.6 | 220.7 | 169.2 | 117.1 | |||||||||||||
Non-Current Liabilities: |
|
|
|
|
|
|
|||||||||||||
Loans and financing |
71.0 | 276.8 | 53.7 | 209.3 | 65.5 | 96.3 | |||||||||||||
Labor obligations |
0.2 | 0.6 | | | | | |||||||||||||
Payables for the acquisition of businesses |
11.7 | 45.5 | 14.2 | 55.4 | 74.7 | 57.1 | |||||||||||||
Deferred taxes |
19.8 | 77.2 | 18.6 | 72.6 | 80.3 | 57.2 | |||||||||||||
Deferred revenue |
3.5 | 13.7 | 4.9 | 19.2 | | | |||||||||||||
Other liabilities |
0.5 | 2.0 | 0.6 | 2.3 | 1.0 | 1.9 | |||||||||||||
Provision for contingencies |
3.2 | 12.3 | 2.8 | 11.0 | 2.8 | 0.5 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total non-current liabilities |
109.9 | 428.1 | 94.9 | 369.8 | 224.3 | 213.0 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total liabilities |
172.5 | 672.3 | 151.5 | 590.5 | 393.5 | 330.1 | |||||||||||||
Shareholders' Equity: |
|
|
|
|
|
|
|||||||||||||
Capital |
125.4 | 488.8 | 125.4 | 488.5 | 486.0 | 480.8 | |||||||||||||
Capital reserves |
95.5 | 372.2 | 94.9 | 369.9 | 479.8 | 512.3 | |||||||||||||
Period income |
4.4 | 17.2 | | | | | |||||||||||||
Profit reserves |
46.1 | 179.8 | 46.1 | 179.5 | 186.1 | 141.3 | |||||||||||||
Additional dividends proposed |
5.7 | 22.2 | 5.7 | 22.2 | 18.8 | 18.9 | |||||||||||||
Other comprehensive income (loss) |
(0.9 | ) | (3.7 | ) | (0.7 | ) | (2.8 | ) | (0.2 | ) | | ||||||||
| | | | | | | | | | | | | | | | | | | |
Total shareholders' equity |
276.3 | 1,076.5 | 271.3 | 1,057.2 | 1,170.5 | 1,153.3 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total liabilities and shareholders' equity |
448.8 | 1,748.9 | 422.8 | 1,647.7 | 1,564.0 | 1,483.4 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
67
Other Financial Data
EBITDA and EBITDA margin
|
For the Three-Month Period
Ended March 31, |
For the Year Ended December 31,
|
||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
|
2019 | 2019 | 2018 | 2018 | 2018 | 2017 |
2016
|
|||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
|
(in millions of
US$) (1) |
(in millions of
R$) |
(in millions of
US$) (1) |
(in millions of R$) | ||||||||||||||||||
EBITDA (2) (4) |
12.7 | 49.7 | 47.6 | 43.3 | 168.8 | 144.3 | 124.5 | |||||||||||||||
EBITDA margin (%) (3) (4) |
28.1 | % | 28.1 | % | 30.1 | % | 24.6 | % | 24.6 | % | 25.2 | % | 25.2 | % |
EBITDA is not a measure of financial performance under IFRS, generally accepted accounting principles in the United States or Brazilian GAAP and should not be considered as an alternative to net income as a measure of operating performance, operating cash flows or liquidity. EBITDA does not have standardized meanings, and our definition of EBITDA may not be comparable with those used by other companies. EBITDA presents limitations that limit their usefulness as measures of profitability, as a result of not considering certain costs arising from business, which may affect, significantly, our profits, as well as financial expenses, taxes and depreciation. For a more detailed discussion of EBITDA, see "Presentation of Financial and Other Information Special Note Regarding Non-IFRS Financial Measures."
EBITDA and is calculated as follows:
|
For the Three-Month Period
Ended March 31, |
For the Year Ended December 31,
|
||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
|
2019 | 2019 | 2018 | 2018 | 2018 | 2017 |
2016
|
|||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
|
(in millions of
US$) (a) |
(in millions of
R$, unless otherwise indicated) |
(in millions of
US$) (a) |
(in millions of R$,
unless otherwise indicated) |
||||||||||||||||||
Net income |
4.4 | 17.2 | 26.5 | 18.2 | 71.1 | 84.8 | 68.5 | |||||||||||||||
(+) Income tax and social contribution |
1.6 | 6.4 | 6.4 | 5.4 | 21.1 | 23.9 | 24.4 | |||||||||||||||
(+) Net financial (income) expense |
0.5 | 1.8 | (3.7 | ) | (0.5 | ) | (2.1 | ) | (34.4 | ) | (24.7 | ) | ||||||||||
(+) Depreciation and amortization |
6.2 | 24.3 | 18.4 | 20.2 | 78.7 | 70.0 | 56.3 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
EBITDA (b) |
12.7 | 49.7 | 47.6 | 43.3 | 168.8 | 144.3 | 124.5 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
68
Net Debt to shareholders' equity
|
As of March 31, |
As of December 31,
|
||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
|
2019 (4) | 2019 (4) | 2018 | 2018 | 2018 | 2017 |
2016
|
|||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
|
(in millions of
US$) (1) |
(in millions of R$) |
(in millions of
US$) (1) |
(in millions of R$) | ||||||||||||||||||
(+) Current payables for the acquisition of businesses |
12.7 | 49.5 | 44.8 | 14.7 | 57.1 | 56.1 | 23.5 | |||||||||||||||
(+) Current loans and financing |
13.9 | 54.1 | 41.4 | 10.4 | 40.7 | 31.8 | 34.5 | |||||||||||||||
(+) Non-current payables for the acquisition of businesses |
11.7 | 45.5 | 45.9 | 14.2 | 55.4 | 74.7 | 57.1 | |||||||||||||||
(+) Non-current loans and financing |
71.0 | 276.8 | 90.9 | 53.7 | 209.3 | 65.5 | 96.3 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
(=) Total payables for the acquisition of businesses and loans and financing |
109.3 | 425.9 | 223.0 | 93.0 | 362.5 | 228.1 | 211.4 | |||||||||||||||
() Cash and cash equivalents |
12.8 | 49.9 | 48.7 | 12.8 | 49.9 | 42.9 | 7.2 | |||||||||||||||
() Financial assets |
106.0 | 413.2 | 486.9 | 106.1 | 413.4 | 487.8 | 639.2 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
(=) Net Debt (2) |
(9.5 | ) | (37.2 | ) | (312.6 | ) | (25.9 | ) | (100.8 | ) | (302.6 | ) | (435.0 | ) | ||||||||
(÷) Shareholders' equity |
276.3 | 1,076.5 | 1,161.0 | 271.3 | 1,057.2 | 1,170.5 | 1,153.3 | |||||||||||||||
Net Debt to shareholders' equity |
(0.03x | ) | (0.03x | ) | (0.27x | ) | (0.10x | ) | (0.10x | ) | (0.26x | ) | (0.38x | ) |
69
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with our audited historical consolidated financial statements as of and for the three-month periods ended March 31, 2019 and 2018 and as of and for the years ended December 31, 2018, 2017 and 2016, and the respective notes thereto, included elsewhere in this prospectus, as well as the financial information presented under "Presentation of Financial and Other Information" and "Selected Financial Information." The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including those set forth in "Forward-Looking Statements" and "Risk Factors."
Overview
We are a leading cloud-based technology company in Latin America and a market leader in Brazil in terms of revenue. We are focused on developing and providing affordable, easy-to-use, reliable and seamlessly integrated software solutions to retailers in Latin America, through our software-as-a-service, or SaaS, business model. During 2018, our subscription revenue accounted for 86.8%, or R$680.8 million, of our gross operating revenue, an increase of 15.5% over 2017 in reais . During the three-month period ended March 31, 2019, our subscription revenue accounted for 89.1%, or R$180.5 million, of our gross operating revenue, an increase of 11.1% over the corresponding period in 2018 in reais . With a comprehensive offering of solutions, we are an end-to-end service provider that offers business management tools, payment solutions, e-commerce and omni-channel applications through an integrated and ever-evolving platform to retailers of all sizes and capabilities.
Factors that Affect our Results of Our Operations
In the three-month period ended March 31, 2019 and in the years ended December 31, 2018, 2017 and 2016, our financial condition and results of operations were primarily influenced by our acquisitions during these periods. See " Results of Operations."
Our financial condition and results of operations are mainly influenced by fluctuations in sales volumes and the launch of new products and services, which in many cases are directly related to our acquisitions. However, our financial condition and results of operations are also affected by changes in the IGP-M and IPCA rates, given that most of our service and subscription contracts with customers are indexed to inflation.
Acquisitions
We believe that our results of operations and financial condition are positively impacted by our acquisition strategy, particularly those that permit us to launch new products and services. We have extensive capabilities in, and a strong track record of, identifying, negotiating and integrating acquired companies. In the three-year period ended December 31, 2018 and in the three-month period ended March 31, 2019, we have acquired a number of companies in accordance with our acquisition strategy, which is focused on adding new retail verticals, expanding our operations into new regions in Brazil and developing new technologies that accelerate the pace of our innovations.
Our acquisitions in the three-year period ended December 31, 2018 and in the three-month period ended March 31, 2019 include:
70
as marketing engines for large retail chains in primary markets in Latin America (other than Brazil);
In general, upon acquisition, our results of operations are impacted by the consolidation of the target's revenue and expenses on our statement of income and the consolidation of the target's assets and liabilities on our balance sheet. Following any such acquisition, we focus our efforts on capitalizing on synergies arising from our acquisitions in order to increase our operating efficiency. For a discussion of certain of the impacts of our acquisitions from 2016 to 2018 on our statement of income, see " Results of Operations." See also note 15 to our financial statements as of and for the three-month period ended March 31, 2019 and 2018 and as of and for the years ended December 31, 2018, 2017 and 2016 included elsewhere in this prospectus.
Brazilian macroeconomic environment
Because we conduct substantially all of our operations and derive substantially all of our revenue in Brazil, our results of operations and financial condition are impacted by the Brazilian macroeconomic environment. The Brazilian economic environment has historically been characterized by significant variations in economic growth, inflation and currency exchange rates. Our results of operations and financial condition are influenced by these factors and the effect that these factors have on employment rates, disposable income of the Brazilian population, the availability of credit, consumer spending levels and average wages in Brazil. The following table sets forth Brazilian inflation rates, interest rates, and exchange rates as of and for the three-month period ended March 31, 2019 and the years ended December 31, 2018, 2017 and 2016:
|
As of and for
the Three- Month Period Ended March 31, |
As of and for the Year Ended
December 31, |
|||||||||||
| | | | | | | | | | | | | |
|
2019 | 2018 | 2017 |
2016
|
|||||||||
| | | | | | | | | | | | | |
GDP growth (1) |
n.a | % | 1.1 | % | 1.1 | % | (3.3 | )% | |||||
Inflation (IGP-M) (2) |
2.2 | % | 7.6 | % | (0.5 | )% | 7.2 | % | |||||
Inflation (IPCA) (3) |
1.5 | % | 3.7 | % | 2.9 | % | 6.3 | % | |||||
Interbank rate CDI (4) |
1.5 | % | 6.4 | % | 6.9 | % | 13.6 | % | |||||
SELIC rate (end of period) |
6.5 | % | 6.5 | % | 7.0 | % | 13.8 | % | |||||
TJLP long-term interest rate (end of period) (5) |
7.0 | % | 7.0 | % | 7.0 | % | 7.5 | % | |||||
Appreciation (depreciation) of the real against the U.S. dollar (average of period) |
(2.7 | )% | (12.7 | )% | 9.1 | % | (4.1 | )% | |||||
Exchange rate at the end of the period per US$1.00 |
R$ | 3.8967 | R$ | 3.8748 | R$ | 3.3080 | R$ | 3.2591 |
71
Inflation
Due to the fact that a large portion of our subscription contracts with customers provide for automatic price increases based on inflation indices (primarily the IGP-M) over the prior 12-month period, our revenue is directly impacted by variations in inflation. In the three-month period ended March 31, 2019, the year ended December 31, 2018 and in the year ended December 31, 2016, we increased the prices we charge for our services due to a positive accumulated IGP-M inflation rate in each respective year. In contrast, we did not increase the prices we charge for our services in the year ended December 31, 2017 due to a negative accumulated IGP-M inflation rate. In the three-month period ended March 31, 2019 and in the three-year period ended December 31, 2018, the increases and decreases in our subscription revenue resulting from these variations in the IGP-M inflation rate were not material.
Brazilian Retail Sector
As of the date of this prospectus, we earned substantially all of our revenue from customers in the Brazilian retail sector. We offer our products and services across a variety of retail verticals including clothing stores, vehicle dealerships, pharmacies, electronic goods and household appliance stores, department stores, home improvement stores and restaurants. Accordingly, our results of operations are directly impacted by trends affecting, and the general performance of, the Brazilian retail sector. For example, our omni-channel software solutions were designed to facilitate retailers' recent efforts to improve the omni-channel shopping experience through which they interact with their consumers across a variety of channels, including physical stores, mobile applications, the internet and social networks.
The Brazilian retail sector is currently undergoing significant formalization and digitalization. Evidence of this process includes more extensive use of credit and debit cards for making payments and the implementation and increased use of electronic tax receipts, which enable the optimized collection of ICMS by Brazilian tax authorities. According to data published in May 2018 by ABECS, purchases paid by credit, debit and pre-paid cards in Brazil totaled an estimated R$1.36 trillion in 2017, an increase of 12.6% compared to 2016. We believe that the penetration of retail software solutions in Brazil will increase significantly in the coming years as companies continue to invest in technology and automation through software in order to adapt to the evolving formalization and digitalization of the Brazilian retail sector.
As a result, our results of operations are dependent on our ability to offer focused, innovative and scalable technology, tailored to the Brazilian retail market's needs through integrated offerings such as e-commerce platforms and order management system, or OMS, technology.
Optimal Balance between Subscription and Consulting Service Revenue
We classify our revenue as either subscription revenue or consulting service revenue. Our subscription revenue comprises revenue for monthly subscription fees we charge our customers for (i) the right to use our software and (ii) fees we charge for continuous technology support, helpdesk services, software hosting services, support teams and connectivity service. Items (i) and (ii) above are one bundled product in one contract having a duration of generally twelve months, subject to automatic renewal. In contrast, our consulting service revenue (implementation, installation, customization and training services) is recognized as services rendered. At times, we
72
charge onetime setup fees for small enterprise customers (or start-up fee), among others related to our subscription service. This one-time set-up fee was recognized upfront in 2017 and 2016. Upon adoption of IFRS 15 for 2018, this one-time setup fee is deferred over the average customer life. See "Description of Principal Statement of Income Line Items."
Our subscription revenue is a recurring revenue, which provides us with a reliable, generally high margin revenue stream. Consulting service revenue, in contrast, is generally non-recurring revenue as it is recognized as rendered.
Given these characteristics, our results of operations are impacted by the proportion of subscription and consulting service revenue to our total revenue. To the extent we do not obtain an optimal balance of subscription to consulting service revenue, our results of operations may be significantly impacted.
The table below sets forth the proportion of our subscription revenue to consulting service revenue and a reconciliation of gross operating revenue to net operating revenue for the periods indicated.
Description of Principal Statement of Income Line Items
Net operating revenues
Our net operating revenue is calculated by subtracting our sales deductions from gross operating revenue. Sales deductions include PIS, COFINS, ISS, INSS and cancellations and rebates.
We operate under SaaS business model through which we generate revenue from (1) monthly subscription fees for use of our software, which helps to ensure consistency and predictability in our revenue and (2) consulting service revenues for installation, implementation, customization and training services.
73
Our revenue is divided into two categories:
We do not recognize revenue if there are significant uncertainties with respect to its realization.
Operating Expenses
Cost of services rendered
Cost of services rendered comprises direct costs incurred in connection with the sale of our products and services, including amortization expense of capitalized software development costs and acquired technology.
General and administrative
General and administrative expenses include rental expenses, administrative staff, depreciation and amortization, maintenance, outsourced services and tax expenses.
Selling expenses
Selling expenses are those costs incurred in connection with our marketing activities, namely, expenses relating to our internal sales team and independent sales agents as well as advertising and publicity.
Research and Development
Research and software maintenance expenses, which are principally personnel costs to maintain existing software products, are generally expensed as incurred.
Net financial income (expense)
Net financial income (expense) primarily comprises interest income from financial assets and interest expense on debt and financings. Interest income is recognized on the statement of income pursuant to effective interest rate methodology. Interest expenses primarily comprise bank fees and interest on loans.
74
Current and Deferred Income Tax and Social Contribution
Provisions for income tax and social contribution are assessed on annual taxable income at the corporate income tax rate of 25.0% for retail operations ( Imposto de Renda de Pessoa Jurídica ), or IRPJ, and the social contribution tax rate of 9.0% ( Contribuição Social sobre Lucro Liquido ), or CSLL.
We benefit from certain fiscal incentives granted pursuant to Lei do Bem for companies that engage in research, development and technology innovation. These tax benefits include accelerated depreciation as a consequence of our ability to deduct expenditures related exclusively to technological innovation and development as a cost or an operating expense in the relevant period in which such expenditures are incurred, accounting for a significant portion of our expenditures in relating to depreciation and amortization. We also benefit from the ability to make deductions of such expenditures for the purposes of calculating our net income as we are able to classify them as operating expenses pursuant to the Brazilian legislation governing corporate income tax.
Results of Operations
Three-Month Period Ended March 31, 2019 Compared with Three-Month Period Ended March 31, 2018
|
For the Three-Month Period
Ended March 31, |
|||||||||
| | | | | | | | | | |
|
2019 | 2018 |
Variation
|
|||||||
| | | | | | | | | | |
|
(in millions of R$) | (%) | ||||||||
Net operating revenues |
176.8 | 158.4 | 11.6 | % | ||||||
Cost of services rendered |
(60.0 | ) | (56.7 | ) | 5.8 | % | ||||
General and administrative |
(44.0 | ) | (42.5 | ) | 3.5 | % | ||||
Selling |
(35.3 | ) | (22.1 | ) | 59.7 | % | ||||
Research and development |
(18.4 | ) | (16.2 | ) | 13.6 | % | ||||
Other operating income |
8.1 | 8.0 | 1.3 | % | ||||||
Other operating expenses |
(1.9 | ) | 0.2 | n.m. | (2) | |||||
| | | | | | | | | | |
Total operating expenses |
(151.5 | ) | (129.2 | ) | 17.3 | % | ||||
| | | | | | | | | | |
Operating income |
25.3 | 29.2 | (13.4 | )% | ||||||
Financial income |
10.3 | 12.0 | (14.2 | )% | ||||||
Financial expenses |
(12.0 | ) | (8.3 | ) | 44.6 | % | ||||
| | | | | | | | | | |
Net financial income (expenses) |
(1.8 | ) | 3.7 | (148.6 | )% | |||||
| | | | | | | | | | |
Income before income tax and social contribution |
23.6 | 32.9 | (28.3 | )% | ||||||
Income tax and social contribution |
(6.4 | ) | (6.4 | ) | (0.0 | )% | ||||
| | | | | | | | | | |
Net income |
17.2 | 26.5 | (35.1 | )% | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
75
Net operating revenues
Our net operating revenues increased by 11.6%, from R$158.4 million for the three-month period ended March 31, 2018, to R$176.8 million for the three-month period ended March 31, 2019, primarily as a result of the following factors:
Cost of services rendered
Cost of services rendered increased by 5.8%, from R$56.7 million for the three-month period ended March 31, 2018, to R$60.0 million for the three-month period ended March 31, 2019. This increase is primarily due to (1) an increase of R$5.2 million in labor costs resulting from employee and IT salary adjustments in the state of São Paulo and (2) the provisioning of an aggregate R$2.0 million in respect of employee bonuses and profit sharing.
General and Administrative
Our general and administrative expenses increased by 3.5%, from R$42.5 million for the three-month period ended March 31, 2018 to R$44.0 million for the three-month period ended March 31, 2019, primarily as a result of the renewal of our existing collective bargaining agreement in respect of our São Paulo-based employees. As a percentage of our net operating revenues, our general and administrative expenses decreased from 26.8% for the three-month period ended March 31, 2018 to 24.9% for the three-month period ended March 31, 2019, primarily as a result of our adoption of IFRS 16, in connection with which we recognized as right-of-use assets and lease liabilities leases previously classified as operating leases, except for short-term leases and leases of low-value assets. For additional information relating to our adoption of IFRS 16, see " Recent Accounting Pronouncements New standards, interpretations and amendments adopted in 2019."
Selling Expenses
Our selling expenses increased by 59.7%, from R$22.1 million for the three-month period ended March 31, 2018, to R$35.3 million for the three-month period ended March 31, 2019. As a percentage of our net operating revenues, our selling expenses increased from 14.0% for the three-month period ended March 31, 2018 to 20.0% for the three-month period ended March 31, 2019.
This increase is primarily due to (1) a R$5.4 million increase in investments in structuring our Linx Digital and Linx Pay operations and (2) the provisioning of an aggregate R$2.1 million in respect of employee bonuses and profit sharing for our sales employees.
Research and Development
Our research and development expenses increased by 13.6%, from R$16.2 million for the three-month period ended March 31, 2018 to R$18.4 million for the three-month period ended
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March 31, 2019. As a percentage of net operating revenues, our research and development expenses increased from 10.2% for the three-month period ended March 31, 2018 to 10.4% for the three-month period ended March 31, 2019.
This nominal increase primarily reflects the appointment of our Vice President of Research and Development following our organizational restructuring in July 2018, which resulted in the transfer of Mr. Gilsinei Hansen to his position as the Vice President of Linx Core.
Operating Income
As a result of the foregoing, our operating income decreased 13.4% from R$29.2 million for the three-month period ended March 31, 2018 to R$25.3 million for the three-month period ended March 31, 2019.
Net financial income (expense)
We recorded net financial income of R$3.7 million for the three-month period ended March 31, 2018 compared to a net financial expense of R$1.8 million for the three-month period ended March 31, 2019, primarily as a result of the following factors:
Income Before Income Tax and Social Contribution
As a result of the foregoing, our income before income tax and social contribution decreased by 28.3% from R$32.9 million for the three-month period ended March 31, 2018 to R$23.6 million for the three-month period ended March 31, 2019.
Income Tax and Social Contribution
Our income tax and social contribution remained relatively stable at R$6.4 million for the three-month period ended March 31, 2018 and 2019.
Net income
As a result of the foregoing, our net income decreased by 35.1%, from R$26.5 million for the three-month period ended March 31, 2018 to R$17.2 million for the three-month period ended March 31, 2019.
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Year Ended December 31, 2018 Compared with Year Ended December 31, 2017
|
For the Year Ended
December 31, |
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
Variation
|
|||||||
| | | | | | | | | | |
|
(in millions of R$) | (%) | ||||||||
Net operating revenues |
685.6 | 571.6 | 19.9 | % | ||||||
Cost of services rendered |
(245.6 | ) | (211.6 | ) | 16.1 | % | ||||
General and administrative |
(168.6 | ) | (148.1 | ) | 13.8 | % | ||||
Selling |
(111.0 | ) | (72.4 | ) | 53.3 | % | ||||
Research and development |
(73.5 | ) | (64.3 | ) | 14.3 | % | ||||
Other operating income |
8.4 | 4.3 | 95.3 | % | ||||||
Other operating expenses |
(5.1 | ) | (5.1 | ) | | |||||
| | | | | | | | | | |
Total operating expenses |
(595.5 | ) | (497.2 | ) | 19.8 | % | ||||
| | | | | | | | | | |
Operating income |
90.1 | 74.4 | 21.1 | % | ||||||
Financial income |
46.9 | 58.4 | (19.7 | )% | ||||||
Financial expenses |
(44.8 | ) | (24.0 | ) | 86.7 | % | ||||
| | | | | | | | | | |
Net financial income (expenses) |
2.1 | 34.4 | (93.9 | )% | ||||||
| | | | | | | | | | |
Income before income tax and social contribution |
92.1 | 108.8 | (15.3 | )% | ||||||
Income tax and social contribution |
(21.1 | ) | (23.9 | ) | (11.7 | )% | ||||
| | | | | | | | | | |
Net income |
71.1 | 84.8 | (16.2 | )% | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Net operating revenues
Our net operating revenues increased by 19.9%, from R$571.6 million for the year ended December 31, 2017, to R$685.6 million for the year ended December 31, 2018, primarily as a result of the following factors:
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Cost of services rendered
Cost of services rendered increased by 16.1%, from R$211.6 million for the year ended December 31, 2017, to R$245.6 million for the year ended December 31, 2018. This increase is primarily due to the increased connectivity costs and costs for the use of third-party data centers (i.e., public clouds) we incurred as the result of an increase in sales of our cloud-based service offerings.
General and Administrative
Our general and administrative expenses increased by 13.8%, from R$148.1 million for the year ended December 31, 2017 to R$168.6 million for the year ended December 31, 2018. As a percentage of our net operating revenues, our general and administrative expenses decreased from 25.9% for the year ended December 31, 2017 to 24.6% for the year ended December 31, 2018.
The nominal increase in our general and administrative expenses is primarily due to (1) the impact of our acquisitions of Percycle, Itec, Único and DCG in December 2017, and March, April and June 2018, respectively, which accounted for an aggregate R$6.2 million of the increase in our general and administrative expenses, (2) the hiring of new personnel to reinforce our back office and corporate operations, which accounted for R$5.2 million of the increase in our general and administrative expenses, and (3) inflation-based adjustments under the collective bargaining agreement governing our back-office employees, which accounted for R$0.2 million of the increase in our general and administrative expenses.
Selling Expenses
Our selling expenses increased by 53.3%, from R$72.4 million for the year ended December 31, 2017, to R$111.0 million for the year ended December 31, 2018. As a percentage of our net operating revenues, our selling expenses increased from 12.7% for the year ended December 31, 2017 to 16.2% for the year ended December 31, 2018.
This increase is primarily due to investments in new commercial sales structures to support our Linx Pay Hub and Linx Digital product lines and additional investments in our Key Accounts (Big Retail) internal sales team, which is also responsible for our commercial operations in Latin America following our acquisition of Synthesis (which we rebranded as "Napse") in July 2017.
Research and Development
Our research and development expenses increased by 14.3%, from R$64.3 million for the year ended December 31, 2017 to R$73.5 million for the year ended December 31, 2018. As a percentage of net operating revenues, our research and development expenses decreased from 11.2% for the year ended December 31, 2017 to 10.7% for the year ended December 31, 2018.
This nominal increase primarily reflects the increase of the Research and Development department's payroll due to (1) the impact of our acquisitions of Percycle, Itec, Único and DCG in December 2017, and March, April and June 2018, respectively, which accounted for an aggregate R$5.7 million of the increase in our research and development expenses, (2) new hiring of additional software developers to sustain the roll-out schedule of our product updates and releases, which accounted for R$3.7 million of the increase in our research and development expenses, and (3) inflation-based adjustment under the union bargaining agreements governing our research and development employees, which accounted for R$1.1 million of the increase in our research and development expenses.
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Operating Income
As a result of the foregoing, our operating income increased 21.1% from R$74.4 million for the year ended December 31, 2017 to R$90.1 million for the year ended December 31, 2018.
Net financial income (expense)
Our net financial income decreased by 93.9% from R$34.4 million for the year ended December 31, 2017 to R$2.1 million for the year ended December 31, 2018, primarily as a result of the following factors:
Income Before Income Tax and Social Contribution
As a result of the foregoing, our income before income tax and social contribution decreased by 15.3% from R$108.8 million for the year ended December 31, 2017 to R$92.1 million for the year ended December 31, 2018.
Income Tax and Social Contribution
Our income tax and social contribution decreased 11.7% from R$23.9 million for the year ended December 31, 2017 to R$21.1 million for the year ended December 31, 2018 principally because of lower pre-tax income. The effective tax rate was 22% and 23% for the year ended December 31, 2017 and for the year ended December 31, 2018, respectively.
Net income
As a result of the foregoing, our net income decreased by 16.2%, from R$84.8 million for the year ended December 31, 2017 to R$71.1 million for the year ended December 31, 2018.
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Year Ended December 31, 2017 Compared with Year Ended December 31, 2016
|
For the Year Ended
December 31, |
|||||||||
| | | | | | | | | | |
|
2017 | 2016 |
Variation
|
|||||||
| | | | | | | | | | |
|
(in millions of R$) | (%) | ||||||||
Net operating revenues |
571.6 | 494.6 | 15.6 | % | ||||||
Cost of services rendered |
(211.6 | ) | (183.5 | ) | 15.3 | % | ||||
General and administrative |
(148.1 | ) | (116.3 | ) | 27.3 | % | ||||
Selling |
(72.4 | ) | (62.5 | ) | 15.8 | % | ||||
Research and development |
(64.3 | ) | (59.9 | ) | 7.3 | % | ||||
Other operating income |
4.3 | 1.2 | 258.3 | % | ||||||
Other operating expenses |
(5.1 | ) | (5.6 | ) | (8.9 | )% | ||||
| | | | | | | | | | |
Total operating expenses |
(497.2 | ) | (426.4 | ) | 16.6 | % | ||||
| | | | | | | | | | |
Operating income |
74.4 | 68.2 | 9.1 | % | ||||||
Financial income |
58.4 | 49.5 | 18.0 | % | ||||||
Financial expenses |
(24.0 | ) | (24.7 | ) | (2.8 | )% | ||||
| | | | | | | | | | |
Net financial income (expenses) |
34.4 | 24.7 | 39.3 | % | ||||||
| | | | | | | | | | |
Income before income tax and social contribution |
108.8 | 92.9 | 17.1 | % | ||||||
Income tax and social contribution |
(23.9 | ) | (24.4 | ) | 2.0 | % | ||||
| | | | | | | | | | |
Net income |
84.8 | 68.5 | 23.8 | % | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Net operating revenues
Our net operating revenues increased by 15.6%, from R$494.6 million for the year ended December 31, 2016, to R$571.6 million for the year ended December 31, 2017, primarily as a result of the following factors:
Operating Expenses
Cost of Services Rendered
Cost of services rendered increased by 15.3%, from R$183.5 million for the year ended December 31, 2016, to R$211.6 million for the year ended December 31, 2017. This increase is
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primarily due to (1) the growth in headcount, increased connectivity costs and costs for the use of third-party data centers (i.e., public clouds) we incurred as the result of an increase in sales of our cloud-based service offerings, which accounted for an aggregate R$10.0 million of the increase in our cost of services rendered, and (2) the impact of our acquisitions of Synthesis, ShopBack and Percycle in July, October and November 2017, respectively, which accounted for R$8.4 million of the increase in our cost of services rendered.
General and Administrative
Our general and administrative expenses increased by 27.3%, from R$116.3 million for the year ended December 31, 2016 to R$148.1 million for the year ended December 31, 2017. As a percentage of our net operating revenues, our general and administrative expenses increased from 23.5% for the year ended December 31, 2016 to 25.9% for the year ended December 31, 2017.
This increase is primarily due to the expenses we incurred in relation to (1) the hiring of new personnel to reinforce our back office and corporate operations, which accounted for R$6.3 million of the increase in our general and administrative expenses, (2) the impact of our acquisitions of Synthesis, ShopBack and Percycle in July, October and November 2017, respectively, which accounted for an aggregate R$6.0 million of the increase in our general and administrative expenses, (3) inflation-based adjustments under the collective bargaining agreement governing our back-office employees, which accounted for R$0.7 million of the increase in our general and administrative expenses, and (4) the relocation of our head office in São Paulo, which accounted for R$0.3 million of the increase in our general and administrative expenses.
Selling expenses
Our selling expenses increased by 15.8%, from R$62.5 million for the year ended December 31, 2016, to R$72.4 million for the year ended December 31, 2017. As a percentage of our net operating revenues, our selling expenses increased from 12.6% for the year ended December 31, 2016 to 12.7% for the year ended December 31, 2017.
The increase in our selling expenses is primarily due to (1) the increase of the number of our independent sales agents, which resulted in an increase in sales commissions, which accounted for R$7.1 million of the increase in our selling expenses, (2) the impact of our acquisitions of Synthesis, ShopBack and Percycle in July, October and November 2017, respectively, which accounted for an aggregate R$2.4 million of the increase in our selling expenses, and (3) headcount increase and inflation-based adjustments under the collective bargaining agreement governing our direct sales employees, which accounted for R$0.6 million of the increase in our selling expenses.
Research and Development
Our research and development expenses increased by 7.3%, from R$59.9 million for the year ended December 31, 2016 to R$64.3 million for the year ended December 31, 2017. As a percentage of net operating revenues, our research and development expenses decreased from 12.1% for the year ended December 31, 2016 to 11.2% for the year ended December 31, 2017.
The increase in our research and development expenses was primarily due to (1) an increase in our research and development department's personnel costs mainly as a result of our hiring of additional software developers to sustain our product updates and releases and inflation-based adjustments under the collective bargaining agreement governing our research and development employees, which accounted for R$2.6 million of the increase in our research and development expenses, and (2) the impact of our acquisitions of Synthesis, ShopBack and Percycle in July, October and November 2017, respectively, which accounted for an aggregate R$1.1 million of the increase in our research and development expenses.
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Operating Income
As a result of the foregoing, our operating income increased 9.1% from R$68.2 million for the year ended December 31, 2016 to R$74.4 million for the year ended December 31, 2017.
Net financial income (expense)
Our net financial income increased 39.3% from R$24.7 million for the year ended December 31, 2016 to R$34.4 million for the year ended December 31, 2017, primarily as a result of the following factors:
Income Before Income Tax and Social Contribution
As a result of the foregoing, our income before income tax and social contribution increased 17.1% from R$92.9 million for the year ended December 31, 2016 to R$108.8 million for the year ended December 31, 2017.
Income Tax and Social Contribution
Our income tax and social contribution decreased 2.0% from R$24.4 million for the year ended December 31, 2016 to R$23.9 million for the year ended December 31, 2017, primarily due to an increase in pre-tax income offset by a decrease in our effective tax rate from 26% for the year ended December 31, 2016 to 22% for the year ended December 31, 2017, mainly as a result of the fact that we did not pay interest on equity nor use research and development tax subsidies afforded to us under the Good Law ( Lei do Bem ) in 2016 (as in 2017).
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Net income
As a result of the foregoing, our net income increased by 23.8%, from R$68.5 million for the year ended December 31, 2016 to R$84.8 million for the year ended December 31, 2017.
Liquidity and Capital Resources
We believe that our financial condition is sufficient to execute our business plan and meet our short- and medium-term obligations, that our current working capital is sufficient to meet our current operational financing and other needs and that our cash resources, including loans from third parties, are sufficient to finance our activities and needs during the next twelve months.
Liquidity
On March 31, 2019, our current assets totaled R$700.5 million, and exceeded current liabilities of R$244.2 million by R$456.3 million, corresponding to a current liquidity ratio (calculated by dividing current assets by current liabilities) of 2.87. On March 31, 2018, our current liquidity ratio was 3.64.
On December 31, 2018, our current assets totaled R$708.8 million, and exceeded current liabilities of R$220.7 million by R$488.1 million, corresponding to a current liquidity ratio of 3.21. On December 31, 2017, our current assets were R$720.1 million and exceeded current liabilities of R$169.2 million by R$550.9 million, corresponding to a current liquidity ratio of 4.26. On December 31, 2016, our current liquidity ratio was 6.79.
On March 31, 2019, our debt to equity ratio was 0.62 (calculated by dividing the sum of current and non-current liabilities by shareholders' equity), compared to 0.38 on March 31, 2018, 0.56 on December 31, 2018, 0.34 on December 31, 2017 and 0.29 on December 31, 2016. Between December 31, 2016 and March 31, 2019, our debt to equity ratio increased 113.8%, primarily due to an increase in our liabilities in relation to loans and financing and payables for the acquisition of businesses (which are fully recorded in our financial statements).
A summary of our current liquidity ratios and total debt ratios follows below:
|
As of
March 31 |
As of
December 31, |
||||||||||||||
| | | | | | | | | | | | | | | | |
|
2019 | 2018 | 2018 | 2017 |
2016
|
|||||||||||
| | | | | | | | | | | | | | | | |
Current liquidity ratio (1) |
2.87 | 3.64 | 3.21 | 4.26 | 6.79 | |||||||||||
Debt to equity ratio (2) |
0.62 | 0.38 | 0.56 | 0.34 | 0.29 |
Our Net Debt to shareholders' equity ratio was 0.03x as of March 31, 2019, 0.10x as of December 31, 2018, 0.26x as of December 31, 2017 and 0.38x as of December 31, 2016. For additional information relating to Net Debt, see "Presentation of Financial and Other Information Special Note Regarding Non-IFRS Financial Measures" and "Selected Financial Information."
Capital Resources
Currently, our main source for working capital and investments in non-current assets is our own operating cash flow. We also use lines of credit from private banks and public development banks as financing alternatives.
On September 26, 2016, we completed the follow-on public offering of our common shares (having previously completed the initial public offering of our common shares on the B3 on
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February 8, 2013). The net proceeds we obtained from our follow-on public offering totaling R$435.1 million were used for strategic acquisitions in the retail software sector.
Our capital structure is balanced between our own and third-party sources as our standard means of funding, utilizing our own shareholders' equity to a greater extent than third-party capital since we generate a high level of cash, as shown in the table below:
|
For the
Three-Month Period Ended March 31, |
For the Year Ended
December 31, |
||||||||||||||
| | | | | | | | | | | | | | | | |
|
2019 | 2018 | 2018 | 2017 |
2016
|
|||||||||||
| | | | | | | | | | | | | | | | |
|
(in millions of R$, unless otherwise indicated) | |||||||||||||||
Third-party capital (total liabilities) |
672.3 | 437.9 | 590.5 | 393.5 | 330.1 | |||||||||||
Our own capital (shareholders' equity) |
1,076.5 | 1,161.0 | 1,057.2 | 1,170.5 | 1,153.3 | |||||||||||
| | | | | | | | | | | | | | | | |
Total liabilities and shareholders' capital |
1,748.9 | 1,598.9 | 1,647.7 | 1,564.0 | 1,483.4 | |||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Percentage of third-party capital |
38.4 | % | 27.4 | % | 35.8 | % | 25.2 | % | 22.3 | % | ||||||
Percentage of our own capital |
61.6 | % | 72.6 | % | 64.2 | % | 74.8 | % | 77.7 | % |
Payment Capacity
In the three-month period ended March 31, 2019 and in the years ended December 31, 2018, 2017 and 2016, we had the financial resources to repay all of our financial commitments due to the fact that our operations have a strong cash generation and we only finance customers on a short-term basis. Given our debt profile, cash flow and liquidity position, we believe that our liquidity and capital resources are sufficient to cover our investments, expenses, debts and other amounts payable in the short- and medium-term.
Cash flows
Cash flows for the years ended December 2018, 2017 and 2016
|
For the
Three-Month Period Ended March 31, |
For the Year Ended
December 31, |
||||||||||||||
| | | | | | | | | | | | | | | | |
|
2019 | 2018 | 2018 | 2017 |
2016
|
|||||||||||
| | | | | | | | | | | | | | | | |
|
(in millions of R$) | |||||||||||||||
Net cash flows from operating activities |
45.6 | 28.5 | 97.7 | 107.3 | 81.9 | |||||||||||
Net cash flows (used in) from investing activities |
(16.6 | ) | (23.2 | ) | (34.4 | ) | 55.9 | (459.3 | ) | |||||||
Net cash flows (used in) from financing activities |
(28.1 | ) | 0.7 | (54.0 | ) | (129.0 | ) | 369.8 | ||||||||
Foreign exchange (loss) gain in cash and cash equivalents |
(0.9 | ) | (0.1 | ) | (2.4 | ) | 1.5 | | ||||||||
| | | | | | | | | | | | | | | | |
Increase (decrease) in cash and cash equivalents |
0.1 | 5.8 | 6.9 | 35.7 | (7.6 | ) | ||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Increase (decrease) in cash and cash equivalents |
||||||||||||||||
Beginning of the period |
49.9 | 42.9 | 42.9 | 7.2 | 14.8 | |||||||||||
End of the period |
49.9 | 48.7 | 49.9 | 42.9 | 7.2 | |||||||||||
| | | | | | | | | | | | | | | | |
Increase (decrease) in cash and cash equivalents |
0.1 | 5.8 | 6.9 | 35.7 | (7.6 | ) | ||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
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Net Cash Flows from Operating Activities
Net cash flows from operating activities increased 60.0% or R$17.1 million, from R$28.5 million for the three-month period ended March 31, 2018, to R$45.6 million for the three-month period ended March 31, 2019. This increase is principally due to the variation in non-cash adjustments to our net income from R$9.7 million for the three-month period ended March 31, 2018 to R$29.3 million for the corresponding period in 2019, primarily due to: (1) a R$10.5 million variation arising from present value adjustments, from a reversal of R$9.0 million for the three-month period ended March 31, 2018 to a R$1.5 million provision for the corresponding period in 2019; (2) a R$5.9 million increase in depreciation and amortization (with no cash effect) from R$18.4 million for the three-month period ended March 31, 2018 to R$24.3 million for the three-month period ended March 31, 2019; (3) a R$4.9 million increase in financial expenses (with no cash effect) from R$2.7 million for the three-month period ended March 31, 2018 to R$7.6 million for the three-month period ended March 31, 2019.
Net cash flows from operating activities decreased 8.9% or R$9.6 million, from R$107.3 million for the year ended December 31, 2017, to R$97.7 million for the year ended December 31, 2018. This decrease is principally due to an increase in our net income from R$84.8 million for the year ended December 31, 2017 to R$71.1 million for the year ended December 31, 2018.
Net cash flows from operating activities increased 31.0% or R$25.4 million, from R$81.9 million for the year ended December 31, 2016, to R$107.3 million for the year ended December 31, 2017. This variation is principally due to (1) a R$16.3 million increase in our net income for the period from R$68.5 million for the year ended December 31, 2016 to R$84.8 million for the year ended December 31, 2017 and (2) a R$13.7 million increase in depreciation and amortization (with no cash effect) from R$56.3 million for the year ended December 31, 2016 to R$70.0 million for the year ended December 31, 2017.
Net Cash Flows (used in) from Investing Activities
Net cash flows used in investing activities decreased 28.4% or R$6.6 million, from R$23.2 million for the three-month period ended March 31, 2018, to R$16.6 million for the three-month period ended March 31, 2019. This decrease is principally due to (1) acquisitions of businesses, net of cash and cash equivalents, in the aggregate of R$14.2 million in the three-month period ended March 31, 2019 compared to no acquisitions of businesses, net of cash and cash equivalents in the three-month period ended March 31, 2018 and (2) the repayment of financial assets in the aggregate of R$117.5 million in the three-month period ended March 31, 2019, compared to R$139.8 million in the three-month period ended March 31, 2018, partially offset by proceeds from redemption of financial assets in the aggregate of R$124.2 million in the three-month period ended March 31, 2019, compared to R$148.5 million in the three-month period ended March 31, 2018.
Net cash flows from investing activities was R$55.9 million for the year ended December 31, 2017 compared to net cash flows used in investing activities of R$34.4 million for the year ended December 31, 2018. This variation is principally a result of our use of a portion of the net proceeds of our follow-on offering in 2016 in order to finance our stock buyback program and our acquisitions of Itec, Único and DCG in 2018.
We recorded net cash used in investing activities of R$459.3 million for the year ended December 31, 2016, compared to net cash flows from investing activities of R$55.9 million for the year ended December 31, 2017. The variation in our net cash flows (used in) from investing activities is principally due to the decrease in financial investments from R$1.2 billion for the year ended December 31, 2016 (following the application of the net proceeds of the follow-on offering of our common shares in September 2016) to R$479.0 million for the year ended December 31, 2017
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(reflecting the use in 2017 of such net proceeds from the follow-on offering, including for the financing of our acquisition of Synthesis, ShopBack and Percycle in 2017).
Net Cash Flows (used in) from Financing Activities
Net cash flows from financing activities was R$0.7 million for the three-month period ended March 31, 2018 compared to net cash flows used in financing activities of R$28.1 million for the three-month period ended March 31, 2019. This variation is principally a result of financing we obtained in 2018, which was partially offset by payments we made in connection with the acquisition of subsidiaries. See " Indebtedness BNDES Financing IV."
Net cash used in financing activities decreased 58.1% or R$75.0 million, from R$129.0 million for the year ended December 31, 2017, to R$54.0 million for the year ended December 31, 2018. This variation is principally due to net proceeds we received in connection with BNDES financing in 2018, which was partially offset by buybacks of our common shares subsequently held in treasury.
We recorded net cash flows from financing activities of R$369.8 million for the year ended December 31, 2016, compared to net cash used in financing activities of R$129.0 million for the year ended December 31, 2017. This variation is principally due to the R$435.1 million in proceeds from the follow-on offering of our common shares (proceeds from issuance of shares and share premium) in 2016 (we did not conduct an offering of our common shares in 2017).
Research and Development
Research and development is material to our investment plan and the primary component of our capital expenditures, given its strategic importance in the technology sector in which we operate. Research and development investments allow us to offer solutions that increasingly meet our customers' needs and deliver technological innovations that provide greater user productivity solutions. Currently, our primary research and development investments relate to the development of our omni-channel retail products and services designed assist retailers in interacting with their consumers and deliver a seamless experience across a variety of channels, including physical stores, mobile applications, the internet and social networks. See "Business Software Products."
The table below sets forth our research and development expenses for the periods indicated:
Our research and development expenses increased 13.6% from R$16.2 million for the three-month period ended March 31, 2018 to R$18.4 million for the corresponding period in 2019. As a percentage of net operating revenues our research and development expenses increased from 10.2% of net operating revenues during the three-month period ended March 31, 2018 to 10.4% of net operating revenues during the corresponding period of 2019. This variation reflects the appointment of our Vice President of Research and Development, a position that had been vacant since our organizational restructuring in July 2018, which resulted in the transfer of Mr. Gilsinei Hansen to his position as the Vice President of Linx Core.
Our research and development expenses increased 14.3% from R$64.3 million for the year ended December 31, 2017 to R$73.5 million for the corresponding period in 2018. This variation is principally due to acquisitions of Itec, Único and DCG and the hiring of additional personnel to
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sustain the roll-out schedule of our product updates and releases. As a percentage of net operating revenues our research and development expenses decreased from 11.2% of net operating revenues during the year ended December 31, 2017, to 10.7% of net operating revenues during the year ended December 31, 2018. This variation is principally due to our increased operating efficiency resulting from our ability to capitalize on synergies arising from acquisitions.
Our research and development expenses increased 7.3% from R$59.9 million for the year ended December 31, 2016 to R$64.3 million for the corresponding period in 2017. This variation is principally due to the acquisitions of Synthesis, ShopBack and Percycle and the hiring of additional personnel to sustain the roll-out schedule of our product updates and releases. For the years ended December 31, 2017 and 2016, research and development expenses decreased as a percentage of net operating revenues from 12.1% of net operating revenues in 2016, to 11.2% of net operating revenues in 2017. This variation is principally due to our increased operating efficiency resulting from our ability to capitalize on synergies arising from our acquisitions.
For the years ended December 31, 2018, 2017, and 2016 we capitalized R$35.9 million, R$30.8 million and R$27.7 million, respectively, of our research and development expenses primarily in relation to expenses we incurred in connection with the development of our omni-channel retail products and services.
Capital Expenditures
In the three-month period ended March 31, 2019 and in the years ended December 31, 2018, 2017 and 2016, our capital expenditures (defined as acquisitions of intangible assets and property and equipment) totaled R$23.2 million, R$82.8 million, R$65.5 million and R$47.8 million, respectively. Our capital expenditures primarily relate to capitalized research and development expenses and computer equipment.
Indebtedness
The table below sets forth our material loans and financing as of the dates indicated:
|
Outstanding Balance
|
|||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
|
As of
March 31, |
As of
December 31, |
||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Loans |
Interest | Maturity | 2019 | 2018 | 2018 | 2017 |
2016
|
|||||||||||||
| | | | | | | | | | | | | | | | | | | | |
|
(in millions of R$) | |||||||||||||||||||
BNDES |
TJLP + 1.5% | 3/15/2018 | | | | 2.9 | 14.1 | |||||||||||||
BNDES I |
TJLP + 1.67% | 2/15/2021 | 51.0 | 77.1 | 57.5 | 83.3 | 105.0 | |||||||||||||
BNDES II |
TJLP + 1.96% | 3/15/2022 | 41.3 | 54.4 | 44.5 | 9.9 | 9.7 | |||||||||||||
BNDES III |
TJLP + 1.00% | 9/1/2019 | 0.4 | 0.9 | 0.5 | 1.2 | 2.0 | |||||||||||||
BNDES IV |
TJLP + IPCA | 12/31/2027 | 147.3 | | 146.6 | | | |||||||||||||
Itaú |
TJLP + 7.20% | 4/16/2021 | 0.7 | | 0.8 | | | |||||||||||||
Leases IFRS 16 |
9.15% per year | 12/31/2028 | 90.2 | | | | | |||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Total |
330.9 | 132.4 | 250.0 | 97.3 | 130.8 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Current |
54.1 | 41.4 | 40.7 | 31.8 | 34.5 | |||||||||||||||
Non-Current |
276.8 | 90.9 | 209.3 | 65.5 | 96.3 |
The following summaries set forth the main terms of our principal loan and financing agreements.
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BNDES Financing I
On October 28, 2014, our subsidiary Linx Sistemas e Consultoria Ltda., or Linx Sistemas, entered into a credit facility with BNDES in the aggregate principal amount of R$102.8 million, for which we are the Guarantor. Repayment is scheduled for 48 successive monthly installments, with the first installment of principal due after March 15, 2017 and final maturity scheduled for February 15, 2021. Interest on this credit facility accrues at the TJLP interest rate plus 1.67% per year. The proceeds of this credit facility were used for investments by Linx Sistemas in research, development, marketing, training and consulting within the scope of the BNDES Program for the Development of the National Software and Information Technology Services BNDES PROSOFT, as well as for the acquisition of necessary equipment in Brazil (within the scope of the Financing Program for the Production and Marketing of Machinery and Equipment ( Programa de Financiamento à Produção e Comercialização de Máquinas e Equipamentos ), or the FINAME program. As of March 31, 2019, the outstanding balance under this agreement totaled R$51.0 million.
This credit facility also requires Linx Sistemas to obtain prior consent from BNDES in order to (1) make any loans; (2) borrow from individuals or entities who are related to us, (3) pledge any assets to other creditors without the same guarantees being provided to BNDES with the same conditions and priority, (4) create, directly or indirectly, or acquire ownership in other companies, or make investments, in Brazil or abroad and (5) paying dividends and/or other distributions to us subject to certain financial ratios.
Additionally, under this credit facility, we are required to obtain prior approval from BNDES for (1) any proposed encumbrance of any of Linx Sistemas' shares held by us, (2) the sale, acquisition, incorporation, merger or transfer of assets or any other act that affects Linx Sistemas' structure, (3) any change of control in Linx Sistemas or (4) any encumbrance on Linx Sistemas' property.
During the term of the credit facility, we are required to maintain the following financial ratios, which are computed semiannually based on our audited consolidated financial statements:
For purposes of calculating the above-mentioned ratios, the following definitions and criteria apply:
In the event that we do not comply with the specified ratios, Linx Sistemas is required to provide, subject to a cure period of 180 days, collateral in the amount equal to at least 130% of the outstanding balance of this credit facility.
BNDES Financing II
On December 11, 2015, our subsidiary Linx Sistemas entered into a credit facility with BNDES in the aggregate principal amount of R$54.0 million, for which we are the Guarantor. Repayment is scheduled for 48 successive monthly installments, with the final maturity scheduled for March 15, 2022. Interest on this credit facility accrues at the TJLP interest rate plus 1.96% per year and the terms governing the facility substantially reflect those of BNDES Financing I. The proceeds of this credit facility were used for investments by Linx Sistemas in research, development, marketing,
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training and consulting within the scope of the BNDES PROSOFT. As of March 31, 2019, the outstanding balance under this agreement totaled R$41.3 million.
BNDES Financing III
On August 15, 2013, our subsidiary Intercamp Sistemas entered into a credit facility with BNDES in the aggregate principal amount of approximately R$2.7 million. Repayment is scheduled for 48 successive monthly installments, with the final maturity scheduled for September 15, 2019. Interest on this credit facility accrues at the TJLP interest rate plus 1.00% per year. The proceeds of this loan were used for investments by Intercamp Sistemas in research, development, marketing, training and consulting within the scope of the BNDES PROSOFT. Following our acquisition of Intercamp Sistemas, Linx Sistemas succeeded Intercamp Sistemas as the party to this credit facility and assumed full responsibility thereunder, as determined in the first amendment to this credit facility, which also increased the interest accruing under the credit facility to the TJLP interest rate plus 2.36% per year as of May 4, 2017 and provided for Linx S.A. as guarantor. As of March 31, 2019, the outstanding balance under this agreement totaled R$0.4 million.
This credit facility also requires Linx Sistemas to obtain prior consent from BNDES in order to (1) make any loans; (2) borrow from individuals or entities who are related to us, (3) pledge any assets to other creditors without the same guarantees being provided to BNDES with the same conditions and priority, and (4) create, directly or indirectly, or acquire ownership in other companies, or make investments, in Brazil or abroad.
Additionally, under this credit facility, we are required to obtain prior approval from BNDES for (1) any proposed encumbrance of any of Linx Sistemas' shares held by us, (2) the sale, acquisition, incorporation, merger or transfer of assets or any other act that affects Linx Sistemas' structure, (3) any change of control in Linx Sistemas or (4) any encumbrance on Linx Sistemas' property.
During the term of the credit facility, Linx S.A. must maintain the following financial ratios:
General Debt: less than or equal to 60%;
Net debt/EBITDA: less than or equal to 2.0;
EBITDA/net operating income: equal or greater than 20%
In the event of noncompliance with this ratio, Linx Sistemas is required to provide, subject to a cure period of 180 days, collateral in the amount equal to at least 130% of the outstanding balance of this credit facility.
BNDES Financing IV
On November 30, 2018, our subsidiary Linx Sistemas entered into a credit facility with BNDES in the aggregate principal amount of approximately R$388.4 million, for which we are the guarantor. Repayment is scheduled for 84 successive monthly installments, with final maturity scheduled for December 15, 2027. The principal is split into two tranches with different interest rates. Interest on the first tranche of the credit facility accrues at IPCA plus 3.10% with an additional spread of 1.37% per year, while interest on the second tranche accrues at IPCA plus 3.10% with an additional spread of 0.97% per year. The proceeds of this credit facility have been used for investment purposes. As of March 31, 2019, the outstanding balance under this agreement totaled R$147.3 million.
This credit facility also requires Linx Sistemas to obtain prior consent from BNDES in order to (1) create, directly or indirectly, or acquire ownership in other companies, or make investments, in Brazil or abroad and (2) subject to certain financial ratios, pay dividends and/or other distributions to us. Such consent is not required where the total value involved is less than Linx Sistemas'
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EBITDA for the proceeding financial year, or less than our shareholder's equity as set out in our most recent audited consolidated financial statements.
Linx Sistemas must also obtain prior consent from BNDES in order to assume new loans with individuals or entities within its economic group. Such consent is not required where BNDES is directly or indirectly the lender for the relevant transaction, where the transaction is within the ordinary business of Linx Sistemas or where the value of the loan is no more than 5% of our shareholder's equity as set out in our most recent annual audited consolidated financial statements.
Additionally, under this credit facility, Linx Sistemas is required to obtain prior approval from BNDES for (1) the sale or pledge of any asset valued over R$10 million (except in the case of replaceable asset or an asset that is unserviceable or obsolete), (2) any encumbrance on Linx Sistemas' property and (3) the sale, acquisition, incorporation, merger or transfer of assets or any other act that affects Linx Sistemas' structure.
During the term of the credit facility, we are required to maintain the following financial ratios, which are computed semiannually based on our audited consolidated financial statements:
For purposes of calculating the above-mentioned ratios, the following definitions and criteria apply:
In the event that we do not comply with the specified ratios, Linx Sistemas is required to provide, subject to a cure period of 120 days, collateral in the amount equal to at least 130% of the outstanding balance of this credit facility.
As of the date of this prospectus, we are in compliance with each of the financial covenants set forth in our finance agreements.
Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations as of March 31, 2019
|
Payments Due By Period as of March 31, 2019
|
|||||||||||||||
| | | | | | | | | | | | | | | | |
|
Less than
1 year |
1 - 3 years | 3 - 5 years |
More than
5 years |
Total
|
|||||||||||
| | | | | | | | | | | | | | | | |
|
(in thousands of R$) | |||||||||||||||
Trade accounts payable |
12.5 | | | | 12.5 | |||||||||||
Loans and financings (1) |
54.1 | 83.9 | 154.1 | 38.8 | 330.9 | |||||||||||
Payables for the acquisition of the businesses (2) |
49.5 | 71.8 | 15.2 | | 103.5 | |||||||||||
Other liabilities |
17.4 | 2.0 | | | 19.4 | |||||||||||
| | | | | | | | | | | | | | | | |
Total |
133.5 | 124.7 | 169.3 | 38.8 | 466.3 | |||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Policies
Our consolidated financial statements are prepared in conformity with IFRS. In preparing our audited consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on amounts reported in our consolidated financial statements. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. We regularly reevaluate our assumptions, judgments and estimates
Our significant accounting policies are described in note 3 to our audited consolidated financial statements as of and for the three-month periods ended March 31, 2019 and 2018 and as of and for the years ended December 31, 2018, 2017 and 2016 included elsewhere in this prospectus. We believe that the following critical accounting policies are more affected by the significant judgments and estimates used in the preparation of our consolidated financial statements:
Recognition of Revenue
Our revenue is generated from performance obligations consisting of (1) subscription revenue, which allow customers: (i) the right to use Linx's software; and (ii) to receive technology support, helpdesk services, software hosting services, support teams and connectivity service and (2) consulting service revenue from installation services relating to our software, including customization and training. In the event billed amounts exceed services rendered plus recognized revenue, the difference is stated in the statement of financial position (current liabilities) as deferred revenue. In certain arrangements, we charge an upfront royalty payment associated with the subscription service. In 2016 and 2017, this upfront payment was amortized over the contract term and in 2018, under IFRS 15, the upfront payment was amortized over the average customer life.
The subscription revenue applies to our Linx Core product line. Our Linx Core operations comprise management software that we provide on a monthly subscription basis. By the end of 2018, we launched our Linx Digital (e-commerce related products) and Linx Pay Hub (payments related products) product lines as complementary services to our existing offerings. These services will be provided on an as-incurred basis as a percentage of sales through the platform. These products were not significant in the period between 2016 and 2018.
For contractual arrangements with multiple elements, the contract value will be allocated on the relative stand-alone selling price of each performance obligation included in the arrangement.
Impairment Tests for Acquisition Goodwill and Intangible Assets
Impairment loss occurs when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the greater of fair value, less costs of disposal, and value in use. The fair value, less costs of disposal, is based on information available on similar assets' selling transactions or market prices less incremental costs of disposal. The value-in-use calculation is based on the discounted cash flow model. Cash flows are estimated using detailed budgets and forecast calculations over a period of five years and do not include restructuring activities to which we have not yet committed or significant future investments that will enhance the asset base of the cash generating unit. The estimation of recoverable amount is sensitive to key assumptions including the discount rate used in determining present values, expected future cash-inflows and the long-term growth rate used for estimating cash flows in perpetuity.
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Research and Development Costs
Development activities involve a plan or project aimed at producing new or substantially improved products. Development expenditures are capitalized only when all of the following elements are present: (1) technical feasibility to complete the intangible asset in order for it to be available for use or sale; (2) intention to complete the intangible asset and use or sell it; (3) ability to use or sell the intangible asset; (4) the intangible assets results in future economic benefit, useful for internal use or asset sale; (5) availability of adequate technical, financial and other resources to complete its development and use the intangible asset; and (6) ability to safely measure the expenditures attributable to the intangible asset during its development. The expenditures capitalized include the cost of labor and materials that are directly attributable to preparing the asset. Other development expenditures are recognized in the statement of profit or loss as incurred.
After initial recognition, the asset is stated at cost less accumulated amortization and impairment losses. Amortization is triggered when the development is complete and the asset is available for use. During the development period, the asset is tested for impairment on an annual basis.
Business Combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, valued at fair value on the acquisition date, including the value of any non-controlling interest in the acquiree. For each business combination, we measure any non-controlling interest in the acquired business at the proportionate share of the acquiree's identifiable net assets. Acquisition related costs are expensed as incurred.
When acquiring a business, we assess the financial assets and liabilities assumed for proper classification and designation in accordance with contractual terms, economic circumstances and pertinent conditions on the acquisition date, which includes segregation of embedded derivatives in host contracts.
Any contingent payments to be transferred by the acquiree will be recognized at fair value on the acquisition date. Subsequent changes in fair value of contingent consideration considered as an asset or a liability will be recognized in the statement of profit or loss.
We measure goodwill at cost, being the excess of the consideration transferred over the net identifiable assets acquired and liabilities assumed.
After initial recognition, the goodwill is carried at cost less any accumulated impairment losses. For impairment testing purposes, goodwill acquired in a business combination is, from the acquisition date, allocated to each of our cash-generating units that are expected to benefit from synergies of combination, regardless of other assets or liabilities of the acquiree being allocated to those units.
Recent Accounting Pronouncements
New standards, interpretations and amendments adopted in 2019
IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for most leases under a single on-balance sheet model.
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We have entered lease contracts for various items of plant, equipment and other property. Before the adoption of IFRS 16, we classified each of our leases (as lessee) at the inception date as either a finance lease or an operating lease. A lease was classified as a finance lease if it transferred substantially all of the risks and rewards incidental to ownership of the leased asset to us; otherwise it was classified as an operating lease. Before the adoption of IFRS 16, we had no financial lease agreements. In an operating lease, the leased property was not capitalized and the lease payments were recognized as rent expense in the statement of profit or loss on a straight-line basis over the lease term. Any prepaid rent and accrued rent were recognized under prepayments and trade and other payables, respectively.
Upon adoption of IFRS 16, we applied a single recognition and measurement approach for all leases that it is the lessee, except for short-term leases and leases of low-value assets. We recognized lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
In accordance with the modified retrospective method of adoption, we applied IFRS 16 retrospectively with the cumulative effect of initially apply the standard as an adjustment at the date of initial application.
Leases previously accounted for as operating leases
We recognized right-of-use assets and lease liabilities for those leases previously classified as operating leases, except for short-term leases and leases of low-value assets. The right-of-use assets for most leases were recognized based on the carrying amount as if the standard had always been applied, apart from the use of incremental an borrowing rate at the date of initial application. In some leases, the right-of-use assets were recognized based on the amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease payments previously recognized. Lease liabilities were recognized based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application.
We also applied the available practical expedients wherein we:
Based on the foregoing, as of 1 January 2019:
Standards, interpretations and amendments not yet adopted
As of the date of this prospectus, there were no standards, interpretations and amendments effective as of January 1, 2019 that we have not yet adopted.
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Material Weaknesses in Internal Controls
In connection with the audit of our consolidated financial statements for the year ended December 31, 2018, we and our independent registered public accounting firm identified material weaknesses in our internal controls as noted below:
We have adopted a remediation plan with respect to the material weaknesses identified above and have adjusted our policies for recognition and measurement of revenues for 2019. With respect to our general IT controls, we are developing a remediation plan to implement additional controls to address the program changes and access management deficiencies identified. Additionally, we are in the process of refining our financial statement close process to develop management review controls to address these deficiencies. There can be no assurance that our internal controls, policies and procedures will be sufficient and/or fully effective to detect inappropriate practices or errors in the issuance of our financial statements. If we are unable to properly maintain our internal controls, we may not be able to accurately report our financial results or prevent the occurrence of inappropriate or erroneous practices.
Quantitative and Qualitative Disclosures about Market Risk
We continually analyze our exposure to risks that may adversely affect our business, financial condition and results of operations. We are constantly monitoring changes in our sector and macroeconomic environment that could influence our activities and those of our subsidiaries. We have adopted a policy of financial discipline and conservative cash management, in addition to having a specific management team focused on the governance of our systems and data centers in order to anticipate and address risks inherent to our operations. There have been no significant changes in the principal market risks we face over the last year.
Sensitivity Analysis
The main risks related to our operations are derive from variations in (1) the TJLP, CDI, IPCA IGP-M and IPC interest rates for financings with BNDES and payables for the acquisition of businesses and (2) the CDI rate for financial investments. CDI investments are recorded at market value, as disclosed by the respective financial institutions, and the remaining investments are primarily in certificates of bank deposits. Accordingly, their recorded value is equal to their market value.
In order to determine our sensitivity to our indebtedness as of March 31, 2019, we analyzed three different scenarios. Based on the TJLP, IPCA, IPC, IGP-M and CDI interest rates in effect on March 31, 2019, the probable scenario for 2019 was determined and two additional scenarios were calculated based on that value, applying variations of 25% and 50%.
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The gross financial expense was calculated for each scenario, taking into account taxes and the timing of maturity for each contract in 2019. March 31, 2019 was used as the base date used for the sensitivity analyses.
Operation |
Balance on
March 31, 2019 |
Risk |
Scenario I
(Probable) |
Scenario II (1) |
Scenario III
(2)
|
||||||||||
| | | | | | | | | | | | | | | |
|
(in thousands | (in thousands of R$, except | |||||||||||||
|
of R$) | percentages) | |||||||||||||
Financing BNDES |
330,860 | 23,259 | 29,083 | 34,906 | |||||||||||
Variable rate |
TJLP | 7.0 | % | 8.8 | % | 10.6 | % | ||||||||
Acquisition of Companies |
7,825 | 169 | 211 | 254 | |||||||||||
Variable rate |
IGP-M | 2.2 | % | 2.7 | % | 3.2 | % | ||||||||
Acquisition of companies |
3,142 | 201 | 251 | 302 | |||||||||||
Variable rate |
CDI | 6.4 | % | 8.0 | % | 9.6 | % | ||||||||
Acquisition of companies |
15,656 | 236 | 294 | 354 | |||||||||||
Variable rate |
IPCA | 1.5 | % | 1.9 | % | 2.3 | % | ||||||||
Acquisition of companies |
42,270 | 1,649 | 2,063 | 2,473 | |||||||||||
Variable rate |
IPC | 3.9 | % | 4.9 | 5.9 | % |
In order to determine the sensitivity of our financial assets to fluctuations in CDI as of March 31, 2019, we analyzed three different scenarios. Scenarios II and III were calculated based on that projection, applying a discount of 25% and 50%, respectively:
Operation |
Balance on
March 31, 2019 |
Risk |
Scenario I
(Probable) |
Scenario II (1) |
Scenario II
(2)
I
|
||||||||||
| | | | | | | | | | | | | | | |
|
(in millions of R$ except percentages) | ||||||||||||||
Financial assets |
413.2 | CDI | 6.4 | % | 4.8 | % | 3.2 | % | |||||||
Financial income |
26.4 | 19.8 | 13.2 |
Since net financial income represented 0.3% of our net operating revenues in the year ended December 31, 2018, we believe that our profitability would be minimally impacted by a change in the interest rates or inflation.
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Market Opportunity
Large and growing digital retail market
According to the 2018 IDC Survey, IT retail investments in Brazil totaled R$7.4 billion in 2017. Of this total investment, software accounted for 32.5%, or R$2.4 billion. Moreover, the 2018 IDC Survey indicates that retail software investments in the retail market are expected to reach R$1.6 billion by 2021 (assuming the current characteristics of the Brazilian market, e.g., investment environment and market maturity), representing a CAGR (period) of 7.1%. In a scenario where Brazil presents an investment environment similar to other mature markets, such as the United States and Europe, IT retail investments could potentially reach R$11.7 billion by 2021, an increase of nearly five times the volume of investments in 2017.
At the same time, the Brazilian retail sector is currently undergoing significant formalization and digitalization. Evidence of this process include more extensive use of credit and debit cards for making payments, increased inspections and audits by tax authorities and the implementation and increased use of electronic tax receipts. According to data published in May 2018 by ABECS, purchases paid by credit, debit and pre-paid cards in Brazil totaled R$1.36 trillion in 2017, an increase of 12.6% compared to 2016. We believe that the penetration of retail software solutions in Brazil will increase significantly in the coming years as companies continue to invest in technology and automation through software in order to adapt to the evolving formalization and digitalization of the Brazilian retail sector.
Although the rate at which new brick-and-mortar retail stores are opened has decreased mostly as a result of a recent macroeconomic adverse scenario, we continue to capture new customers as a result of the formalization, professionalization, digitalization and geographic expansion of retail brands. We believe that these trends point to a continuing growth in investments in technology by retailers. A good example is the current migration from printed tax receipts to electronic tax receipts throughout Brazil. We further believe that the omni-channel consumer interaction strategy provides a significant opportunity for future growth as an omni-channel strategy brings consistent and seamless integration, which is a critical factor to our customers' interactions with their clients.
Relatively low e-commerce penetration in Brazil
Both in Brazil and Latin America, e-commerce penetration is still relatively low in comparison to other countries, indicating an important path for growth. Based on the extensive knowledge we have gained through our retail customers, we believe that there is an opportunity for Brazilian e-commerce to expand at a faster pace than the overall retail market.
Conversion of brick-and-mortar and digital retail to omni-channel
Consumers now dictate how, when, and where to interact with retailers and their expectations continue to rise. As digital retail grows, consumers expect to be able to transact through multiple sales channels without compromising functionality or experience. To adapt to this change, retailers will likely demand more omni-channel solutions that integrate their digital and physical operations efficiently. Through the integration of brick-and-mortar and digital channels, retailers will not only be able to interact with their clients in multiple sales channels, but also gather and analyze data on their behavior, better understand their preferences, and, ultimately, adjust their own operations to this new business environment.
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Automation as a solution to increasing labor costs
Over the past 10 years, labor costs in Brazil increased significantly. For example, the average minimum wage increased 8.7% annually between 2008 and 2018 (from R$415 per month to R$954 per month, according to the Brazilian Ministry of Labor), compared to a 2.6% increase in the retail sales volume index in Brazil over the same period (from 93 points to 120 points, according to IBGE). As a result of payroll expenses pressuring margins, we see an increasing demand for technologies that create opportunities for merchants to improve the experience of their clients and to transact simultaneously with multiple clients in multiple locations, driving scalability and productivity gains. Such technologies include POS automation, sales processes digitalization, channels integration, big data, among others, which are all covered by our portfolio of solutions.
Consumers moving away from cash transactions coupled with a merchant acquiring market susceptible to disruption
Source: World Bank Group
Brazilian consumers are not only changing the way they shop but also how they pay for their purchases. According to ABECS, transactions using credit, debit and pre-paid cards totaled R$1.36 trillion in 2017, an increase of 12.6% over 2016, overtaking for the first time cash transactions, which totaled R$1.31 trillion, and payments by check, which totaled R$0.8 trillion. The increase in non-cash transactions is expected to drive merchants demand for new payment solutions integrated with management systems, such as POS technology and receivables management, among others. Therefore, business models that conciliate retail management solutions and financial solutions, like ours, are better positioned to serve merchants and benefit from this positive environment.
In addition, the Brazilian payments industry in the last 10 years has undergone change as the result of regulations introduced by Brazilian legislation, the Central Bank and the Brazilian antitrust system. These measures were primarily aimed at increasing competition in an industry that is concentrated despite experiencing high growth rates. On the other hand, these measures created a commoditization side-effect for existing companies in the merchant acquiring market that are unable differentiate their services to merchants other than through pricing, creating opportunities for innovative and disruptive companies such as Linx.
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Expansion into our International Markets
As we have increased our presence in Latin America, particularly in Mexico, Argentina and Chile, our total addressable market has increased as well. As well as in Brazil, other Latin American markets are witnessing the early stages of digitalization of retail channels and payments. In particular, as of 2017, the percentage of credit cards and debit cards penetration in the region was 19% and 41%, respectively, according to World Bank Group.
Regulatory Environment
Data protection
The Brazilian General Data Protection Act was published in the Federal Official Gazette on August 15, 2018 and was amended by the MP 869/2018. As amended by the MP 869/2018, the Brazilian General Data Protection Act will take effect in August 2020.
As a result of the delay in the effective date of the Brazilian General Data Protection Act, Brazil currently lacks specific data protection regulation and a data protection authority. Privacy is generally protected through the Federal Constitution, the Civil Code (Law No. 10,406 of January 10, 2002), the Consumer Protection Code (Law No. 8,078 of September 11, 1990) and the Civil Rights Framework for the Internet (Law No. 12,965 of April 23, 2014 and the Decree 8,771 of May 11, 2016, also known as the Internet Law).
Once effective, the Brazilian General Data Protection Act is expected to bring about significant changes in the processing of personal data, establishing rules for the collection, production, storage, use, transfer and erasure of information concerning identified or identifiable natural persons, including international transfers of data, individual rights in respect of, data processing records and data breaches. The Brazilian General Data Protection Act applies to data processing performed by individuals or by private or public entities, irrespective of the country in which they are headquartered or where data is hosted, so long as (1) the processing takes place within the Brazilian territory, (2) the processing is intended to offer or supply goods or services or to process data of individuals located in the Brazilian territory or (3) the personal data being processed has been collected within the Brazilian territory.
The MP 869/2018 created the Brazilian National Data Protection Authority, or the ANPD, which will have similar authority to that of European data protection agencies, including the authority to (1) issue norms and procedures, deliberate on the interpretation of the Brazilian General Data Protection Act and request information, (2) supervise compliance with the law and, in cases of noncompliance with the law, apply sanctions and enforce penalties through an administrative process and (3) educate and disseminate knowledge about the Brazilian National Data Protection Act and security measures, promote standards for services and products that facilitate control of data subjects, and elaborate studies on national and international practices for the protection of personal data and privacy, among others.
The ANPD has been granted technical autonomy, although it is subordinated to the office of the Presidency of Brazil.
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Overview
We are a leading cloud-based technology company in Latin America and a market leader in Brazil in terms of revenue. We are focused on developing and providing affordable, easy-to-use, reliable and seamlessly integrated software solutions to retailers in Latin America, through our software-as-a-service, or SaaS, business model. During 2018, our subscription revenue accounted for 86.8%, or R$680.8 million, of our gross operating revenue, an increase of 15.5% over 2017 in reais . During the three-month period ended March 31, 2019, our subscription revenue accounted for 89.1%, or R$180.5 million, of our gross operating revenue, an increase of 11.1% over the corresponding period in 2018 in reais . With a comprehensive offering of solutions, we are an end-to-end service provider that offers business management tools, payment solutions, e-commerce and omni-channel applications through an integrated and ever-evolving platform to retailers of all sizes and capabilities.
Since our incorporation in 1985, our consumer-centric and entrepreneurial culture has been focused on innovation, agility, and building a reliable infrastructure, all of which have enabled us to adapt to our customers' needs, deliver user-friendly software solutions and services and develop a comprehensive portfolio of integrated solutions. These capabilities have contributed to our resilient and predictable operations, with subscription revenue accounting for 86.8% of our gross operating revenue in 2018 and a quarterly customer retention rate of over 99% through the year. In addition, our growth is supported by a strong track record of adding new products to our portfolio, including our most recent Linx Pay Hub integrated payment processing solution, in order to anticipate trends and adapt to changes in our market. These ongoing efforts are exemplified by the upcoming products we intend to launch in 2019, including a QR code acceptance solution at cash registers that replaces debit cards and a digital wallet for retail customers that do not want a checking account.
As a result of our innovation capacity, ability to adapt to evolving customer needs and our cross-selling efforts, we have successfully retained and increased year-over-year the share of our services in our customers' wallet, as demonstrated in the following cohort analysis. For purposes of the following chart, we define (1) "annual cohort" as the subscription revenue generated from customers and that is added to our portfolio of customers in a given year and (2) "compound cohort growth rate" as the percentage of the subscription revenue generated by the relevant annual cohort of customers in 2018 relative to the revenue generated by the same annual cohort in the year immediately after they were added to our portfolio of customers. Compound cohort growth rates are calculated using this method to capture customer-generated revenues over a 12-month period (a full fiscal year), while also mitigating the fact that customers are added to the portfolio on different days of the year. Annual cohort revenue estimated using this metric takes into consideration both new organic customers and customers of companies that we acquire. As evidenced in the following chart, all of our annual cohorts have been kept at more than 100% of their respective initial annual revenue.
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As result of over 30 years of operations dedicated to the retail sector in Brazil, we have developed in-depth specialized knowledge and competitive advantages that have allowed us to become the leading player in the Brazilian software market. Consequently, we achieved a 41.3% market share in 2017 in terms of revenue in the retail management software solutions segment, according to the 2018 IDC Survey. We have successfully leveraged our extensive customer base to explore cross selling opportunities, resulting in greater economies of scale, greater customer loyalty (as reflected by our high customer retention rates) and lower customer acquisition costs, translating into a hard to replicate business model with strong natural barriers against the entry of competitors.
Throughout our history, we have adapted our operations to our customers' needs and market trends by expanding our product portfolio to offer a unique integrated platform with comprehensive solutions and leading to a compelling value proposition. For instance, in addition to Linx Core, our core product line that offers integrated business management systems, we launched Linx Digital in 2018, an e-commerce platform and application designed to improve the omni-channel shopping experience for both retailers and their customers. Through Linx Digital, retailers are able to interact with their clients and deliver a seamless experience across a variety of channels, including physical stores, mobile applications and the internet. Moreover, in 2018, we further adapted to our customers' ever-evolving needs and launched Linx Pay Hub to offer payment processing solutions integrated with our Linx Core and Linx Digital product lines. By providing mission critical services and integrated solutions to our customers, we are able to better understand their business performance preferences while further enhancing our portfolio of offerings with a comprehensive payment processing solution.
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The graphic below illustrates our primary product lines, each of their main services and international benchmarks.
In addition to our own organic innovation capabilities we have also increased our retail product offerings through strategic acquisitions of synergic businesses with our own operations, enabling us to further develop our product developing capabilities. From 2008 to March 31, 2019, we have completed 28 acquisitions, which we believe is a testament to our ability to identify, execute and integrate acquisitions in a consistent and disciplined manner. We believe that we are a differentiated platform with the knowledge to capitalize on consolidation opportunities in our market segment and explore new verticals as the relationship between retailers and their customers continues to evolve.
To support our growth trajectory, we successfully completed the initial public offering of our common shares in Brazil in 2013 and rapidly became one of the country's most prominent technology companies listed on the Novo Mercado segment, the listing segment of the B3 with the highest corporate governance standards. Moreover, on September 26, 2016, we completed the follow-on public offering of our common shares, using the net proceeds from the issuance to finance strategic acquisitions in the retail software sector.
Our Product Lines
We offer three primary product lines: Linx Core, Linx Digital and Linx Pay Hub. We initiated our operations through our Linx Core product line, and as part of our efforts to adapt to ever-evolving
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customer needs, we created our Linx Digital and, most recently, Linx Pay Hub product lines. The solutions we offer through our product lines are specially designed for our customers' value chain ERP/POS offerings with the objective of developing a fully integrated ecosystem and becoming an end-to-end service provider for retailers. We believe that these three verticals allow us to become a partner of choice to retailers by providing services that increase efficiencies, integrating digital and physical stores, while ensuring a flexible payment solution suitable for each.
Linx Core
Our Linx Core product line provides integrated business management systems. Linx Core products cater to the entire retail chain, from business automation software that performs all necessary operations at the POS to comprehensive ERP applications, which include, among other features, inventory management, CRM tools, financial, accounting and tax management, product lifecycle management, supply management, loyalty programs, e-receipt and other interconnected features. By offering our POS as a primary product, we are able to cross-sell many of our ERP capabilities by highlighting the seamless experience they provide. As of December 31, 2018, more than 45,000 retailers used Linx Core.
We design our Linx Core software products to enable retailers to adapt to changing business requirements through consistent innovations and frequent upgrades that provide new functionalities and support our customers' navigation of the complex Brazilian tax system as well as evolving regulatory requirements. According to the 2018 IDC Survey, spending related to software in the Brazilian retail market totaled R$2.4 billion in 2017, or 10.4% growth over 2016.
Our software products are evolving in response to performance demands and user experiences. Furthermore, through our cloud-based infrastructure we can derive even more operating leverage as we continue to grow our services and solutions, resulting in increased margins.
Through Linx Core, we believe that we have the capability to offer our customers simple and cost-effective solutions that meet their requirements, personalized for their size and their verticals. Our modular and cloud-based solutions efficiently serve both small, medium and large-scale enterprises as well as large multinational retail chains. We offer our customers in-depth operational knowledge and best practices across a variety of verticals, including clothing stores, vehicle dealerships, pharmacies, electronic goods and household appliances stores, department stores, home improvement stores, fast food chains and gas stations.
Linx Digital
Our in-depth knowledge of the Brazilian retail sector also enables us to offer focused innovative, scalable and machine-learning technology, tailored to the retail market as well as e-commerce platforms, data analytics and OMS technology fully integrated with our ERP software.
Our Linx Digital product line is subdivided into three categories:
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conversion rates by, for example, reducing the shopping cart abandon rate (which represents the rate at which shoppers select a product for purchase online but abandon the purchase prior to its consummation), personalizing campaigns to increase revenue, predicting and avoiding customer churn and lowering customer acquisition costs; and
Based on our knowledge of the retail sector, we believe that e-commerce has significant growth potential in Brazil. In addition, the e-commerce conversion rate (which represents the rate at which shoppers enter a retailer's website and ultimately purchase a product) in Brazil was only 1.4% in 2017 according to the E-commerce Radar 2017 Survey published by ABCOMM. We believe that our product and service offerings will positively impact these rates through our rapid cycle of innovation as well as our Linx Digital capabilities, including big data and machine-learning technologies, each of which form an integral part our " Linx Impulse " strategy.
Linx Pay Hub
In October 2018, we further expanded our platform to include payment solutions through Linx Pay Hub in response to our customers' ever-evolving needs. We believe that our ability to offer payments solutions powered by a full-fledged platform allows us to explore new product verticals at lower customer acquisition costs, differentiate ourselves from other commoditized and/or non-integrated solutions and increase our client loyalty. We believe these services can also be an important source of future growth given our relevant market share in the management software retail sector, high customer retention rates and superior services. In 2017, approximately R$250 billion in GMV were processed in our Linx Core platform, equivalent to approximately 18.4% of the industry's total purchase volume according to ABECS. Our goal is to cross-sell and convert as many of our customers into Linx Pay Hub and capture a large share of this revenue opportunity. We are confident in our ability to execute this strategy given our product portfolio integration and compelling value proposition.
Our Linx Pay Hub product line offers wide range of services and solutions to our merchants, including mainly the following:
With the combination of our core and digital solutions and the capabilities of our payments platform, our customers are able to have a seamless experience.
Key Financial and Operating Information
Our revenue streams consist of (1) subscription revenue generated from monthly subscription fees we charge our customers for the right to use our software and for continuous technology support, helpdesk services, software hosting services, support teams and connectivity service and
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(2) consulting service revenue (installation, implementation, customization and training services). At times, we charge one-time setup fees to our smallest enterprise customers related to our subscription service. This one-time setup fee was recognized upon the commencement of the service in 2017 and 2016. Upon adoption of IFRS 15 for 2018, this one-time setup fee is deferred over the average customer life. Our subscription revenue and consulting service revenue accounted for 86.8% and 13.2% of our gross operating revenue in 2018, respectively. The table below presents certain of our key financial and operating information for the periods indicated:
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For the Three-Month Period
Ended March 31, |
For the Year Ended December 31,
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2019 | 2019 | 2018 | 2018 | 2018 | 2017 |
2016
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(in millions
of U.S.$, unless otherwise indicated) (1) |
(in millions of R$,
unless otherwise indicated) |
(in millions
of U.S.$, unless otherwise indicated) (1) |
(in millions of R$,
unless otherwise indicated) |
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Financial information: |
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Net operating revenues |
45.4 | 176.8 | 158.4 | 175.9 | 685.6 | 571.6 | 494.6 | |||||||||||||||
Net income |
4.4 | 17.2 | 26.5 | 18.2 | 71.1 | 84.8 | 68.5 | |||||||||||||||
EBITDA (2) (7) |
12.7 | 49.7 | 47.6 | 43.3 | 168.8 | 144.3 | 124.5 | |||||||||||||||
EBITDA margin (%) (3) (7) |
28.1 | % | 28.1 | % | 30.1 | % | 24.6 | % | 24.6 | % | 25.2 | % | 25.2 | % | ||||||||
Subscription revenue (4) (%) |
| 89.1 | % | 89.3 | % | | 86.8 | % | 89.8 | % | 89.6 | % | ||||||||||
Operating information: |
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Customer retention rate (%) (5) |
| 99.2 | % | 99.1 | % | | 99.1 | % | 97.6 | % | 98.7 | % | ||||||||||
Net dollar retention rate (6) |
| 102.3 | % | 101.3 | % | | 110.3 | % | 106.1 | % | 114.8 | % | ||||||||||
Total number of customers |
| 46,197 | 45,144 | | 45,344 | 45,152 | 43,966 |
Market Opportunity
We are positioned in large and fast-growing markets with important trends that are benefiting the growth and market opportunity for our solutions.
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Large and growing digital retail market
According to the 2018 IDC Survey, IT retail investments in Brazil totaled R$7.4 billion in 2017. Of the total invested, software accounted for 32.5%, or R$2.4 billion. Moreover, the 2018 IDC Survey indicates that retail management software investments are expected to reach R$1.6 billion by 2021 (ERP+POS) as companies continue to invest in technology and automation through software in order to adapt to the evolving formalization and digitalization of the sector.
Relatively low e-commerce penetration in Brazil and Latin America
Both in Brazil and Latin America, e-commerce penetration is still relatively low in comparison to other countries, indicating an important path for growth.
With our increased presence in Latin America, our total addressable market has increased as well. Brazilian and other Latin American markets are witnessing the early stages of digitalization of retail channels and payments. In terms of payments, as of 2017, the penetration of credit and debit cards in Latin America was 19% and 41%, respectively, according to the World Bank Group. While approximately R$180 billion in payments were transacted through our international platform in 2017, we believe Linx Pay Hub is in a position of advantage to expand into these new markets.
Conversion of brick-and-mortar and digital retail to omni-channel
Consumers now dictate how, when and where to interact with retailers and their expectations continue to rise. As digital retail grows, consumers expect to be able to transact through multiple sales channels without compromising functionality or experience. To adapt to this change, retailers will likely demand more omni-channel solutions that integrate their digital and physical operations efficiently. We therefore see an opportunity to cross-sell our Linx Digital solutions to our Linx Core customers.
Automation as a solution to increasing labor costs
Over the past 10 years, labor costs in Brazil increased significantly. The average minimum wage increased 8.7% annually between 2008 and 2018, according to the Brazilian Ministry of Labor, compared to a 2.6% increase in the retail sales volume index in Brazil over the same period, according to IBGE. As a result of payroll expenses pressuring margins, we see an increasing demand for technologies that create opportunities for merchants to improve the experience of their clients and transact simultaneously with multiple clients in multiple locations. Accordingly, we believe Linx Core and Linx Digital are solutions that are well positioned to drive scalability and productivity gains of merchants who are not yet our clients.
Consumers moving away from cash transactions
According to ABECS, transactions using credit, debit and pre-paid cards in Brazil totaled R$1.36 trillion in 2017, an increase of 12.6% over 2016, overtaking for the first time cash transactions, which totaled R$1.31 trillion, and payments by check, which totaled R$0.8 trillion. The increase in non-cash transactions is expected to drive merchants demand for new payment solutions such as POS technology, receivables management, and integration with management systems, among others. Therefore, business models that conciliate retail management solutions and financial solutions, like ours, are better positioned to serve merchants and benefit from this positive environment.
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Our Competitive Advantages
We have become an end-to-end technology platform for our customers
Leveraging our Linx Core product line and the launch of our Linx Digital and Linx Pay Hub product lines in 2018, we became an end-to-end platform for technology solutions for retailers to manage their businesses and points-of-sale. Through our integrated ever-evolving Linx Core, Linx Digital and Linx Pay Hub platforms we offer business management tools, payment solutions, e-commerce and omni-channel applications to retailers of all sizes and capabilities. Moreover, our seamless and costless merchant conversion process allow us to create an expedited and compelling value proposition for our customers, based on a product offering that we believe is unmatched in the industry.
Our integrated solutions enable us to exercise significant control over the customer experience, enhancing our ability to leverage cross selling opportunities. This competitive advantage has contributed to lower customer acquisition costs, which has in turn limited the ability of our competitors to replicate our success through strong natural barriers to entry.
Our customer-centric, entrepreneurial and innovative culture
We built a consumer-centric and entrepreneurial culture focused on innovation, agility and reliability. Our mission is to provide the best services and innovative solutions to address ever-evolving customer needs. As a result of these core values and our mission, we believe that through our ability to adapt we are able to embed a culture of constant innovation and proximity to customers that differentiate us from our competition.
Our drive to become the partner of choice to retailers, offer seamless experiences and foster long-term relationship with customers culminated in a virtuous cycle: the more we dedicate ourselves to our customers; the more we understand their needs; and the more rapidly we can develop and deploy integrated solutions that further strengthen our relationships.
Our belief in this culture translates into high contract renewal rates, low churn rates and high recurring revenues that we believe will foster our stable and sustained growth, and ultimately enhance our ability to accomplish our goals.
Successful track-record of acquisitions in Brazil and Latin America
We have extensive capabilities and a strong track record of identifying, negotiating and integrating successful acquisitions. Moreover, we have developed an integration model that we believe enables us to integrate the businesses we acquire in a timely and efficient manner. From 2008 to March 31, 2019, we successfully acquired 28 companies to add new retail verticals to our product offerings, expanding our operations into new regions in Brazil and Latin America and developing new technologies that accelerate the pace of our innovations.
Extensive, diversified and loyal customer base
We benefit from an extensive and diversified customer base ranging from SMBs to major retail chains such as Walmart, Nike and Forever 21, among other national and international retailers of different retail segments. As of December 31, 2018, we had more than 45,000 customers. We also benefit from low customer concentration, with our largest customer accounting for only 2% of our subscription revenue in 2018, while our 100 largest customers accounted for only 26% of our subscription revenue in the same year. We believe that our high level of customer satisfaction has allowed us to achieve quarterly customer retention rates of over 99% in 2018.
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Market leader in retail software solutions
We are the market leader in retail management software in Brazil with a 41.3% market share in 2017 in terms of revenue according to the 2018 IDC Survey. We work closely with our customers to better understand their businesses and needs. As a result of these efforts, we have developed a suite of specialized services in a fully integrated platform that we believe is difficult to replicate. In particular, our long-term presence and exclusive focus on the retail sector has allowed us to develop a set of distinctive solutions of great depth, both in terms of specific retail verticals as well as across different sizes of retailers, creating strong natural barriers against new market entrants.
Ever-evolving and comprehensive solutions for retailers
We believe we were the first company in Brazil to introduce several innovative retail software solutions integrated to a single platform, empowering Brazilian retailers to increase automation and efficiency. For example, we introduced consistent integration of ERP and POS in the 1990s, and the consistent integration of ERP, POS, connectivity and electronic payments in 2003. We are focused on continuing to lead technology migration in Brazil, enabling retailers to adopt next-generation solutions as their business needs grow, thereby increasing demand for our cloud-based, e-commerce and mobility solutions. For example, in 2018, we launched Linx Pay Hub to offer payment processing solutions integrated with our Linx Core and Linx Digital product lines as part of our ongoing commitment to adapt to our customers' needs.
Our comprehensive and integrated solutions address the needs of retailers from SMBs to the largest global retailers and leading franchisers in Brazil. Our solutions are scalable and modular, and are easily configurable to allow specific functions and functionalities for different verticals and sizes, with seamless integration of retail stores, branches and franchise locations. For example, our personalized solutions can include (1) ERP, consisting of sales order management, production control, inventory management, store management, logistics, financial management, accounting and tax software products, (2) POS, (3) CRM, (4) an e-commerce search bar and recommendation engine (i.e., the identification of additional products for purchase by the consumer), (5) payments and (6) omni-channel applications.
We design our software products to evolve in response to performance demands, user experiences and regulatory requirements applicable to our customers. By offering most of our software solutions as a cloud-based infrastructure, we enable our customers to operate the latest versions of our software without the burden of heavy initial outlays and costly upgrades, while also configuring our applications in order to meet their specific business needs.
Predictable business model with a track record of growth and profitability
In 2018, subscription revenues represented 86.8% of our gross operating revenues, compared to the three-month period ended March 31, 2019, when subscription revenues represented 89.1% of our gross operating revenues. We sell our cloud-based and on-premise solutions primarily through annual, automatically-renewable agreements pursuant to which our customers pay us a monthly fee adjusted for inflation at each renewal based on the IGP-M resulting in a high degree of recurrent and predictable results under a SaaS operating model. We believe that our portfolio of products, services and business model enable us to attain a high level of customer satisfaction, proven by a quarterly customer retention rate of over 99% in 2018.
From 2016 to 2018, our net operating revenues and our EBITDA increased at a CAGR of 17.7% and 16.4% in reais , respectively. During the same period, the subscription portion of our gross revenue represented an average 88.8% of our total gross operating revenue, which we believe reflects the highly transparent and predictable nature of our business. In addition, our EBITDA margin was 24.6% in 2018, which provides us with flexibility to continue being competitive
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when negotiating contracts with our customers and continue our marketing efforts to expand our new products.
Our Strategy
Expand our customer base by continuing to penetrate the relatively underserved Brazilian retail market
We believe our business model, with its focus on retail and cloud-based software solutions for the retail sector, has the ability to generate significant value for thousands of retailers in Brazil and Latin America. As the leading provider of retail management software in Brazil in terms of market share according to the 2018 IDC Survey, we believe we are well positioned to capitalize on the increasing penetration of retail software, and we intend to further strengthen our leading market position in the region. In particular, we intend to continue to invest in our direct and indirect sales and marketing capability aimed at increasing our customer base. We believe that our cloud-based solutions allow retailers of all sizes to adopt our software solutions easily as evidenced by their option to install our solutions themselves, or with the help of our service team, depending on their specific needs. We believe that our market is still in the early stages of its development and that it has the potential to undergo rapid future growth due to the relatively low penetration of e-commerce in Brazil and Latin America.
Further expand our relationships with our existing customers through cross-selling
We intend to further expand our relationships with our existing customers through cross-selling, responding to their evolving business needs as they continue to open new stores throughout Brazil and Latin America. We intend to capture an increasing share of our customers' IT spending by selling more sophisticated products and leveraging our integrated end-to-end platform to cross-sell other products to them. For example, in 2019, we intend to develop and launch new product offerings that build on the success of our recently-introduced Linx Pay Hub payment solutions, including a QR code acceptance solution at cash registers that replaces debit cards and a digital wallet for retail customers that do not want a checking account. We believe we have a strong suite of e-commerce and mobility products to offer our existing customers as they continue to expand their sales channels. We further believe that we are at the early stages of increasing our penetration of these complementary offerings within our existing customer base. Given our successful track record in terms of cohort retention and growth, we believe these offerings will increase our growth potential in the coming years.
Continue to innovate and expand our platform
We intend to continue adapting and offering the market innovative solutions and enhanced functionality for our existing suite of comprehensive and integrated products.
Our omni-channel solutions are an important example of this strategy. This set of applications was designed to provide customer transparency across different sales channels and seamless integration between front and back offices. We enable retailers to track and better understand their clients during the life cycle of their relationship in-store, online, on mobile devices and on social networks. We believe our platform enables us to capture and analyze big data regarding the behavior of our customers' clients, which, in turn, provides our customers with actionable information, leading to a higher rate of return on our customers' marketing campaigns. This new platform also allows us to develop new partnerships in exploring marketing services and social networks, among other innovative means of contact with our customers' clients, representing an important opportunity to accelerate our organic growth in the coming years. Our Linx Pay Hub solution complements our portfolio of solutions making us an end-to-end platform.
As an integrated platform, our seamless consulting services (implementation, installation, customization and training services) improves our margins and also opens a growth opportunity through cross-selling, identification of future trends and development of solutions to better serve our customers.
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Continue to pursue and integrate strategic acquisitions
We intend to continue to pursue selective acquisitions that are strategically aligned and compatible with our growth strategy within the retail software and payment sectors. In this context, we target acquisitions that complement our existing solutions, focusing our strategy on expanding our vertical and technology breadth while strengthening our geographic presence.
Continue to expand our geographic footprint in Latin America
Through our international expansion efforts, we have increased our presence in Latin America, particularly in Mexico, Argentina and Chile, where we have developed a strong client base that includes leading national and international companies in these countries. Our international expansion has been facilitated in large part by the extensive knowledge and experience we have gained in our home market as well as the strength of our brand, reputation and our market-leading position. We intend to continue to leverage these strengths to expand our geographic footprint in Latin America both organically and through strategic acquisitions that add value to our shareholders.
Our History
We were incorporated in 2004 by Mr. Nércio Fernandes, the current chairman of our board of directors, Mr. Alberto Menache, our current chief executive officer and the vice president of our board of directors, Mr. Alon Dayan, a current member of our board of directors, and Mr. Daniel Mayo. From the beginning, Linx S.A., along with the Linx Group, have specialized in systems for the retail sector, which has since become our strategic focus. Below are some highlights of our history:
In 2000, to aid in selling ERP Linx, we created the channel program, creating sales channels that are also approved for consulting services (implementation, installation, customization and training services) of the different solutions of Linx Sistemas in regions that do not have their own office.
On July 20, 2004, we created LMI S.A., or LMI, in the form of a holding company, in order to concentrate the ownership interest of all of the companies in the group. On September 21, 2004, the corporate name of LMI was changed to Linx S.A., our current name.
On May 12, 2008, our subsidiary Linx Sistemas acquired all of the shares of São Paulo-based Quadrant Informatica Ltda., or Quadrant, for R$39.9 million. At that time, Quadrant was one of the largest direct competitors of Linx.
On December 31, 2008, our subsidiary Linx Sistemas merged with Linx Serviços de Informática Ltda., which was also part of the Linx Group, thereby establishing greater integration and administrative, commercial and financial unity.
On December 10, 2009, Linx Sistemas acquired all of the shares of CSI Comércio Soluções Inteligentes Ltda., or CSI, for R$41.1 million. CSI offers solutions for managing networks of electronics, supermarkets and pharmacies.
On December 11, 2009, our subsidiary Linx Sistemas acquired all of the shares of AVS Serviços de Informática Ltda. ME, or Formata, for R$10.0 million. Formata is a company focused on small retailers.
On December 18, 2009, our subsidiary Linx Sistemas acquired all of the shares of Inter Commerce Retail Software, or Inter Commerce, for R$13.6 million. Inter Commerce offers network management solutions in the home improvement sector.
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On December 18, 2009, at our extraordinary general meeting, our shareholders approved an issuance of 2,170,013 preferred shares, redeemable at our option, nominal and without par value. On January 27, 2010, BNDESPAR, purchased the preferred shares for R$50.0 million, of which R$432,000 was allocated to a capital increase and R$49.6 million was allocated to our goodwill reserve account.
On November 17, 2010, our subsidiary Linx Sistemas acquired all of the shares of CNP Engenharia de Sistemas S.A., or CNP Engineering, for R$16.0 million. CNP Engineering is a company that provides solutions for network management of the concessionaires sector, known as a dealer management system, or DMS.
On November 17, 2010, our subsidiary Linx Sistemas acquired all of the shares of Dia System Informática Ltda., or Dia System, for R$13.8 million. Dia System is a company engaged in the manufacture and distribution of computer systems, goods commerce and computer technology services. CNPDia was held by CNP Engenharia and Dia System, each of which owned 50% of its capital.
On March 3, 2011, our subsidiary Linx Sistemas acquired all of the shares of Custom Business Solutions Ltda., or Custom, for R$4.7 million. Custom is located in Rio Grande do Sul, establishing our presence in the southern part of Brazil.
On June 30, 2011, at our extraordinary general meeting, our shareholders approved the issuance of 2,759,983 preferred shares without par value. On June 30, 2011, the preferred shares were purchased by GA Brasil II Fundo de Investimentos em Participações, or GA FIP, for a total price of R$129.2 million, of which R$0.5 million was allocated to a capital increase and R$128.7 million was allocated to our capital reserve account.
On June 30, 2011, at our extraordinary general meeting, our shareholders approved the issuance of 764,906 preferred shares without par value. On July 26, 2011, the preferred shares were purchased by BNDESPAR, for a price of R$35.8 million, of which R$0.2 million was allocated to a capital increase and R$35.6 million was allocated to our capital reserve account.
On July 8, 2011, our subsidiary Linx Sistemas acquired all of the shares of Spress Informática S.A., or Spress, a company that offers DMS, for R$29.8 million.
On September 1, 2011, our subsidiary Linx Sistemas merged with Linx Logística Ltda., also part of the Linx Group, increasing integration as well as administrative, commercial and financial unity.
On December 20, 2011, our subsidiary Linx Sistemas acquired all of the shares of Microvix Software S.A., or Microvix, for R$42.8 million. Microvix provides solutions for network management for franchises, with the aid of cloud systems.
On May 21, 2012, the company Linx Fast Fashion Armazém Geral Ltda., or Linx Fast Fashion, a storage services and distribution center company formerly part of the Linx Group, was sold to Sequóia Log S.A. for R$1.6 million. Our decision regarding the discontinuation and sale of these operating segments is part of our strategy to focus exclusively on developing connectivity systems and solutions for the retail industry.
On August 16, 2012, our subsidiary Linx Sistemas acquired all of the shares of Compacta Informática Ltda., or Compacta, for R$46.2 million. Compacta offers network management solutions for the food service industry, with a Brazilian cloud software platform, in addition to countries such as Argentina, Paraguay and Angola.
On September 21, 2012, our subsidiary Linx Sistemas entered into a technology transfer agreement with Bitix Consultoria em Tecnologia da Informação Ltda., or Bitix, a company that
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develops solutions-oriented Omni-channel concepts and enables greater integration between sales channels with a focus on mobility through Android and Apple's operating system, iOS, for R$683,000. The purpose of this agreement is to expand the service options we offer to our customers.
On September 30, 2012, our subsidiary Linx Sistemas merged with Linx Prevenção de Perdas Ltda., which was also part of the Linx Group. Our discontinuation of these operations was based on our strategy to focus solely on our core market, namely, the development and provision of services related to business management software for retail.
On February 6, 2013, we launched an initial public offering of our common shares on the B3 resulting in net proceeds to us of R$527.9 million and a market capitalization of R$1,256.03 million.
On March 10, 2013, our subsidiary Linx Sistemas acquired all of the shares of Direção Processamento de Dados Ltda., or Direção, for R$26.5 million. Direção provided solutions for electronic payments, card processing, and business automation, reinforcing the offer our EFT services.
On March 10, 2013, our subsidiary Linx Sistemas acquired for R$10.1 million certain assets of Seller Corp Ltda., a company engaged in the sale of software for management and automation of gas stations and convenience stores. This acquisition allowed us to enter the gas station and convenience stores vertical.
On July 29, 2013, our subsidiary Linx Sistemas acquired certain assets of Opus Software Comércio e Representações Ltda., or Opus for R$9 million. Opus offers POS and ERP solutions to franchises, such as language schools, salons and dry cleaners.
On September 26, 2013, part of the assets then owned by Direção, which was acquired by Linx, that were related to the card processing business were sold by Linx Sistemas to Conductor for R$1.5 million plus a percentage of the revenue generated by such assets until the end of 2016. Our decision regarding the sale of these assets is part of our strategy to focus exclusively on developing connectivity systems and solutions for the retail industry.
On November 24, 2013, our subsidiary Linx Sistemas acquired certain assets of Ionics Informática e Automação Ltda., or Ionics for R$12 million. Ionics is engaged in the development and sale of software for management and automation of gas stations and convenience stores.
On November 24, 2013, our subsidiary Linx Sistemas acquired all of the shares of LZT for R$30.5 million. LZT is a company engaged in the development and sale of software for the management and automation of gas stations and convenience stores.
On May 16, 2014, our subsidiary Linx Sistemas acquired all of the shares of Rezende Sistemas Ltda., or Rezende, and Net4Biz for R$49.9 million. Both Rezende and Net4Biz are companies engaged in the development and sale of software for management and automation of gas stations, convenience stores and food service.
On October 10, 2014, our subsidiary Linx Sistemas acquired all of the shares of BIG Automação and Big Farma Sistemas for R$38.7 million. Both of these companies offer management and automation software solutions for drugstores and pharmacies.
On December 12, 2014, our subsidiary Linx Sistemas acquired all of the shares of Softpharma for R$65.1 million. Softpharma is a company that provides management and automation software solutions for drugstores and pharmacies.
On September 3, 2015, our subsidiary Linx Sistemas acquired all of the shares of Neemu Serviços em Tecnologia da Informação S.A., or Neemu, and Chaordic Systems S.A., or Chaordic,
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for R$111.4 million. Chaordic and Neemu provide personalization solutions for e-commerce, focused on "search and recommendation" tools.
On November 7, 2016, we announced our acquisition of the entirety of the capital stock of Intercamp Sistemas e Comércio de Informática S/A, or Intercamp Sistemas, for an aggregate R$42.0 million. Intercamp Sistemas develops, markets and sells software for the management and automation of gas stations and convenience stores.
On July 10, 2017, we announced our acquisition of the entirety of the capital stock of Synthesis for an aggregate amount of up to US$81.7 million. Given Synthesis' focus on POS automation software, EFT and promotion engine for large retail chains in primary markets in Latin American, this acquisition is consistent with our strategic objectives and represented the first step in our international expansion, which aims to significantly increase our potential market, in addition to accompanying the international expansion of our Brazilian customers.
On October 18, 2017, we announced our acquisition of the entirety of the capital stock of ShopBack, having a market value of R$56.6 million as of the date of acquisition. ShopBack is a leader in retention, refitting and recapture technologies through Big Data and engagement intelligence.
On December 21, 2017, we announced our acquisition of the entirety of the capital stock of Percycle for an aggregate amount of up to R$22.7 million. Percycle operates the leading native online media platform, uniting merchants, brands and consumers, allowing customers to advertise within leading e-commerce sites in different formats, thereby maximizing our ROI.
On March 21, 2018, we announced our acquisition of Itecgyn Informática Ltda. for an aggregate amount of R$16.4 million, subject to the payment of additional post-closing adjustments in the aggregate amount of R$9.1 million upon the attainment of certain financial and operating metrics between 2018 and 2020. This acquisition allowed us to strengthen our development automation software for the pharmacy vertical, with a focus on medium and large-sized chains.
On April 3, 2018, we announced our acquisition of Único Sistemas e Consultoria S.A. for an aggregate amount of R$16.0 million, subject to the payment of additional post-closing adjustments in the aggregate amount of R$9.0 million upon the attainment of certain financial and operating metrics between 2018 and 2020. This acquisition allowed us to strengthen our offering of multichannel tools for the management of cloud-based marketing and loyalty programs, complementing our CRM products and services.
On June 22, 2018, we announced our acquisition of DCG for an aggregate amount of R$49.0 million, subject to the payment of additional post-closing adjustments in the aggregate amount of R$18.0 million upon the attainment of certain financial and operating metrics between 2018 and 2020. DCG owns EZ Commerce, a leader in e-commerce platforms, thereby enabling us to benefit from access to EZ Commerce's significant portfolio of e-commerce customers, marketplace integration product offerings and its SaaS product offering.
On October 18, 2018, we announced the incorporation of our indirectly controlled subsidiary, Linx Pay Meios de Pagamento Ltda., in order to coordinate all of our fintech initiatives, including EFT, DUO and Linx Pay Hub as well as new initiatives that we may develop in connection with our business strategy in this area.
On April 2, 2019, we announced our acquisition of Hiper for an aggregate purchase price of R$17.7 million, subject to the payment of additional post-closing adjustments in the aggregate amount of R$32.3 million upon the attainment of certain metrics including those linked to the penetration of our EFT and Linx Pay Hub solutions into its client base.
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Our Corporate Structure
Our Products and Services
We have been present in the market for 30 years, offering our customers an integrated business management system that covers the entire retail chain, from business automation software that performs all necessary operations from the POS to comprehensive ERP, which includes, among other features, inventory management, CRM, financial, accounting and tax management, product lifecycle management, supply management, and other interconnected features.
We believe that our greatest competitive advantage is our exclusive focus on retail. This allowed us to develop a set of software and applications with a high level of depth both in terms of specific retail verticals as well as across different sizes of retailers. In addition, our business model is based on the collection of monthly subscription fees, instead of charging high start-up licensing fees, thereby making our solutions very scalable and affordable for retailers of different sizes. In recent years we have developed new offerings that supplement our POS and ERP software based on a cloud delivery model. This has facilitated the sale and implementation of these solutions and strongly encouraged their cross-selling to the same customer base. These new solutions include, for example, a complete e-commerce platform, integrated with ERP, allowing traditional retailers to take advantage of this new channel of sales and communication with customers, and an innovative CRM software focused on tools that maximize efficiency in retailer-customer interactions, among other solutions, such as electronic invoices, connectivity, EFTs and mobile applications.
Another important model of our performance is our vertical integration in professional services related to the consulting services (which comprise implementation, installation, customization and training services) relating to our software solutions. We are also focused on providing direct sales and services to our customers. Our internal sales teams and independent sales agents are focused both in the search for new customers and in the management of existing portfolios. We believe that this proximity to our customers is one of the main reasons for our high customer retention rate.
As of March 31, 2019, we had 3,410 employees. In addition, we have relationship centers and partners throughout Brazil. To comprehensively meet the current needs of the retail market, we offer diverse solutions to our customers, as described below.
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Business Model
To comprehensively meet the needs of the retail market, we offer a comprehensive portfolio of solutions to our customers making us an end-to-end platform for retailers. Our solutions provide the functions necessary to effectively manage and process the operational and financial resources of a Brazilian retail organization. Our applications enable our customers to interact, collaborate and make business decisions using accurate data from multiple devices.
We have a collection model, which features (1) a low setup fee, or in many cases, no setup fee; (2) charges for professional consulting services (implementation, installation, customization and training services), (3) the payment of a monthly subscription fee for use of our software to ensure recurrent and predictable revenue and (4) a unique value proposition that overcomes the costs of switching to a new vendor and reduces our client base churn.
Most of our revenue is derived from monthly charges for using the systems we develop. Our revenue is divided into two groups:
Software Products
Enterprise Resource Planning (ERP)
ERP is a software platform developed to integrate the various departments of a company, enabling the automation and storage of all business information. We offer this solution both in cloud versions, especially for franchises and smaller customers, and as an "on-premise" solution for franchisors and larger chains. We offer expertise in all processes and legislation linked to the sector, seeking to adapt our product portfolio to each company profile, regardless of size or business model, and with solutions that seek to cover and aggregate all aspects of the company. We can serve customers from different verticals of retail, such as clothing, footwear, accessories, food service, car dealerships, construction materials, department stores, electronics and computing, among many others. The main modules of our ERP are:
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The ERP solutions are designed to fit the size and profile of our customers in accordance with their needs:
Point of Sale (POS)
We offer software solutions for our customers' in-store terminals where sales transactions occur. In the vast majority of cases, these solutions are integrated with our own ERP software. In some cases, our POS solutions can also be integrated with ERP software from other suppliers.
We offer expertise in all processes and legislation linked to the specific retail segment in which our customers operate, seeking to adapt our POS profile to each customer, regardless of size or business model, with solutions that seek to cover and aggregate all of a store's operational needs. We can serve customers from the most varied retail verticals, such as clothing, footwear, accessories, food service, car dealerships, construction materials, department stores, electronics and computing, among many others.
We offer solutions that control two key sectors of the retail outlet:
Mobility
Via smartphones or tablets, customers are served in a fast and customized manner, with no lines and far more interaction with the variety of products offered in the store. We offer solutions for different retail segments using features such as the virtual catalog, lookbook combinations, inventory query, pre-sale and sale record, waitlist and closure of service. Examples of mobility modules include:
Mobile solutions are offered in cloud and are integrated with our other software. These offerings focus on cross-selling within our existing customer base.
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E-Commerce
Our e-commerce platform is fully integrated with our ERP software. This is an important competitive advantage, because it makes inventory, customer, and process management easier and more accurate on the part of retailers. The platform is entirely cloud-based and its primary focus is cross-selling to our existing customers.
E-commerce services consist of the receipt of (i) wholesale orders and the monitoring of sales targets, (ii) directed sales to the final consumer and (iii) an interactive electronic catalog with information about inventory and prices, among others, that are integrated to the ERP system.
Our e-commerce solutions are designed to enable our customers to offer consistent, relevant and personalized cross-channel shopping through catalog, merchandising, marketing, research and guided navigation, personalization, automated recommendations, and live help capabilities. This combined platform is designed to enable our customers to strengthen customer loyalty, improve brand value, achieve better results of operations, enhance customer service and improve response times in online and traditional commercial settings.
Customer Relationship Management (CRM)
We consider our CRM applications innovative and distinguished. It is entirely cloud-based and focuses on enabling retailers to manage and interact directly with customers.
We offer a broad portfolio of CRM applications that are designed to help our customers to manage their sales processes more efficiently, integrate marketing campaigns and content into their sales processes more efficiently and deliver high-quality service to their customers. CRM provides information to increase acquisition and retention and to maximize quality of service to the brand's consumers. Our CRM solutions provide information to our customers to allow them to appeal to new customers as well as re-acquire and reactivate inactive customers through marketing campaigns, loyalty programs and corporate gift cards, as a complementary offering to our other software solutions. The main focus is on cross-selling to our existing customer base.
Connectivity and Electronic Funds Transfer (EFT)
EFT is a "middleware" between POS software and the retail acquirer that allows our customers to direct credit and debit card transactions to their merchant acquirer of choice (credit and debit card processor), among other functionalities. This entirely electronic payment solution is also fully integrated with our ERP software and has been adopted by more than 40,000 POS. Through EFT, we have a unique opportunity to capture a significant volume of debit and credit card transactions pass through the cloud gateways managed by Linx.
We actively seek to expand our electronic payment mechanisms. With the increase in debit and credit card transactions, as well as the adoption of cloud-based software, the importance of and demand for these solutions has increased. We offer EFT services as a complementary solution to our software solutions and our primary strategy is on cross-selling to our existing customer base. Customers using our EFT solutions may experience improved performance, stability and availability of our other software solutions.
Linx Pay Hub
We believe that our primary market differential for the next several years is our end-to-end platform that integrates our payment processing products (namely, our Linx Pay, EFT and conciliation products) with our management software (Linx Core) and our omni-channel technologies (Linx Digital). Through our product offerings, we provide retailers a seamless experience through one point of contact, allowing them to focus on their core businesses.
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Linx Pay Hub offers a wide range of applications to our customers including:
OMS
By using Linx Omni OMS technology, retailers can meet orders originating from any channel, regardless of where the product is located. Our OMS product offers multi-channel purchasing processes that integrate stores, franchises and distribution centers, thereby providing a single channel for our customers that decreases inventory shortage, generates more consumer traffic and increased sales.
Our OMS product is divided into two modules:
Through our OMS product, retailers are able to manage the following functionalities:
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allows one store to ship products to another store, thereby allowing any store to be a viable pick-up location.
Search
Our search solution uses machine learning and proprietary algorithms to ensure that customers find the products they desire through e-commerce channels, thereby impacting click through rates, or CTR, conversion rates and revenues per session.
DUO
A user-friendly POS and ERP solution for micro and small retailers. DUO consists of a smart POS device that is run exclusively with Linx software. Among its key differentials are its easy to use interface and built-in software that allows customers to avoid choosing and installing a POS and separate software for each functionality. DUO is a partnership with Rede under a profit sharing revenue model. As of the date of this prospectus, we have not generated material revenue from DUO.
Linx Gift Card
Our Linx Gift Card facilitates the development of sales strategies for stores, chains or franchises in a unified manner, allowing them to maintain control over promotions. Our Linx Gift Card interface is friendly, secure and offers several sales opportunities that generate an increase in average use and customer loyalty. Using brand strength and consumer relations, it is possible to increase the flow of shoppers in physical stores, keep track of purchases, redemptions and promotional campaigns, as well as use promotions in an integrated manner with e-commerce, physical stores and inventory. The platform also allows users to design campaigns using our Linx Gift Card, other promotional gift cards and cash-back services, among other options. As of the date of this prospectus, we have not generated material revenue from Linx Gift Card.
Linx Promo
Linx Promo is a platform that facilitates the planning of promotions in a unified way, seeking to achieve the best results in each campaign, based on the needs of a retailer's business.
Linx Promo helps create promotions with diverse personalization criteria including: segmentation by audience, schedule, type of client, payment method, combos, birthdays, progressive discount vouchers and gifts.
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Reshop
Reshop is a multichannel platform designed for complete campaign management that works seamlessly with the retailer's POS, capturing real-time data, and offering best practices for the retailer to achieve a higher rate of sales satisfaction.
Analytics
Linx Analytics was designed to help retailers monitor in real time the day-to-day of running a business. Linx Analytics allows retailers to access graphs, benchmarks, product performance, user information, employee performance and other management tools.
MID-e
MID-e is a middleware application used to connect the Linx systems with the Brazilian tax authorities for the purpose of issuing an electronic invoice (NFe), and electronic consumer receipt (NFCe), in an integrated manner.
MID-e Portal provides the retailer access to monitor the status and cancellation of electronic documents, registration certificates and information dashboards, as well as a complete control panel that displays all rejected invoices in real time. The platform is completely digital, and updates quickly, facilitating tax management. Explanatory charts also help the retailer analyze data and information accurately.
Connectivity
The increase of devices connected to the Internet in stores requires a faster network with greater availability and data security.
We have a suite of customized solutions to help retailers connect their consumers, protect their data and connect their network through a single point of contact. Moreover, the network connects headquarters, branches and stores promoting traffic of data from various types of management software, including those that are cloud-based and EFT.
We have a technology team that monitors, manages and provides support seven days a week. We are able to interconnect headquarters and branches across the country with secure and high-performance dedicated links, through which many critical and high-value add retail services are transferred, particularly those that are cloud-based.
Advertising
Our advertising engine is designed to help industries and manufacturers improve their return on investment, or ROI, of their online advertising expenditures. Using our engine allows industries and manufacturers to reach customers with significant buying potential at the right time through the largest online stores.
Our advertising engine also helps online publishers that make advertising available earn additional revenue without cost or effort, and without interfering with the customer's experience. The advertising engine allows publishers to monetize their websites through highly relevant ads for branded products, stores, and sales partners. As of the date of this prospectus, we have not generated material revenue from our advertising engine.
International Operations
We initiated our international expansion through our acquisition of Synthesis in July 2017. Synthesis is active in the development, marketing and sale of POS, EFT and promotional software
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for large retail chains throughout Latin America. Synthesis has a significant presence in Mexico and Argentina, among other countries, and a customer roster that includes large retail chains in these markets, including Liverpool, Chedraui, Costco, Grupo Carso, YPF and Cencosud, among others.
In the three-month period ended March 31, 2019, we generated R$9.0 million, or 5.1% of our net operating revenue from our operations outside of Brazil, while in the year ended December 31, 2018, we generated R$38.7 million, or 5.6%, of our net operating revenue from our operations outside of Brazil.
Consulting Services
As a company focused exclusively on retail, we believe that having our own teams to implement, customize, support and advise customers regarding our software is a critical factor in our success and an advantage that sets us apart from our competitors. We understand that close proximity to customers allows us to not only improve the quality of our solutions, but also to expand and improve our understanding of the dynamics of different vertical retail businesses.
Our consulting process is focused on software configuration assistance to meet the business requirements and work within the internal processes of each of our customers. After a customer signs the consulting service contract with us, our team works with the customer to install our software, customize its settings to meet the customer's business needs and train the customer to use the system. Our consulting services include:
For the consulting services purchased by the customer, purchased hours will be allocated according to the needs of the customer and will be recognized as services rendered.
Support
Our support department aims to provide our customers with any support necessary for the continuity of their operations. Our call center is available seven days a week. In addition, we offer customer service and tracking via extranet.
Documentation
In order to assist customers in understanding and using our products, we offer:
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Our customers can access program documentation by logging onto our customer website.
Research and Development
We develop our products internally. The software market in which we operate experiences rapid technological advances in software, evolution of software technologies, changes in customers' needs and frequent launches of new products. Research and development is an important component of our investment plan, given its strategic importance to the sector in which we operate. Research and development investments allow us to develop increasingly customized software solutions to our customers and deliver technological innovations that increase user productivity. The main objectives of our research and development activities are:
Linx Retail Academy
As we have our own teams to provide professional services to our customers, it is crucial for us to have experienced and skilled professionals. We invest in the training and skill-building of our professionals. We also offer training to customers and employees as part of our mission to accelerate the adoption and use of our software products. This creates opportunities to increase our revenue from products. We created the Linx Retail Academy to meet our customers' demand for training. The Linx Retail Academy offers technical and theoretical courses focused on the solutions we develop. In particular, these courses apply theoretical concepts and technology solutions to the context of business management. Our facility has classrooms equipped with the latest generation of technology and has a team of expert instructors in each business area.
Sales Strategy
We conduct sales in different states in Brazil and in the countries in which we operate. As a way to supplement our operations geographically, especially in less populous states or regions of countries in which we operate, we also use our independent sales agents.
Sales through direct channels
We prioritize direct assistance to our customers, given our focus on retail, long-term solutions and the expertise of our professionals. Our direct channels consist of business managers dedicated to our customer base (known internally as "farmers") and business managers responsible for prospecting new customers (known as "hunters"). Our internal sales team is specialized in retail and is knowledgeable about the specialized needs of companies of different verticals and sizes and the various solutions we offer. We focus our efforts and manage the opportunities created by our business managers through a single CRM software program, which facilitates cross-selling of our products and allows for greater visibility of our sales results. We also have specialized sales
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planning and management teams that seek to standardize methodologies and processes and increase the productivity and efficiency of our sales activities. In addition, we have a sales office in Belo Horizonte in the State of Minas Gerais, which is responsible for seeking out and scheduling initial visits for our hunters.
Sales through indirect channels
Our indirect sales channels consist of independent sales agents. These sales channels allow us to be present in places where we do not have our own sales offices. Our independent sales agents are mostly exclusive Linx product distribution channels through which we acquire new customers and negotiate solutions in the regions where we operate. Our independent sales agents also carry out consulting services (implementation, installation, customization and training services) of our software solutions.
Our 180 independent sales agents receive as commission a percentage of the licensing income they generate. Our independent sales agents also receive a percentage of the subscription revenue generated by customers located in regions where they operate. All billing of our customers for sales generated by our indirect channels is carried out directly by us. Our headquarters and branch offices serve as models for the operational, sales and technical activities of our independent sales agents. We have a department that controls, monitors and coordinates with our independent sales agents while assisting them in the development of operational, sales, administrative and marketing strategies. The activities of our independent sales agents are also monitored by customer satisfaction surveys administered by such independent sales agents.
Market Share
We lead the retail sector for management software in Brazil, with 41.3% of the total market in terms of revenue, according to the 2018 IDC Survey. The main products within this sector are ERPs and POSs. The total potential market for software in retail (in a scenario where Brazil presents an investment environment similar to other mature markets, such as the United States and Europe) was estimated by the 2018 IDC Survey to be R$9.5 billion in 2017. The penetration rate, which measures the amount invested by the retail industry in management software compared to the total target market for retail management software, was only 13.3% in 2017. This same research report estimates that the market will grow to R$11.7 billion by 2021.
We believe we operate in a market with strong opportunities for accelerated and long-term sustainable growth. This conclusion is based on the low penetration of management software in Brazil compared to more mature markets such as North America. It is also based on several underlying trends that have directly affected the Brazilian retail sector in recent years, including: (1) increases in sales, (2) increases in the number of stores, (3) increases in formalization and consolidation of the sector, and (4) increased investment in IT, which has increased efficiency. In addition, we believe we are influenced by a change in the amount of IT expenditures by Brazilian companies.
Vertical Sectors of Retail
Our software solutions are designed specifically for the retail industry. They provide unified and actionable data between stores, merchandising and financial operations. Our ability to adapt our applications to the processes of specific industries gives us the opportunity to expand our customers' awareness of our product offerings and meet their specific technology needs. Our systems are focused on the retail sector, and therefore do not require significant customization before being implemented. However, in light of the need to adapt software systems to customer's
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business needs, we have a customization team that understands our customers' day-to-day business needs and makes the necessary changes in our systems.
We focus our efforts on serving the specific business needs of the major retail sectors. We offer different solutions that meet the specific needs of different retail sectors. All of our solutions are capable of consulting services (implementation, installation, customization and training services) in most retail sectors, including:
Competition
The market for management software in Brazil is highly fragmented. According to the 2018 IDC Survey, we lead the market with a market share of 41.3% in 2017 in terms of revenue.
We believe the retail market consists of two groups: (i) small- and medium-sized retailers with annual revenue between R$5 million and R$2 billion and (ii) large retailers with annual revenue exceeding R$2 billion. We offer a complete portfolio of integrated POS and ERP solutions designed to serve small- and medium-sized retailers, in addition to CRM, e-commerce, mobility, connectivity and EFTs cross-selling solutions. In serving this group, we face competition from software companies, especially smaller companies that focus on certain geographic regions of the country or on specific retail sectors. These companies often do not have a complete portfolio of solutions and offer only POS software. We believe that the breadth of our portfolio is an important competitive advantage because most retailers in this group seek integrated solutions from a single vendor. We face little competition from international companies, either because they focus their sales efforts on large retailers or because they do not enter the Brazilian market due to difficulties in complying with the Brazilian tax system applicable to the retail sector.
We also offer our full portfolio of ERP solutions, POS solutions and cross-selling solutions to large retailers. In this area, we focus our sales efforts on acquiring new customers, especially in relation to POS software, and we also face competition from smaller software companies that focus on specific retail sectors. In many situations, we also find retailers using POS solutions that they developed internally many years ago. Our international competitors do not usually offer their own POS software solutions due to the difficulty of complying with Brazilian tax regimes applicable to retail. On the other hand, while we consider our ERP solutions to be strong and adequate for the requirements of large retailers, we do not focus sales efforts on acquiring new customers in this group as we believe that it has a higher level of penetration and competition. International ERPs focus their efforts on these large retailers.
In general, competition in our sector is very fragmented. Most competitors are small software companies focused on specific niches, without the same breadth of solutions that we offer. The differences between the various retail sectors, combined with the complexity of Brazilian tax laws, leave us well-positioned in the market. These factors act as natural barriers against international competitors and generalist competitors who do not have specific focus on retail.
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Seasonality
In certain years, we experience a reverse seasonality when compared to the retail sector. In these years, sales of our products decrease during holidays and at the end of the year given that customers and potential customers do not adopt new practices during these times.
Environmental Regulations
We incorporate concepts of social responsibility, respect for the environment, ethical behavior and economic performance into our corporate governance practices. Sustainability is an important value for us. We believe that our growth and development are linked to the sustainability of our actions. Accordingly, we follow best practices related to corporate governance and aim to act in a transparent manner in the communities in which we operate. We are continuously improving our facilities with an emphasis on reducing their environmental impact, and we seek ways to strengthen our relationship with our employees, their families and the wider community through social initiatives. We have not formally adopted any international standards relating to environmental protection.
We have sought ways to minimize the impact of our activities on the environment. This includes a company-wide policy of printing double-sided and using only paper certified by the Brazilian chapter of the Forest Stewardship Council ( Conselho Brasileiro de Manejo Florestal ).
Our environmental sustainability efforts also include awareness campaigns in which employees are encouraged to adopt conscientious attitudes towards the use of water and energy. We started these campaigns at our headquarters in 2011.
Intellectual Property
In Brazil, title to a trademark is only acquired if its valid registration has been issued by the Brazilian National Institute of Industrial Property ( Instituto Nacional da Propriedade Industrial ). The holder of a valid trademark registration has the right to its exclusive use throughout Brazil for an initial term of ten years, renewable for successive terms of ten years. During the registration process, the applicant requesting the trademark registration has a mere expectation of the exclusive right to use the trademark to identify its products or services.
We rely intellectual property, such as our computer programs and software, domain names and trademarks, for the provision of our goods and services. Our registered trademarks in Brazil include "LINX," "LINX SISTEMAS," "LINX TELECOM" and "INTERCOMMERCE TECHNOLOGIES," while our registered computer software and programs include "LINX ERP, ONCE FACE SISTEMA PARA GERENCIAMENTO DE LOJAS DE VAREJO," "SUP-LO SISTEMAS DE SUPERVISÃO DE LOJAS," "BFASHION," "BSHOPPER," and "SMARTSHOPPING." In the event of a loss of our right to use our intellectual property, we may be prohibited from using the relevant intellectual property within Brazil or abroad. As a result, we may encounter difficulty in preventing third-parties from using identical or similar intellectual property. In addition, we may face civil or criminal litigation for the unlawful use of intellectual property and/or violations of intellectual property held by others.
We protect our intellectual property through various methods. The rights protecting our computer software and programs are valid for a period of 50 years beginning on January 1 of the year following its creation and/or publication. After the 50 year period, the computer programs are considered public property under Brazilian law (Federal Law 9,609/1998).
Trademark registrations remain in force for a period of ten years and are renewable for successive ten-year periods while domain names remain in force for a period of two years and are renewable for an additional two-year period. In order to protect the development of our business
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activities, we are committed to the timely renewal of our intellectual property rights prior to their expiration.
Pursuant to Federal Law 9,609/1998, we retain all rights over the intellectual property rights over the computer software developed by our employees and we ensure that our employment agreement with our employees do not contain provisions to the contrary.
For additional information relating to our intellectual property, see "Risk Factors Risks Relating to Our Industry and Us Our business and results of operations could be harmed if we are unable to protect and enforce our intellectual property rights" and "Risk Factors Risks Relating to Our Industry and Us We are subject to the risk of lawsuits based on our alleged breach of intellectual property rights of third parties, due in part to the recent increase in the number of patents and copyrights by technology companies."
Insurance
Our insurance policy for officers and directors, through Zurich Minas Brasil Seguros S.A. The purpose of this insurance policy is to provide compensation to insured persons as a result of liability for acts committed by them, as determined by judicial decision, arbitration or agreement previously approved by the insurer and up to a maximum limit of R$70 million. Our current policy is effective until June 30, 2019.
Additionally, this insurance policy provides compensation to insured persons as a result of liability for acts committed by us in the context of capital markets (excluding the United States or Canada), as determined by judicial decision, arbitration or agreement previously approved by the insurer and up to a maximum limit of R$5 million. Our current policy is effective until .
This insurance policy notwithstanding, we are subject to risks for which we do not have adequate insurance coverage, and not all of our assets are insured. Thus, if certain damaging events occur and we are not adequately insured against them, they may, individually or together, affect our results of operations.
Property, Plant and Equipment
Our corporate headquarters, which houses our sales, marketing and business operations, is located in São Paulo at Avenida Doutora Ruth Cardoso, 7,221 and comprises 27,208 square meters under a lease that expires in 2027. We and our subsidiaries conduct most of our activities from leased properties and do not own any properties of significant value.
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The table below sets forth certain information relating to our leased properties as of March 31, 2019.
|
Square Footage |
Lease
Commencement Date |
Lease
Termination Date |
||||
| | | | | | | |
Location |
|||||||
São Paulo |
27,208 | 12/15/16 | 11/30/27 | ||||
Bauru |
1,896 | 1/22/13 | 1/22/20 | ||||
Bebedouro |
1,320 | 12/01/10 | 11/01/19 | ||||
Belo Horizonte |
5,469 | 5/01/14 | 6/30/20 | ||||
Blumenau |
5,515 | 8/01/14 | 10/01/19 | ||||
Campinas |
2,546 | 11/07/16 | 11/30/23 | ||||
Cascavel |
3,937 | 12/15/17 | 12/14/22 | ||||
Florianópolis |
2,569 | 9/21/12 | 12/07/19 | ||||
Aparecida de Goiânia |
994 | 6/20/15 | 6/20/20 | ||||
Joinville |
5,512 | 9/02/13 | 9/02/23 | ||||
Manaus |
820 | 6/01/16 | 5/31/21 | ||||
Porto Alegre |
6,906 | 7/01/13 | 7/01/22 | ||||
Porto Alegre 2 |
1,099 | 7/01/11 | 10/01/19 | ||||
Recife |
2,100 | 11/10/16 | 11/10/26 | ||||
Rio de Janeiro |
1,496 | 2/01/18 | 2/01/28 | ||||
Uberlândia |
2,822 | Owned | Owned | ||||
Cidade do México |
755 | 7/01/17 | 6/30/19 | ||||
Buenos Aires |
1,037 | 5/01/17 | 4/30/19 | ||||
Buenos Aires 2 |
1,037 | 2/01/18 | 1/31/23 | ||||
Santiago |
285 | 9/01/09 | 9/01/20 | ||||
| | | | | | | |
Total |
74,409 | ||||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Employees
We had 3,410, 3,381, 3,161 and 3,000 employees as of March 31, 2019 and December 31, 2018, 2017 and 2016, respectively.
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The table below shows the breakdown of our employees by function and geography as of March 31, 2019 and December 31, 2018, 2017 and 2016, respectively:
|
As of March 31, 2019
|
||||||||||||
| | | | | | | | | | | | | |
|
Technical | Administrative | Management |
Total
|
|||||||||
| | | | | | | | | | | | | |
Argentina |
12 | 10 | 83 | 105 | |||||||||
Aparecida de Goiânia |
4 | 4 | 55 | 63 | |||||||||
Bauru |
6 | 11 | 90 | 97 | |||||||||
Bebedouro |
16 | 44 | 120 | 140 | |||||||||
Belo Horizonte |
26 | 11 | 208 | 235 | |||||||||
Blumenau |
11 | 4 | 133 | 148 | |||||||||
Campinas |
20 | 2 | 57 | 79 | |||||||||
Cascavel |
16 | 2 | 138 | 156 | |||||||||
Chile |
1 | 1 | 3 | 5 | |||||||||
Florianópolis |
34 | 3 | 65 | 102 | |||||||||
Joinville |
14 | 4 | 149 | 167 | |||||||||
Manaus |
7 | 2 | 27 | 36 | |||||||||
Mexico |
3 | 2 | 16 | 21 | |||||||||
Peru |
| | 1 | 1 | |||||||||
Porto Alegre |
57 | 25 | 391 | 473 | |||||||||
Recife |
11 | 7 | 108 | 126 | |||||||||
Rio de Janeiro |
11 | 4 | 70 | 85 | |||||||||
São Paulo |
3855 | 85 | 788 | 1,258 | |||||||||
Uberlândia |
7 | 3 | 103 | 113 | |||||||||
| | | | | | | | | | | | | |
Total |
641 | 164 | 2,605 | 3,410 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
As of December 31, 2018
|
||||||||||||
| | | | | | | | | | | | | |
|
Technical | Administrative | Management |
Total
|
|||||||||
| | | | | | | | | | | | | |
Argentina |
83 | 12 | 10 | 105 | |||||||||
Aparecida de Goiânia |
56 | 4 | 5 | 65 | |||||||||
Bauru |
89 | 6 | 1 | 96 | |||||||||
Bebedouro |
117 | 17 | 5 | 139 | |||||||||
Belo Horizonte |
204 | 29 | 1 | 234 | |||||||||
Blumenau |
142 | 12 | 4 | 158 | |||||||||
Campinas |
55 | 16 | 2 | 73 | |||||||||
Cascavel |
141 | 15 | 2 | 158 | |||||||||
Chile |
3 | 2 | 1 | 6 | |||||||||
Florianópolis |
67 | 31 | 3 | 101 | |||||||||
Joinville |
146 | 13 | 4 | 163 | |||||||||
Manaus |
29 | 7 | 2 | 38 | |||||||||
Mexico |
17 | 3 | 2 | 22 | |||||||||
Peru |
1 | 0 | 0 | 1 | |||||||||
Porto Alegre |
396 | 54 | 22 | 472 | |||||||||
Recife |
106 | 12 | 7 | 125 | |||||||||
Rio de Janeiro |
70 | 10 | 4 | 84 | |||||||||
São Paulo |
792 | 349 | 75 | 1,216 | |||||||||
| | | | | | | | | | | | | |
Uberlândia |
112 | 10 | 3 | 125 | |||||||||
| | | | | | | | | | | | | |
Total |
2,656 | 602 | 153 | 3,381 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
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|
As of December 31, 2017
|
||||||||||||
| | | | | | | | | | | | | |
|
Technical | Administrative | Management |
Total
|
|||||||||
| | | | | | | | | | | | | |
Argentina |
83 | 7 | 3 | 93 | |||||||||
Bauru |
87 | 5 | 3 | 95 | |||||||||
Bebedouro |
130 | 18 | 5 | 153 | |||||||||
Belo Horizonte |
200 | 28 | 11 | 239 | |||||||||
Blumenau |
147 | 7 | 7 | 161 | |||||||||
Campinas |
62 | 18 | 5 | 85 | |||||||||
Cascavel |
174 | 29 | 4 | 207 | |||||||||
Chile |
5 | | 1 | 6 | |||||||||
Florianópolis |
62 | 26 | 7 | 95 | |||||||||
Joinville |
151 | 8 | 8 | 167 | |||||||||
Manaus |
27 | 5 | 3 | 35 | |||||||||
Mexico |
18 | 3 | 2 | 23 | |||||||||
Peru |
1 | | | 1 | |||||||||
Porto Alegre |
264 | 37 | 26 | 327 | |||||||||
Recife |
100 | 14 | 7 | 121 | |||||||||
Rio de Janeiro |
68 | 18 | 12 | 98 | |||||||||
São Paulo |
652 | 331 | 116 | 1,099 | |||||||||
Uberlândia |
129 | 9 | 9 | 147 | |||||||||
| | | | | | | | | | | | | |
Total |
2,285 | 557 | 226 | 3,161 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
As of December 31, 2016
|
||||||||||||
| | | | | | | | | | | | | |
|
Technical | Administrative | Management |
Total
|
|||||||||
| | | | | | | | | | | | | |
Bauru |
75 | 7 | 3 | 85 | |||||||||
Bebedouro |
126 | 31 | 7 | 171 | |||||||||
Belo Horizonte |
215 | 26 | 13 | 254 | |||||||||
Blumenau |
129 | 8 | 7 | 144 | |||||||||
Campinas |
69 | 20 | 7 | 96 | |||||||||
Cascavel |
187 | 27 | 6 | 220 | |||||||||
Florianópolis |
51 | 26 | 10 | 87 | |||||||||
Joinville |
148 | 10 | 10 | 168 | |||||||||
Manaus |
24 | 6 | 6 | 36 | |||||||||
Porto Alegre |
237 | 52 | 27 | 316 | |||||||||
Recife |
103 | 7 | 7 | 117 | |||||||||
Rio de Janeiro |
68 | 18 | 15 | 101 | |||||||||
São Paulo |
560 | 364 | 120 | 1,044 | |||||||||
Uberlândia |
135 | 20 | 13 | 168 | |||||||||
| | | | | | | | | | | | | |
Total |
2,127 | 622 | 251 | 3,000 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Additionally, as of March 31, 2019 we employed 83 third-party contractors. The 13.7% increase in the number of our employees from the three-month period ended March 31, 2016 to the three-month period ended March 31, 2019, was primarily the result of the expansion of our business, including through acquisitions, consistent with our business strategy.
Our personnel turnover rates were 8.2%, 25.6%, 25.6% and 23.4% for the three-month period ended March 31, 2019 and years ended December 31, 2018, 2017 and 2016, respectively.
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Labor Unions
We believe that we have a good relationship with our employees and the unions that represents them. We are affiliated with the Union of Workers in Data Processing and Technology Information of the State of São Paulo SINDPD ( Sindpd Sindicato dos Trabalhadores em Processamento de Dados e Tecnologia da Informação do Estado de São Paulo ). We make monthly payments for contribution assistance contribution and union dues at least annually. Our employees have never made or threatened to carry out strikes or stoppages.
Compensation
Our employees' compensation packages consist of fixed and variable compensation. Fixed compensation includes monthly salaries and fixed benefits, including medical insurance, funeral assistance, dental insurance, meal vouchers and life insurance. Variable compensation, such as bonuses, is determined on an individual basis. In addition, certain key employees, as determined by our board of directors, may be eligible to participate in our share-based compensation plans. For more information about our share-based compensation plans, see "Management Compensation Share-Based Compensation."
Service Providers
Our development activities are concentrated in our own personnel. However, we have providers of data centers and telecommunications that provide connectivity links. Our relationship with our providers is not subject to any governmental control or regulation. Historically, the remuneration of our providers has not significantly changed.
Corporate Social Responsibility
We believe that sustainability should permeate the organization in the economic, social and environmental dimensions, from a responsible management, focused on long-lasting results for the company and the society. Our sustainability strategy is focused on the generation of value for the company and its stakeholders, support to education, the efficient use of natural resources, and the management of solid waste. This commitment can be represented by the actions taken and partnerships carried out by us.
Round-It-Up Movement
We partnered with the Round-It-Up Movement ( Movimento Arredondar ) to allow the stores that use our solutions and choose to join the Round-It-Up Movement to offer to their customers the option to round up the cents in their purchases for donation. Rounding may not exceed R$0.99. All proceeds go to social organizations that are aligned with the United Nations Millennium Development Goals. Round-It-Up Movement selects and monitors the organizations that receive donations.
Ayrton Senna Institute
In 2018, we created (in partnership with the Ayrton Senna Institute) the Program for Literacy in Programming ( Programa Letramento em Programação ), which seeks to promote literacy in computer programming languages in order to foster programming literacy among students from public elementary schools. Under the program, participants progress through stages that allow for the development of skills such as creativity, collaboration, logical reasoning and communication, using programming as a tool of engagement.
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Recode
In 2018, we and Recode created a social community program directed to at-risk individuals between the ages of 14 and 29 years of age, enabling them to receive training focused on technological knowledge and digital empowerment. The program utilizes its own methodology, inspired by the concepts of education, cyber culture, autonomous information and communication technologies and socioemotional competences of the 21st century, generating opportunities for low-income individuals within the target age group at community institutions, libraries and public schools in the States of São Paulo, Rio de Janeiro and Ceará. The program utilizes in-person training for approximately 600 individuals in the target age group. However, using the same methodology in a 100% online format, we believe it would be possible to extend the program to individuals in the target age group from 24 Brazilian states, thereby significantly increasing the program's target audience.
Solidarity Programs
We participate in the following solidarity programs:
Environmental Programs
In the environmental area, we implemented a program for selective collection of waste, the EcoLinx. With this program, we give appropriate destination to recyclable waste and contribute to the increase of income for trash pickers.
Legal and Administrative Proceedings
We are a party to certain judicial and administrative proceedings arising during the normal course of our business, including tax, labor and civil proceedings. As of March 31, 2019, our contingencies classified as probable losses (excluding those of acquired companies) totaled R$3.7 million, which we fully provisioned. In addition, we provisioned R$8.6 million in respect of potential risks relating to tax, labor and social security matters that we identified during due diligence we performed in connection with the acquisitions.
Our contingencies classified as possible and remote losses (including those of acquired companies and outsourced employees) totaled approximately R$64.5 million, for which we did not record any provisions.
Our provisions are based on the evaluations of our legal counsel with respect to each contingency and take into consideration the contingent liabilities deemed probable losses (excluding those of acquired companies, as explained above) by our external and internal counsel, the values of which have fully accrued.
Civil
As of March 31, 2019, we and our subsidiaries (Linx Sistemas and DCG) were parties to 297 civil lawsuits (91 as plaintiffs), which generally related to compensation claims, contract termination and credit recovery under judicial restructure and bankruptcy.
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As of March 31, 2019, we were a defendant in 40 legal proceedings classified as probable losses. Based on the opinion of our legal counsel, considering the evolution of each proceeding, we recorded provisions for civil contingencies classified as probable losses in the aggregate amount of R$1.2 million as of March 31, 2019.
Tax
As of March 31, 2019, we and our subsidiaries were involved in approximately 74 administrative or judicial proceedings (25 as plaintiffs) principally related to federal tax offsets that have not been approved or that were partially approved by the relevant authorities.
Based on the opinion of our legal counsel, we and our subsidiaries did not record any provisions for our tax contingencies as of March 31, 2019 given that we were not defendants in tax proceedings in which the risk of loss was classified as probable.
In addition to these administrative tax proceedings, we and our subsidiaries are also party to lawsuits questioning the constitutionality, legality and the interpretation of certain tax laws (such as the inclusion of ISS in the calculation of PIS and COFINS, as well as the inclusion of certain components for calculating social security contributions payable by us and our subsidiaries).
On November 5, 2018, tax authorities from the State of São Paulo filed a tax assessment notice against our subsidiary Linx Sistemas to levy: (1) the payment of the State Value Added Tax ( Imposto sobre Operações relativas à Circulação de Mercadorias e Prestação de Serviços ) on leasing transactions of equipment and data center spaces carried out in the period between January 2014 and December 2015; and (2) a fine equivalent to 50% of the adjusted value of the tax, which totaled R$36.9 million. Linx Telecomunicações Ltda., another of our subsidiaries, was deemed jointly liable for the entirety of outstanding tax and penalties. The administrative defense filed by both companies was denied by the state administrative court of first instance. An appeal has been filed for which we are currently awaiting judgment. Our legal counsel has classified the risk of loss as possible.
Labor
As of March 31, 2019, we and our subsidiaries were party to 102 administrative or legal proceedings, mostly related to overtime, additional night pay, salary differences and differences in severance pay, among others.
As of March 31, 2019, we were a party to 19 labor claims classified as probable losses, for which we recorded a provision in the aggregate amount of R$2.5 million (as adjusted based on the INPC index).
Settlement Agreements
Additionally, we entered into two settlement agreements with public regional labor prosecutors as set forth below:
Nº 214/2015
On May 28, 2015, Linx Sistemas e Consultoria Ltda., or Linx Sistemas, entered into a settlement agreement ( Termo de Ajustamento de Conduta ), or TAC, with the Public Regional Labor Prosecutor of the State of Rio Grande do Sul. Pursuant to this TAC, Linx Sistemas agreed to refrain from contracting self-employed workers through legal entities established by those self-employed workers to render, on a regular basis, activities related to our business. In the event we breach this TAC, we will be subject to a fine of R$10.0 thousand per irregular worker. We were also imposed to a fine of R$300.0 thousand, which was applied to fund certain social projects.
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Nº 394/2018
On October 9, 2018, Linx Sistemas entered into a TAC with the Public Regional Labor Prosecutor of the State of São Paulo, related to a failure to fully comply with its obligations under Art. 93 of Law No. 8,213/93, of July 24, 1991, which required that Linx Sistemas hire a certain percentage of disabled workers, or the Legal Quota. The TAC requires, among other obligations, that Linx Sistemas hire disabled workers in accordance with the Legal Quota. Pursuant to the TAC, Linx Sistemas is subject to fines equal to: (1) R$10.0 thousand multiplied by the number of disabled persons not hired as required by the Legal Quota, or were working under unlawful conditions, (2) R$10.0 thousand multiplied by the number of disabled workers that we would be required to hire if Linx Sistemas is not compliant and (3) R$1.0 thousand for each day that Linx Sistemas does not attest to being compliant with the TAC.
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Our management is composed of a board of directors and executive officers. With one exception, all of our directors and officers are residents of Brazil. The rights and responsibilities of our directors and executive officers are governed by the Brazilian Corporate Law, the Novo Mercado Regulations and our bylaws. In addition, our code of ethics was approved by our board of directors in 2013 and governs our board of directors, executive officers, employees and suppliers of goods and services.
As of the date of this prospectus, we have five directors and six executive officers.
The business address of each of our directors and officers is: Linx S.A., Avenida Doutora Ruth Cardoso, 7,221, São Paulo SP, 05425-902, Brazil.
Board of Directors
Our board of directors is the decision-making body responsible for determining the guidelines and general policies of our business, including our overall long-term strategy. Our directors are also responsible for, among other matters, supervising the activities of our executive officers and controlling and overseeing our overall performance.
Pursuant to our bylaws, our board of directors must consist of a minimum of five and a maximum of eleven members, including one chairman and one vice-chairman, who may or may not be our shareholders. The members of our board of directors are elected at a general shareholders' meeting and serve a term of up to two years. They may be reelected, and they are subject to removal at any time by our shareholders. The members of our board of directors must remain in office until their successor is elected and takes office. According to the Rules of the Novo Mercado , at least two or 20%, whichever is greater, of the members of our board of directors must be independent members. See "Market Information Corporate Governance Practices and the Novo Mercado ."
According to our bylaws, the board of directors, in addition to the duties established by law, is required to perform several duties, including but not limited to:
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As of the date of this prospectus and in accordance with our bylaws, our board members do not have specific assignments or individual powers. We also do not currently have mechanisms to assess members of our board of directors or of our committees. In accordance with the Brazilian Corporate Law and as provided in our bylaws, our directors cannot be involved in any corporate transaction in which they have a conflict of interest with us, unless they discuss the nature and extent of their interest with the other directors in a meeting that is on the record. Nevertheless, all transactions entered into between our administrators and the company must be on reasonable and equitable terms, identical to those prevailing in the market or in typical agreements with third parties.
The following table sets forth the name, date of birth, position and most recent election date of each of the members of our board of directors. The term of each member of our board of directors will expire on the date of the annual meeting of our shareholders in 2019, which is currently scheduled to occur on April 24, 2019.
Name |
Date of Birth | Position |
Election Date
|
|||
| | | | | | |
Nércio José Monteiro Fernandes |
3/25/63 | Chairman | 4/24/19 | |||
Alberto Menache |
9/29/73 | Vice-Chairman | 4/24/19 | |||
Alon Dayan |
10/24/61 | Member | 4/24/19 | |||
João Cox |
5/2/63 | Member | 4/24/19 | |||
Roger de Barbosa Ingold |
6/8/58 | Member | 4/24/19 |
The following is a summary of the business experience of the members of our board of directors:
Nércio José Monteiro Fernandes. Mr. Fernandes is the chairman of our board or directors. He founded the Linx Group in 1985 and, until June 2016, was vice-president of research and development of Linx S.A. In addition to serving on our board of directors, Mr. Fernandes advises us on innovation.
Alberto Menache. Mr. Menache is the vice-chairman of our board of directors. He joined the Linx Group in 1991 as a trainee, and proceeded to management roles in sales, marketing, human resources, IT and finance. In 2004, he was elected as our chief executive officer. Mr. Menache is also an executive of Linx Sistemas and a director of Linx Telecomunicações Ltda., or Linx Telecomunicações. He is also a member of the board of directors of Arco Platform Limited, a position he has held since August 2018. Mr. Menache is the brother-in-law of Alon Dayan, who is also a member of our board of directors.
Alon Dayan. Mr. Dayan is a member of our board of directors. Mr. Dayan has 22 years of experience in technology, having been one of the founders of Investrônica do Brasil Comércio e Sistemas Ltda., a company that provided technological solutions to the textile industry. He joined us in 1990 as a partner at Linx Sistemas and has been its director since then. Currently, Mr. Dayan holds a degree in electrical engineering and a specialization in computer science from Fundação Armando Alvares Penteado. Mr. Dayan is the brother-in-law of Alberto Menache, who is also a member of our board of directors.
João Cox. Mr. Cox is an independent member of our board of directors. He manages Cox Investments and Advisory, a boutique consulting and investment firm. Previously, he was the Chief Executive Officer of Claro S.A. and member of the board of directors of Conselho de Recursos do Sistema Financeiro Nacional, or CRSFN, Associação Brasileira das Companhias Abertas, or
135
ABRASCA, and Instituto Brasileiro de Relações com Investidores, or IBRI. Mr. Cox currently serves on the boards of directors of the Universidade Estácio de Sá and Embraer, among others.
Roger de Barbosa Ingold. Mr. Ingold is an independent member of our board of directors. He began working at Accenture in 1982, and in 1991, he was promoted to partner and in 2000 to Director of Brazil and Latin America. Mr. Ingold holds a degree in engineering from the Escola Politécnica da Universidade de São Paulo, or USP, and an MBA in finance from Instituto Brasileiro de Mercado de Capitais, or IBMEC.
Election of Members of our Board of Directors
According to the Novo Mercado Regulations, at least two or 20%, whichever is greater, of the members of our board of directors must be independent directors. As defined in the Novo Mercado Regulations, an independent director cannot: (1) have any direct link to our company, except as a shareholder; (2) be a controlling shareholder, spouse or a second-degree or closer relative of a controlling shareholder or currently be linked or have been linked to a company or a related entity that was owned by a controlling shareholder during the previous three years; (3) have been an employee or director of our company, of a controlling shareholder or of an entity controlled by our company during the previous three years; (4) have been a supplier or purchaser, directly or indirectly, of services and/or products of our company to a degree that would compromise his or her independence; (5) have been an employee or manager of our company or entity that offered or requested services and/or products of our company; (6) be a spouse or second-degree or closer relative of any manager of our company; or (7) have received any compensation from our company beyond payment for service as a director, excluding dividends from share ownership. Currently, João Cox and Roger de Barbosa Ingold serve as our independent directors.
The Brazilian Corporate Law permits the adoption of cumulative voting upon a request by shareholders representing at least 10% of our voting capital, according to which each share receives a number of votes corresponding to the number of members of the board of directors. The shareholders holding, individually or jointly, at least 15% of our common shares are entitled to vote separately to appoint one director. As prescribed by CVM Instruction No. 282, dated June 26, 1998, the threshold to trigger cumulative voting rights may vary from 5% to 10% of the total voting capital stock. Taking into consideration our current capital, shareholders representing 5% of our voting capital stock may request the adoption of cumulative voting to elect the members of our board of directors. If cumulative voting is not requested, our directors shall be elected by the majority vote of the holders of our common shares, in person or represented by a proxy. Our directors are elected by our shareholders' at an annual shareholders meeting for a term of up to two years.
Transactions in which Directors have an Interest
The Brazilian Corporate Law prohibits a director from:
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Executive Officers
Our executive officers are our legal representatives and are principally responsible for our day-to-day management and for implementing the policies and general guidelines established by our board of directors. According to the Brazilian Corporate Law, all of our officers must be residents of Brazil and may or may not be our shareholders. In addition, a maximum of one-third of our directors may also serve as our executive officers.
Our executive officers are elected at a meeting of our board of directors for one-year terms, reelection being permitted. Our board of directors may elect to remove our executive officers at any time.
According to our bylaws, we must have a minimum of two and a maximum of ten executive officers, each of whom must be a resident of Brazil, as required by law, but need not own any of our shares. In accordance with the Novo Mercado Regulations, prior to taking office, our executive officers are required to sign an instrument of adherence to Novo Mercado Regulations.
Our executive officers are responsible for administering and managing our business, including, among others, the following, as set out in our organizational documents:
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The following are the executive officers of Linx S.A. as of the date of this prospectus:
|
Date of | |||||||
|
Election | Expiration of | ||||||
Name |
Date of Birth | Position | Date |
Term
|
||||
| | | | | | | | |
Alberto Menache |
9/29/73 | Chief Executive Officer | 4/26/19 | 4/26/21 | ||||
Pedro Holmes Monteiro Moreira |
11/28/72 | Vice-President of Finance and Investor Relations Officer | 4/26/19 | 4/26/21 | ||||
Jean Carlo Klaumann |
2/25/75 | Vice-President of Linx Digital | 4/26/19 | 4/26/21 | ||||
Gilsinei Valcir Hansen |
7/2/73 | Vice-President of Linx Core | 4/26/19 | 4/26/21 | ||||
Flávio Mambreu Menezes |
2/27/71 | Vice-President of Marketing and Human Resources | 4/26/19 | 4/26/21 | ||||
Andelaney Carvalho dos Santos |
11/05/67 | Vice-President of Research and Development | 4/26/19 | 4/26/21 |
The following is a summary of the business experience of our executive officers:
For Alberto Menache, see " Board of Directors."
Pedro Holmes Monteiro Moreira. Mr. Moreira is our Vice-President of Finance and Investor Relations Officer. He has more than 23 years of experience working in large companies such as Cnova, Wal-Mart, C&A and Ambev and has vast experience in the areas of accounting, legal, tax corporate planning, loss prevention, risk management and treasury. Mr. Moreira joined the Linx Group in 2017 and holds a degree in management from Pontifícia Universidade Católica de São Paulo and an MBA from New York University.
Jean Carlo Klaumann. Mr. Klaumann is our Vice-President of Operations. He has 14 years of experience in the ERP industry, having worked for companies such as IFS, PeopleSoft Inc. and TOTVS S.A. Mr. Klaumann began working at the Linx Group in 2011. He holds a degree in marketing and a graduate degree in business administration.
Gilsinei Valcir Hansen. Mr. Hansen is our Vice-President of Research and Development. He has more than 25 years of experience in the software sector and has vast experience in research and development, having worked at companies such as Datasul and TOTVS S.A. Mr. Hansen holds degree in business administration and graduate degrees in production engineering and marketing from the Universidade da Região de Joinville. He also holds MBA in marketing and communication from the Universidade do Desenvolvimento do Estado de Santa Catarina.
Flávio Mambreu Menezes. Mr. Menezes is our Vice-President of Marketing and Human Resources. He previously worked at our subsidiary Linx Sistemas for over six years and holds a degree in naval engineering from USP and an MBA from Fundação Dom Cabral.
Andelaney Carvalho dos Santos. Mr. Santos is our Vice-President of Research and Development. He has over 30 years of experience as a senior executive at companies including the Pão de Açúcar Group, BRF S.A., Carrefour S.A. and LafargeHolcim Ltd. Mr. Santos holds an Executive MBA from Fundação Getúlio Vargas, or FGV, and has completed several specialization courses at Institução Insper and the Massachusetts Institute of Technology.
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Fiscal Council
Under the Brazilian Corporate Law, the fiscal council ( conselho fiscal ) is an optional, non-permanent corporate governance body that, if constituted, must be independent from a company's management and its external independent auditors. As such, it may not include members of the board of directors or executive officers or their spouses or relatives. In addition, a company's fiscal council may not include employees of that company's subsidiaries or of any entity that participates in its management.
The primary responsibility of the fiscal council is to review management's activities and financial statements and to report its findings to shareholders. Members of a company's fiscal council are entitled to at least 10% of the average compensation paid to that company's executive officers, excluding benefits, representation fees and profit sharing.
Any fiscal council must be appointed at a shareholders' meeting upon the request of shareholders representing at least 10% of our outstanding common shares, and its term ends at the first annual shareholders meeting following its creation. The request to establish a fiscal council can be submitted during any shareholders' meeting, at which time the elections of members of the fiscal council would occur.
According to our bylaws, our fiscal may consist of three members and an equal number of alternates, all of whom must be residents of Brazil.
The following are the members of our fiscal council as of the date of this prospectus:
Date of | ||||||||
Election | Expiration of | |||||||
Name | Date of Birth | Position | Date |
Term
|
||||
| | | | | | | | |
Flávio Cesar Maia Luz | 7/27/51 | Member | 4/24/19 | 4/24/20 | ||||
João Adamo Junior | 12/29/69 | Member | 4/24/19 | 4/24/20 | ||||
Marcelo Amaral Morães | 7/10/67 | Member | 4/24/19 | 4/24/20 |
The following is a summary of the business experience of the members of our fiscal council:
Flávio Cesar Maia Luz. Mr. Luz is a Managing Director of Doing Business Consultoria Empresarial Ltda. since 2010, where he specializes in the areas of corporate finance and governance. He was previously the Vice-President of the board of directors of Eletropaulo Metropolitana and Light S.A. Mr. Luz is currently President of the fiscal council of Ultrapar Participações as well as a member of the board of directors of Ser Educacional and Senior Solution. Mr. Luz holds a degree in civil engineering from Escola Politécnica, specializations in business management and applied economics from FGV, corporate finance from Harvard Business School, strategic marketing from Stanford University, negotiations from the University of California, Berkeley and mergers and acquisitions from the Wharton School of Business at the University of Pennsylvania.
João Adamo Junior. Mr. Adamo Junior is a member of the executive and investment committees of Cadence Gestora de Recursos. He previously held the positions of Vice-President of Structured Products at Banco Fenícia from 1993 to 1997, Head of Structured Products at Deutsche Bank from 1997 to 2000, chief executive officer of Maxblue DTVM, a joint venture between Deutsche Bank and Bank of Brasil. Mr. Adamo Junior was also the Adjunct Head of Wealth Management Products at UBS in São Paulo from 2003 to 2007, where he also acted as a senior executive in the integration of Banco Pactual into the UBS global platform. In 2007, he served as Executive Director at Vision Brazil Investments and was a member of the executive committee at Mainstay Asset Management and a member of the fiscal council of Net from 2012 to 2013. Mr. Adamo Junior is
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also a founding partner of More Invest Gestora de Recursos. He holds a law degree from Faculdade de Direito do Largo São Francisco as well as a degree in business management from FGV, where he obtained a specialization in applied economics.
Marcelo Amaral Morães. Since April 2004, Mr. Morães has been a member of the fiscal council of Vale where he currently serves as the President of the fiscal council. He is also the President of the fiscal council of Gol S.A. and the President of the fiscal council of Aceco until 2018. Mr. Morães is a member of the board of directors Eternit S.A. (since 2016) and was an Executive Director at the private equity firm Capital Dynamics Investimentos Ltda. (from January 2012 until April 2015). He holds a degree in economics from the Universidade Federal do Rio de Janeiro, or UFRJ, an MBA from COPPEAD at UFRJ and a postgraduate degree in corporate law and arbitration from FGV.
Executive Committees
At our general shareholders' meeting held on December 4, 2012, we approved the creation of an audit committee and a personnel committee. In August 2016, our board of directors created a strategy committee.
Statutory Audit Committee
Our statutory audit committee consists of a minimum of three members elected by the board of directors for a term of up to two years.
Our audit committee has advisory functions, as set out in its charter, including: (1) recommending to the board of directors the hiring or replacement of independent auditors; (2) reviewing the interim and annual financial statements, including explanatory notes; (3) evaluating the effectiveness of internal and independent auditors, including as to the compliance with applicable legal and regulatory requirements; (4) assessing management's compliance with the recommendations made by internal or independent auditors; (5) recommending to the board of directors to fix or improve policies, practices and procedures identified in the course of its duties; (6) evaluate and monitor our risk exposure and (7) meeting with the fiscal council, if in operation, and the board of directors, at their request, to discuss policies, practices and procedures identified within their respective powers. Our audit committee meets whenever necessary.
Under Section 303A.06 of the NYSE listing rules and the requirements of Rule 10A-3 under the Exchange Act, each U.S. listed company is required to have an audit committee consisting entirely of independent members that comply with the requirements of Rule 10A-3. In addition, the audit committee must have a written charter compliant with the requirements of Section 303A.07(b) of the NYSE listing rules, the listed company must have an internal audit function and the listed company must fulfill all other requirements of the NYSE and Rule 10A-3. The SEC has recognized that, for foreign private issuers, local legislation may delegate some of the functions of the audit committee to other advisory bodies. We have established a statutory audit committee as approved at the annual shareholders' meeting of April 24, 2019. Our statutory audit committee meets the requirements for the exemption available to foreign private issuers under paragraph (c)(3) of Rule 10A-3 under the Exchange Act. The statutory audit committee is not the equivalent of, or wholly comparable to, a U.S. audit committee. Among other differences, it is not required to meet the standards of "independence" established in Rule 10A-3 and is not fully empowered to act on all the matters that are required by Rule 10A-3 to be within the scope of an audit committee's authority.
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The following are the members of our audit committee as of the date of this prospectus:
Name |
Date of Birth | Position | Election Date |
Date of Expiration
of Term |
||||
| | | | | | | | |
João Cox |
5/2/1963 | Coordinator | 4/24/19 | 4/24/20 | ||||
Pedro Jaime Cervatti |
9/29/1973 | Member | 4/24/19 | 4/24/20 | ||||
Roger de Barbosa Ingold |
6/8/1958 | Member | 4/24/19 | 4/24/20 |
The following is a summary of the business experience of the members of our Audit Committee:
For João Cox , see " Board of Directors."
Pedro Jaime Cervatti. Mr. Cervatti has been a member of the board of directors of Grupo Boticário since 2014, and chairs its risk and audit committee. He has also been a member of the fiscal council of CSE Mecânica e Instrumentos S.A. (Grupo Aker) since 2018, and a coordinator of the finance, risk and audit committee of Química Amparo/Ypê since 2018. Mr. Cervatti has also been a senior advisor at the accounting companies Contabilizei Contabilidade and Contabilizei Tecnologia since 2017. He previously held the position of member of Grupo V&S's advisory board from 2015 to 2017, where he coordinated the implementation of the risks and audit committee departments, and as a member of AMCHAM Paraná's Advisory Board from 2011 to 2018. He began his career as an auditor in 1978 at KPMG until his retirement 36 years later. Mr. Cervatti was also an accounting professor of the Ibmec Curitiba and Ibmec São Paulo MBA programs. From 2006 to 2015, he was a professor of the MBA program at Estação Business School in Curitiba, where he taught financial accounting, as well as corporate governance and risk management. Mr. Cervatti is a certified board member and fiscal council member with the IGBC. He holds bachelor degrees in business administration and accounting from Faculdade Ítalo-Brasileira. He also holds a master's degree in accounting from Pontifícia Universidade Católica de São Paulo.
For Roger de Barbosa Ingold , see " Board of Directors."
Personnel Committee
Our personnel committee consists of a maximum of four members elected by our board of directors, with a term of up to two years each. Our personnel committee aims to develop policies and guidelines regarding the remuneration of our directors and officers, including, pursuant to its charter: (1) submitting to the board of directors the proposed distribution of total annual compensation of our directors and executive officers, based on standards practiced in the software market, as well as monitor the payment of remuneration and, where they do not follow the standards prevailing in the software market, to inform the board of directors; (2) deciding on the granting of share purchase options to our directors and employees; (3) deciding on our officers' and employees' participation in profits; (4) opining on the execution, amendment or termination of any agreement between us and any director that contemplates the payment of amounts due to voluntary or involuntary dismissal of a director, change of control or any other similar event, including the payment of compensation; (5) opining on the execution, amendment or termination of any our contracts, except employment contracts, including loan agreements with any of our directors and/or shareholders or companies or, third parties related to them and (6) deciding on the execution, amendment or termination of any of our contracts, including loan agreements with any consultants or employees (with the except of employment contracts) or any third parties or companies related to them. Our personnel committee meets whenever necessary. At least one member of the audit committee will be an audit committee "financial expert" within the meaning of the rules adopted by the SEC relating to the disclosure of financial experts on audit committees in periodic filings pursuant to the Exchange Act.
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The following are the members of our personnel committee as of the date of this prospectus:
Name |
Date of Birth | Position | Election Date |
Date of Expiration
of Term |
||||
| | | | | | | | |
Alberto Menache |
9/29/73 | Coordinator | 4/24/19 | 4/24/21 | ||||
João Cox |
5/2/63 | Member | 4/24/19 | 4/24/21 | ||||
Roger de Barbosa Ingold |
6/18/58 | Member | 4/24/19 | 4/24/21 |
Strategy Committee
In August 2016, our board of directors created a strategy committee to support our board of directors in matters relating to corporate strategies and mergers and acquisitions.
The following are the members of our strategy committee as of the date of this prospectus:
Name |
Date of Birth | Position | Election Date |
Date of Expiration
of Term |
||||
| | | | | | | | |
Roger de Barbosa Ingold |
6/18/58 | Coordinator | 4/24/19 | 4/24/20 | ||||
Alberto Menache |
9/29/73 | Member | 4/24/19 | 4/24/20 | ||||
Nércio José Monteiro Fernandes |
6/8/58 | Member | 4/24/19 | 4/24/20 |
Insurance
We have obtained insurance coverage with Zurich Minas Brasil Seguros S.A. to protect our directors and officers against civil liabilities incurred by them while exercising their corporate functions during the coverage period. Under the terms of this insurance policy, the insurer will cover up to R$70 million in damages as determined by judicial or arbitral decisions as well as private settlements approved by the insurer. The insurance policy currently in effect expires on June 30, 2019 and excludes coverage for damages resulting from willful misconduct, fraud or severe negligence on the part of our directors and officers.
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Share Ownership
The table below sets forth the share ownership of our directors and officers as of the date of this prospectus:
Name |
Position |
Number of
Common Shares Owned (1) |
% of
Common Shares Owned (1) |
||||||
| | | | | | | | | |
Nércio José Monteiro Fernandes. |
Chairman of the board of directors | 11,261,395 | 6.77 | % | |||||
Alberto Menache. |
Vice-chairman of the board of directors and chief executive officer | 8,566,413 | 5.15 | % | |||||
Alon Dayan. |
Member of the board of directors | 6,933,988 | 4.17 | % | |||||
João Cox. |
Member of the board of directors | 11,225 | 0.01 | % | |||||
Roger de Barbosa Ingold. |
Member of the board of directors | 8,508 | 0.01 | % | |||||
Pedro Holmes Monteiro Moreira |
Vice-President of Finance and Investor Relations Officer | | 0.00 | % | |||||
Jean Carlo Klaumann. |
Vice-President of Linx Digital | | 0.00 | % | |||||
Gilsinei Valcir Hansen. |
Vice-President of Linx Core | 900 | 0.00 | % | |||||
Flavio Mambreu Menezes. |
Vice-President of Marketing and Human Resources | 270,000 | 0.16 | % | |||||
Andelaney Carvalho dos Santos |
Vice-President of research and development | | 0.00 | % | |||||
Flávio Cesar Maia Luz |
Member of our fiscal council | | 0.00 | % | |||||
João Adamo Junior |
Member of our fiscal council | | 0.00 | % | |||||
Marcelo Amaral Morães |
Member of our fiscal council | | 0.00 | % |
Compensation
Under Brazilian law, we are not required to disclose compensation paid to our senior management on an individual basis and we have not otherwise publicly disclosed this information elsewhere.
The aims of our executive compensation policy are to: (1) remunerate competitively within our selected market; (2) provide incentives for high performance; and (3) engage and retain highly performing professionals whose personal values are aligned with our culture, in order to foster the participation our managers in our business and align their interests with those of our investors. Our compensation policies have been established in accordance with current market practices and our interest in attracting high quality administrators. We use the Global Grading System methodology created by the international human resources firm Willis Towers Watson to design our compensation packages.
For our executive officers, our total compensation packages consist of: (1) fixed salaries; (2) fixed benefits (including medical insurance, dental insurance, life insurance, meal voucher or lunchroom at work, education aid, workplace parking and use of a company vehicle); (3) variable (bonus) compensation linked to target financial and individual performance indicators; (4) share-based compensation. The members of our board of directors may receive fixed salaries and share-based compensation only. Beginning in 2016, those executive officers who are also members of our board of directors do not receive their fixed salaries as board members.
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The tables below set forth the breakdown of our executive compensation by type for the year ended December 31, 2018:
|
For the Year Ended December 31, 2018
|
|||||||||||||||
| | | | | | | | | | | | | | | | |
|
Salary | Benefits |
Variable
Compensation |
Share-Based
Compensation |
Total
|
|||||||||||
| | | | | | | | | | | | | | | | |
Executive officers. |
42.4 | % | 0.7 | % | 27.9 | % | 29.1 | % | 100 | % | ||||||
Board of directors |
75.2 | % | 0 | % | 0 | % | 24.8 | % | 100 | % | ||||||
Fiscal council |
100 | % | 0 | % | 0 | % | 0 | % | 100 | % |
|
For the Year Ended December 31, 2018
|
||||||||||||
| | | | | | | | | | | | | |
|
Board of
Directors |
Executive
Officers |
Fiscal
Council |
Total
|
|||||||||
| | | | | | | | | | | | | |
|
(in R$, unless otherwise indicated) | ||||||||||||
Number of members |
5 | 5 | 6 | 16 | |||||||||
Fixed compensation: |
|
|
|
|
|||||||||
Salary |
680,000 | 6,322,975 | 304,200 | 7,307,175 | |||||||||
Direct and indirect benefits |
| 103,079 | | 103,079 | |||||||||
Variable compensation: |
|||||||||||||
Bonus |
| 4,155,603 | | 4,155,603 | |||||||||
Share-based compensation |
224,000 | 4,339,250 | | 4,563,250 | |||||||||
| | | | | | | | | | | | | |
Total compensation |
904,000 | 14,920,906 | 304,200 | 16,129,106 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
For the year ended December 31, 2018, the maximum, average and minimum individual total compensation of our executive officers was R$5,142,380, R$2,617,703 and R$1,168,180.
The table below sets forth the estimated breakdown of our executive compensation by type for the year ended December 31, 2019:
|
For the Year Ended December 31, 2019
|
||||||||||||
| | | | | | | | | | | | | |
|
Board of
Directors |
Executive
Officers |
Fiscal
Council |
Total
|
|||||||||
| | | | | | | | | | | | | |
|
(in R$, unless otherwise indicated) | ||||||||||||
Number of members |
5 | 6 | 6 | 17 | |||||||||
Fixed compensation: |
|
|
|
|
|||||||||
Salary |
720,000 | 7,891,000 | 319,200 | 8,930,200 | |||||||||
Direct and indirect benefits |
| 117,697 | | 117,697 | |||||||||
Variable compensation: |
|||||||||||||
Bonus |
| 6,526,000 | | 6,526,000 | |||||||||
Share-based compensation |
340,000 | 39,164,436 | | 39,504,436 | |||||||||
| | | | | | | | | | | | | |
Total compensation |
1,060,000 | 53,699,133 | 319,200 | 55,078,333 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Bonus Compensation
Our annual bonus compensation enables us to compensate our executives in both the short to long-term based on the achievement of proposed goals. The amount, timing and recipients of bonus compensation are determined by our board of directors.
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Share-Based Compensation
Stock Option and Restricted Share Plans
Our Stock Plans were approved at our general shareholders' meeting held on December 4, 2012, April 27, 2016 and January 23, 2019. As of March 31, 2019, 946,123 stock options and 2,045,714 restricted shares have been granted but not yet exercised under the Stock Option and Restricted Shares Plans, including 1,011,846 shares of restricted stock granted on January 22, 2019.
General
The Stock Plans are managed by our board of directors with the advice of our personnel committee, which has broad powers to take all necessary and appropriate measures for the Stock Plans' administration, including: (1) the creation and application of general rules on the granting of options and shares under the Stock Plans and the solution of interpretational questions regarding the Stock Plans; (2) the establishment of goals related to the performance of our senior executives, in order to establish objective criteria for the selection of beneficiaries; (3) the election of the Stock Plans' beneficiaries and authorization to grant options and shares in their favor, setting all conditions of options and shares to be granted, as well as the modification of such conditions as necessary to conform to the terms of the law, rule or supervening regulation and (4) our issuance of new common shares within the limit of authorized capital or the sale of treasury shares to satisfy the exercise of options to purchase common shares granted under the Stock Plans.
Beneficiaries
The board of directors may approve annually, or at any other time it deems necessary, individual stock option and restricted stock programs under the Stock Plans, which will establish, among other conditions, the beneficiaries, the number of stock options and/or restricted shares to be granted, the exercise price and the vesting dates for each Stock Plan, within the general conditions established under the Stock Plans. Our directors, senior executives and other key employees are eligible to participate in the Stock Plans. The total number of our common shares issued or which may be issued under our Stock Plans may not exceed 5% of our total capital stock as of the date of the approval of each program under the Stock Plans.
The conditions for acquisition of options and shares, as provided in the Stock Plans, will be provided in option agreements to be entered into with each of the beneficiaries. Our board of directors or our personnel committee, as applicable, may establish different terms and conditions for each option agreement, even in similar or identical situations.
Exercise Price
The exercise price for each stock option will correspond to weighted average of the price of our common shares on the B3 during the two months immediately preceding the approval date of each program under the Stock Plans. In the event that dividends or other Net Income are distributed to shareholders during such time, the exercise price will be correspondingly adjusted.
Vesting
Options granted under each program under the Stock Plans will vest in four annual installments of 25% of the total number of options granted beginning on the first anniversary of their grant date. In general, restricted shares will fully vest on the fourth anniversary of their grant date and, for independent members of the Board of Directors, restricted shares will vest within one (1) year of their grant date. Vesting periods may be accelerated upon a change of control.
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Exercise Period
Vested options may be exercised during the period of eight years from the effective date of each program under the Stock Plans.
The table below sets forth information regarding the outstanding options granted to our executives as of March 31, 2019:
Grant date |
2/28/2014 | 2/28/2015 | 2/28/2016 | 2/28/2017 |
2/28/2018
|
|||||
| | | | | | | | | | |
Vested options |
20,673 | 50,139 | 75,609 | 137,641 | 105,141 | |||||
Unvested options |
0 | 0 | 0 | 149,946 | 315,411 | |||||
Vesting dates and amounts |
08/28/2014 | 08/28/2015 | 08/28/2016 | 02/28/2018 | 2/28/2019 | |||||
Expiration of exercise period |
2/28/22 | 2/28/23 | 2/28/24 | 2/28/25 | 2/28/26 | |||||
Exercise price per common share |
R$14.29 | R$14.81 | R$13.15 | R$16.99 | 0 |
The table below sets forth information regarding the outstanding restricted shares granted to our executives as of March 31, 2019:
Grant date |
2/24/2017 | 2/28/2018 |
1/22/2019
|
|||
| | | | | | |
Vested options |
0 | 0 | 0 | |||
Unvested options |
760,177 | 132,236 | 183,286 | |||
Vesting dates and amounts |
92% on 03/01/2020 | 15% on 03/01/2019 | 100% on 01/22/2023 | |||
|
8% 03/01/2021 | 15% on 03/01/2020 | ||||
|
15% on 03/01/2021 | |||||
|
55% on 03/01/2022 | |||||
Expiration of exercise period |
02/24/2025 | 02/28/2026 | 01/22/2027 | |||
Exercise price per common share |
n.a. | n.a. | n.a. |
Long-term Linx Pay Incentive Plan
In order to facilitate the retention of our key executives, as well as to ensure compliance with Linx Pay's business plan, our board of directors, with support of our personnel committee, approved on January 22, 2019, a long-term incentive plan based on differed shares for our management, or the ILP Program.
Towers Watson, a leading compensation consultancy, was contracted to support the personnel committee in building the ILP Program model based on best market practices. The ILP Program has a five-year duration, with restricted shares vesting annually upon Linx Pay's achievement of gross revenue and contribution margin metrics. Pursuant to our ILP Program, restricted shares are subject to a two-year lock-up period after vesting.
If the abovementioned metrics are achieved, our management will be eligible to receive in the aggregate over a five-year period a total of up to 1.2 million shares issued by us. Based on a strike price of the last grant made by us on January 22, 2018 (R$28.31), total compensation under the ILP program corresponds to an aggregate R$34 million. The restricted shares issued under the ILP Program may only vest upon the achievement of the annual metrics established under the program, and will be divided among six of our executives over a five-year period. The first lock-up period will expire in December 2021, while the last lock-up period will expire in December 2025.
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PRINCIPAL AND SELLING SHAREHOLDERS
Principal Shareholders
The following table presents information relating to the beneficial ownership of our common shares by:
in each case, (1) as of , 2019, (2) immediately following the global offering assuming the underwriters' option to purchase additional common shares, including common shares underlying the ADSs, is not exercised and (3) immediately following the global offering assuming the underwriters' option to purchase additional common shares, including additional common shares underlying the ADSs, is exercised.
The number of common shares beneficially owned by each entity, person, executive officer or director is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to acquire within 60 days of , 2019 through the exercise of any option, warrant or other right. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all common shares held by that person.
The percentage of outstanding common shares is computed on the basis of common shares outstanding as of , 2019. Common shares that a person has the right to acquire within 60 days of , 2019 are deemed outstanding for purposes of computing the percentage ownership of the person holding such rights, but are not deemed outstanding for
147
purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership of all executive officers directors as a group.
|
Common Shares
Beneficially Owned Prior to the Global Offering |
Common Shares
Beneficially Owned After the Global Offering Assuming Exercise of the Underwriters' Option |
Common Shares
Beneficially Owned After the Global Offering Assuming no Exercise of the Underwriters' Option |
||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Shareholder |
Number of
Common Shares |
Total
Common Shares (%) (1) |
Number of
Common Shares |
Total
Common Shares (%) (1) |
Number of
Common Shares |
Total
Common Shares (%) (1) |
|||||||||||||
| | | | | | | | | | | | | | | | | | | |
5% Shareholders |
|||||||||||||||||||
Genesis Asset Managers |
14,598,717 | 7.9 | |||||||||||||||||
BNDESPAR |
9,674,601 | 5.3 | |||||||||||||||||
GIC Private Limited |
11,632,779 | 6.3 | |||||||||||||||||
Nércio José Monteiro Fernandes. |
11,261,395 | 6.1 | |||||||||||||||||
Other Shareholders |
|||||||||||||||||||
Other Shareholders. |
119,115,890 | 64.8 | |||||||||||||||||
Executive Officers and Directors |
|||||||||||||||||||
Nércio José Monteiro Fernandes |
11,261,395 | 6.1 | |||||||||||||||||
Alberto Menache (2) |
9,590,806 | 5.2 | |||||||||||||||||
Alon Dayan |
6,933,988 | 3.8 | |||||||||||||||||
João Cox |
16,691 | 0.0 | |||||||||||||||||
Roger de Barbosa Ingold |
13,974 | 0.0 | |||||||||||||||||
Pedro Holmes Monteiro Moreira |
81,074 | 0.0 | |||||||||||||||||
Jean Carlo Klaumann (3) |
229,295 | 0.1 | |||||||||||||||||
Gilsinei Valcir Hansen (4) |
197,441 | 0.1 | |||||||||||||||||
Flávio Mambreu Menezes (5) |
561,109 | 0.3 | |||||||||||||||||
Andelaney Carvalho dos Santos |
0 | 0.0 | |||||||||||||||||
All executive officers and directors as a group (10 persons) |
|||||||||||||||||||
All executive officers and directors as a group (6) |
28,885,773 | 15.7 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total. |
183,907,760 | 100.0 | 100.0 | 100.0 | |||||||||||||||
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Our Corporate Structure
The following diagram sets forth our shareholders and subsidiaries as of the date of this prospectus (before taking into the global offering):
Selling Shareholder
BNDES Participacões S.A. is a Brazilian entity that maintains portfolio investments in several companies, primarily for a limited period of time and as a minority shareholder, in order to strengthen and modernize the Brazilian capital markets.
Founding Block Shareholders' Agreement
As of the date of this prospectus, the founding block shareholders' agreement (as defined below) is currently in effect. As used below, the "founding shareholders" refers to Nércio José Fernandes, Alberto Menache, Alon Dayan and Daniel Mayo. There are certain restrictions on voting rights of members of our board of directors in the founding block shareholders' agreement, based on Article 118, Paragraph 9 of Brazilian Corporate Law.
On July 30, 2014, we entered into a shareholders' agreement with our founding shareholders, or the founding block shareholders' agreement. The founding block shareholders' agreement was amended on September 17, 2018. The founding shareholders agreed to exercise their right to vote at our general meetings, and to have their representatives exercise their right to vote in our interest in accordance with this shareholders agreement. The founding block shareholders will vote in unison. Furthermore, the founding shareholders (other than Daniel Mayo) who would like to assign, transfer, give the capital of another company or promise to sell all or some of their shares, or any rights inherent to them to third parties should communicate his/her intention in writing to other founding shareholders, who (except for Daniel Mayo) will have a preemptive right to acquire such shares, on an equal basis with the other founding block shareholders. Such preemptive right will be exercised in proportion to each of the founding shareholders and prior to any notification pursuant to any other shareholder agreement.
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In the ordinary course of our business, we enter into related-party transactions on an arm's length basis and according to prevailing market terms.
In accordance with the Brazilian Corporate Law and our bylaws in effect as of the date of completion of this offering, decisions with respect to related party transactions are made by our shareholders or our board of directors, as the case may be. No director may participate in deliberations with respect to any transaction in which such director has a conflict of interest with us.
Our Related Party Transaction Policy
Regardless of the amount involved, all transactions between us and those deemed related parties must be carried out on terms and conditions commutative of the market. Any member of the board of directors may request an independent evaluation of any transaction.
In addition, according to the Novo Mercado Regulations, it is required that we include in our interim financial statements an explanatory note on related party transactions, containing the disclosures that are applicable to our annual financial statements.
We have not adopted specific mechanisms to identify conflicts of interest. We apply common corporate governance practices as well as those recommended and/or required by law, including those set forth under the Novo Mercado Regulations, such as the restriction that a shareholder may not vote in general assembly deliberations concerning assets valuation reports which contribute to the calculation of social capital, nor any others that would benefit a shareholder in a particular way, or that would have a conflicting interest with us. A decision taken as a result of a shareholder vote that has a conflicting interest with us is voidable.
Our board of directors, management and audit committee, if established, are consulted in all operational decisions. Thus, all our transactions, especially those occurring with related parties, are duly submitted to our decision-making bodies that are subject to the aforementioned rules. Furthermore, in accordance with the Brazilian Corporate Law, any member of our board of directors is prohibited from voting at any meeting or meeting of the board of directors, or from acting in any transaction or business in which it has interests that conflict with ours. It is generally understood that transactions conducted under a conflict of interest are those that are not conducted under normal market conditions, benefitting the related party and with possibility of causing damage or harm. In particular, article 115 of the Brazilian Corporate Law regulates both shareholders' voting rights at general meetings as well as controlling shareholder liability.
Related Party Transactions
Credit Facilities with BNDES
We and our subsidiaries have entered into several credit facilities with BNDES, an affiliate of our shareholder BNDESPAR. For additional information regarding these credit facilities, including the nature of the credit facilities and the applicable interest rates, see "Management's Discussion and Analysis of Financial Condition and Results of Operations Indebtedness."
For additional information regarding related party transactions between us and our affiliates, see note 9 to our audited historical individual financial statements as of and for the three-month periods ended March 31, 2019 and 2018 and as of and for the years ended December 31, 2018, 2017 and 2016, included elsewhere in this prospectus.
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Set forth below is a brief discussion of certain significant provisions of our bylaws in effect as of the date of completion of this offering, the Brazilian Corporate Law, CVM regulations, and the Novo Mercado Regulations relating to our capital stock, management, periodic information disclosure and other corporate matters. This is a descriptive summary, and therefore may not contain all of the information that may be important to you.
General
We are a Brazilian corporation ( sociedade anônima ) incorporated under the laws of Brazil on January 1, 2004. Our legal name is Linx S.A., and we operate commercially under the name "Linx."
On January 16, 2013, we entered into the Novo Mercado listing agreement with the B3, which came into effect on February 7, 2013, and we became registered as a Novo Mercado company. On the first trading day following the effective date of our listing agreement, our common shares began trading on the B3 under the symbol "LINX3."
Corporate Purpose
Our corporate purposes, as set forth in article 3 of our bylaws include, among others: (1) providing computing infrastructure and hardware services; (2) management and storage of data in cloud computing for consulting; (3) support and software development; (4) software licensing; (5) data processing services; (6) outsourcing IT services and general administrative accounting services, especially those related to corporate incentives, such as mileage cards and gifts; (7) website hosting and development; (8) developing activities related to credit cards, gifts, shopping clubs, mileage cards and similar activities by collecting, transmitting and processing data and settling credit/debit transactions, direct consumer credit ( crédito direto ao consumidor ), or CDC, purchase, withdrawal and other methods of payment; (9) accreditation of legal entities or individuals, suppliers of goods and/or service providers for acceptance of credit/debit cards, CDC, purchase, withdrawal, and other methods of payment; (10) selling, importing and exporting new and used computers, peripheral devices, pieces, software and programs for electronic equipment; (11) equipment leasing; (12) developing individual and commercial computer language courses; (13) selling books and magazines; (14) selling computer supplies; (15) rendering technical support for commercial activities; (16) consulting, support and courses for personnel recruitment and development; (17) providing logistics consulting and services; (18) renting and subletting space for storage of equipment and goods; (19) developing activities that complement or are related to the corporation's activities; (20) managing network maintenance, transmission and reception services, provision of global internet network access, technical support, leasing goods and real property, site hosting services, colocation and data processing; (21) providing telecommunications services such as data, image and sound transmission through various media, including network and circuit services, wireless and any other systems including the internet; import and export services related to telecommunications; (22) providing general administrative services to participating companies; (23) franchising; (24) acting as shareholder in other companies; and (25) representing other companies.
Capital Stock
As of the date of this prospectus, the book value of our capital stock was R$488,829,005.42, consisting of 166,308,960 shares outstanding without par value. Immediately following completion of this offering, we will have common shares outstanding, assuming the underwriters' option to purchase additional common shares, including common shares underlying the ADSs, is not exercised.
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History of Capital Stock
On January 16, 2013, we approved a stock split at a ratio of 2.5 new shares for each existing share.
On February 6, 2013 and February 19, 2013, in connection with our initial public offering, we increased our capital stock by an aggregate R$343,102,500 through the issuance of a total 12,707,500 common shares at a price per share of R$27.00.
On June 14, 2016, our shareholders at an extraordinary shareholders meeting approved the stock split of our common shares at a ratio of 2:1. As a result, our total common shares outstanding totaled 141,207,396.
On September 13, 2016, our board of directors approved our offering of 24,000,000 common shares pursuant to CVM Instruction No. 476. As a result, our total common shares outstanding totaled 165,207,396.
On February 28, 2019, in connection with our Stock Plans, our board of directors approved an increase of our capital stock in the aggregate amount of R$362,025.78 through the issuance of a total 25,578 common shares, of which 8,979 common shares were issued at a price per share of R$15.27 and 16,599 common shares were issued at a price per share of R$13.55.
Between September 2013 and the date of this prospectus, we issued an aggregate of 2,821,574 common shares to satisfy the exercise of options to purchase common shares granted under the Stock Plans.
Rights of Common Shares
Our common shares have 100% tag along rights, a right to vote and a right to capital reimbursement. The mandatory dividend is based on a percentage of adjusted net income in each fiscal year, to be not less than 25%, rather than a fixed amount per share. According to our bylaws in effect as of the date of completion of this offering, at least 25% of our net income for the fiscal year, calculated in accordance with the Brazilian Corporate Law and Brazilian GAAP, should be distributed as a mandatory annual dividend.
In the event of our liquidation, and after payment of all our obligations, our shareholders will receive payments for the repayment of capital in proportion to their respective capital interests. Any dissenting shareholder of certain resolutions passed at our general meeting has a right to withdraw as a shareholder, upon reimbursement of the value of their shares, based on their book value, provided that the situation fits within any of the cases expressly provided for in the Brazilian Corporate Law. The withdrawal right must be exercised within 30 days from the publication of the minutes of the general meeting during which the certain resolutions were passed.
In accordance with the Brazilian Corporate Law, neither our bylaws in effect as of the date of completion of this offering nor actions taken at our general shareholders' meeting may deprive our shareholder of rights to: (1) participate in our profit or to receive one's share in case of our liquidation; (2) oversee our management, convertible debentures or warrants, subject to conditions set out in the Brazilian Corporate Law; (3) preference for subscription of our shares, convertible debentures or warrants, subject to conditions set out in the Brazilian Corporate Law and (4) withdraw as a shareholder, pursuant to the Brazilian Corporate Law.
Shareholders' Meetings
At shareholders' meetings, our shareholders are generally authorized to take any action relating to our corporate purpose and to adopt such resolutions as they may deem necessary. Shareholders at the annual general shareholders' meeting have the exclusive right to approve our
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audited financial statements and to determine the allocation of our net income and the payment of dividends with respect to the prior year.
A special shareholders' meeting may be held at any time, including concurrently with the annual shareholders' meeting. The following actions, among others, may be taken exclusively at a shareholders' meeting:
Under the Brazilian Corporate Law, our bylaws and the listing rules of the Novo Mercado , our shareholders may not limit the following shareholder rights:
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Quorum
As a general rule, the Brazilian Corporate Law provides that a quorum for purposes of a shareholders' meeting shall consist of shareholders representing at least 25% of a company's issued and outstanding voting capital stock on the first call, and if that quorum is not reached, quorum consists of shareholders representing any percentage of our voting capital stock on the second call.
Other than the exceptions provided for in our bylaws, the affirmative vote of shareholders representing at least the majority of our issued and outstanding common shares present in person or represented by a proxy at a shareholders' meeting is required to approve any matter. Abstentions are not taken into account. However, the affirmative vote of shareholders representing at least 50% of our issued and outstanding voting capital is required to approve the following:
In the case of Brazilian publicly held corporations with a significant free float, if the prior shareholders' meetings of the corporation were attended by common shareholders representing less than 50% of its total voting capital stock, the CVM may authorize a reduction of such quorum.
Notice of our shareholders' meetings
Pursuant to the Brazilian Corporate Law, all of our general shareholders' meetings must be called by means of at least three publications in the Official Gazette of the State of São Paulo ( Diário Oficial do Estado de São Paulo ), and in Gazeta de São Paulo. The first notice must be published no later than 15 days before the date of the meeting, and the second, no later than eight days before the date of the meeting.
In addition, under certain circumstances, the CVM may require that the first notice be published 30 days in advance of the shareholders' meeting. The CVM may also, upon the request of any shareholder, suspend for up to 15 days the process of calling for a particular special shareholders' meeting in order to understand and analyze the proposals to be submitted at the
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meeting. In any event, notices of shareholders' meetings must include the place, date, time and the agenda of the meeting and, in certain cases, a detailed description of the matters to be discussed.
Who may call our shareholders' meetings
In addition to our board of directors, shareholders' meetings may also be called by:
Conditions for admission to our shareholders' meetings
Shareholders attending a shareholders' meeting must produce proof of their status as shareholders and proof that they hold the common shares they intend to vote.
A shareholder may be represented at a shareholders' meeting by a proxy appointed less than a year before the meeting. Such proxy must be a shareholder, one of our directors or officers, a lawyer or a financial institution. An investment fund must be represented by its manager or a proxy.
Withdrawal and Redemption Rights
Withdrawal rights
Any of our shareholders who disagree with certain decisions made in a shareholders' meeting have the right to withdraw from our company and receive reimbursement for the value of their shares.
Pursuant to the Brazilian Corporate Law, the right of withdrawal may be exercised under the following circumstances:
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However, under the Brazilian Corporate Law, a spin-off will not trigger withdrawal rights, unless it:
In cases involving (1) our merger into or consolidation with another company, or (2) our participation in a corporate group (as defined in the Brazilian Corporate Law), our shareholders will not be entitled to withdrawal rights if our shares:
The right to withdraw expires 30 days after publication of the minutes of the relevant shareholders' meeting. Additionally, we are entitled to reconsider any action that may give rise to withdrawal rights for ten days after the expiration of this period if we deem that the payment of the redemption amount to the dissenting shareholders would jeopardize our financial stability.
Upon the exercise of withdrawal rights, shareholders are entitled to receive the net worth of their shares, based on our most recent statement of financial position approved by our shareholders. If the resolution giving rise to the withdrawal rights is made later than 60 days after the date of our most recent approved statement of financial position, the shareholder may demand, together with the redemption, that his or her common shares be valued according to a new statement of financial position dated no more than 60 days before the resolution date. In this case, we must immediately pay 80% of the net worth of the shares, calculated on the basis of the most recent statement of financial position approved by our shareholders, and the balance must be paid within 120 days after the date of the resolution of the shareholders' meeting.
Redemption
According to the Brazilian Corporate Law, we may redeem our shares subject to the approval of our shareholders at a special shareholders' meeting, where shareholders representing at least 50% of the shares that would be affected approve it. Redemption can be paid with the company's profits, profit reserves or capital reserve.
Preemptive Rights
Except as described in the paragraph below, our shareholders have a general preemptive right to subscribe to shares in any capital increase in proportion to their shareholding at the time of such capital increase. While our shareholders also have a general preemptive right to subscribe to any debenture convertible into common shares and subscription warrants that we may issue, no preemptive rights apply to actual conversions of debentures, acquisitions of shares resulting from the exercise of subscription warrants and granting of call options and issuance of shares as a result of their exercise. A period of at least 30 days following the publication of the notice of the capital
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increase or issuance of convertible debentures or subscription warrants is allowed for the exercise of the preemptive right. Shareholders may waive their preemptive rights.
However, pursuant to the Brazilian Corporate Law and our bylaws (in effect as of the date of completion of this offering), our board of directors is authorized to exclude preemptive rights or reduce their exercise period with respect to the issuance of new shares, convertible debentures and subscription warrants, up to the limit of the authorized stock capital, if the distribution of those shares, debentures or warrants is effected through a stock exchange, through a public offering or through an exchange of shares in a public offering the purpose of which is to acquire control of another company.
Policy on the Trading of Our Securities by Us and Our Controlling Shareholders, the Members of Our Board of Directors and Our Executive Officers
We are subject to CVM Instruction No. 358 in respect of the securities we issue. We, our direct and indirect controlling shareholders, members of our board of directors, executive officers and members of our fiscal council and members of any technical or advisory body or whomever which, by virtue of its title, duty or position in us, or in our controlling shareholders, controlled companies or companies where we have material influence, have knowledge of a material fact, and any other person who has knowledge of material information and knows it has not been disclosed to the market (including auditors, analysts, underwriters and advisors), are considered insiders, and must abstain from trading our securities, including derivatives based on our securities, prior to the disclosure of such material information to the market.
Such restriction will also apply:
The trading restrictions described in the Trading Policy do not apply to our repurchase of any shares in a private transaction, nor to private transactions involving the exercise of an option to purchase treasury shares in compliance with a stock option plan pre-approved by our shareholders. The trading restrictions apply to us, our controlling shareholders, managers, tax advisors and employees with access to inside information, from the date of their signing the Trading Policy.
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Periodic and Occasional Reporting Requirements
As a publicly listed company, we are subject to the reporting requirements established by the Brazilian Corporate Law and the CVM. Brazilian securities regulations require that a publicly listed corporation provide the CVM and the B3 with certain periodic information that includes annual reports, quarterly financial statements, quarterly management reports and reports by independent auditors. Furthermore, because our shares are listed on the Novo Mercado , we follow the disclosure requirements set forth in the listing rules of the Novo Mercado .
Disclosure of occasional and periodic information
Pursuant to the Brazilian Corporate Law, CVM regulations and the listing rules of the Novo Mercado , public companies are required to disclose to CVM and the B3 the following occasional and periodic information, among others:
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Information the B3 requires from companies listed on the Novo Mercado
In addition to the information required pursuant to applicable legislation, a company with shares listed on the Novo Mercado listing segment of the B3, such as ours, must observe the following additional disclosure requirements, among others:
Disclosure of trading by members of our board of directors, our executive officers and our fiscal council members
According to CVM regulations, our directors, executive officers, members of our fiscal council, as well as members of any of our technical or advisory committees are required to report to us the ownership and trading of our shares or the shares of any publicly held company that we control or are controlled by, or entities closely related to them. If the person is an individual, the communication must include the shares held by his or her spouse, partner or dependent that is included in his or her Brazilian tax return and any company directly or indirectly controlled by any of these persons. Such communication must include the following information:
This information must be sent (1) on the first business day after the appointment of the director, officer or member for his or her position, (2) when the publicly-held company registration is submitted to the authorities and (3) within five days after each transaction.
We must provide such information to the CVM and, if applicable, to the stock exchanges and organized over-the-counter exchanges where our securities are listed within 10 days after the end of each month in which any change in ownership occurred or after the end of each month in which they changed position or the date they take office.
This information must be delivered individually and in consolidated form by each category of persons indicated therein and the consolidated information will be available from the CVM in electronic form.
Our investor relations officer is responsible for the transmission of information received by us to the CVM and, if applicable, to the stock exchanges and organized over-the-counter exchanges where our securities are listed.
Pursuant to CVM Instruction No. 358, whenever there is an increase or reduction of multiples of 5% in the ownership of any type of shares forming our capital stock by any shareholder or group of shareholders, including with respect to equity derivative instruments related to such shares,
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whether directly or indirectly, that shareholder or group of shareholders must disclose the following information to us: (1) the name and credentials of the person acquiring the shares; (2) the target of the acquisition of the ownership interest and the quantity of shares intended to be acquired, including, if relevant, a declaration that the transaction is not intended to effect a change the composition of our Company's control or administrative structure; (3) the number of shares and other securities and/or derivatives referenced in the shares (with physical or financial settlement); (4) reference to any agreement or contract regulating the exercise of voting rights or the purchase and sale of our securities and (5) in the case of foreign shareholders, the name and Brazilian tax file number of their representative in Brazil. Moreover, we are required to send this information to the CVM and the B3 and update our Brazilian reference form ( formulário de referência ) accordingly.
Disclosure of material developments
We have a policy on disclosure of material information, or our disclosure policy, established pursuant to CVM Instruction No. 358 and approved during the meeting of our board of directors held on August 8, 2014. Our policy aims to establish the rules to be observed by our investor relations officer and other related parties regarding the dissemination of material information and the maintenance of confidentiality for information that has not been disclosed to the public.
Our disclosure policy aims to set high standards of conduct and transparency that should be observed both by our investor relations officer and other related parties identified by the disclosure policy. Our investor relations officer is primarily responsible for communication and dissemination of material information and the implementation and monitoring of our disclosure policy.
CVM Rule No. 358 defines the disclosure and use of information requirements about material acts or facts concerning publicly traded companies, including the following:
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Under the terms of CVM Rule No. 358, we may, under exceptional circumstances, submit a request for confidential treatment to the CVM concerning a material act or fact when our controlling shareholder or management considers such disclosure to be prejudicial to a legitimate interest of ours.
Going Private Process
We may become a private company if we or, if applicable, our controlling shareholder conduct a public tender offer for the acquisition of all of our outstanding shares provided that:
The Brazilian Corporate Law defines "fair price" as the price determined by the net book value, economic value or trading price of our common shares, or by the cash flow method, comparison of multiples method or some other criteria accepted by the CVM.
For companies listed on the Novo Mercado , the offering price must be at least equal to the economic value of our shares, as determined by a valuation report prepared by a specialized institution of recognized expertise agreed upon at a general meeting of our shareholders.
Pursuant to the Brazilian Corporate Law, the offering price may be reviewed if holders of at least 10% of our common shares request our board of directors to call an extraordinary shareholders' meeting to determine whether to perform another valuation, according to the same or another criteria, to determine the value of our common shares. The request must be duly justified and submitted within 15 days from the disclosure of the offering price. Shareholders requesting a new appraisal, and those voting in favor of such a proposal, are responsible for the expenses incurred if the newly appraised value is lower than or equal to the initially appraised offering price. If the new valuation price is higher than the original valuation price, the public offering shall be made at the new valuation price or be cancelled.
Delisting from the Novo Mercado
We may, at any time following a decision of our controlling shareholder, if applicable, delist our shares from the Novo Mercado . In order for our shares to continue to be traded on the B3 (rather than the Novo Mercado ), our controlling shareholder must launch a tender offer for all of our shares in compliance with the terms and conditions set forth under CVM Instruction No. 361 and the listing rules of the Novo Mercado , including those that stipulate that:
The delisting from the Novo Mercado does not imply the cancellation of the trading of our shares on the B3. Where delisting occurs due to the cancellation of our publicly held company
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registration, a controlling shareholder must follow the requirements applicable to the cancellation of such registration.
Where delisting from the Novo Mercado occurs as a result of noncompliance with the obligations contained in the listing rules of the Novo Mercado , a public tender offer following the same procedures as set forth above must be commenced.
In the event of a corporate restructuring involving a transfer of our shareholding base, the resulting companies must list on the Novo Mercado within 120 days of the general meeting approving the corporate restructuring. Should the resulting companies not wish to list on the Novo Mercado , the restructuring must be approved by the majority of our outstanding shareholders.
Arbitration
Pursuant to the listing rules of the Novo Mercado , Article 44 of our bylaws contains the entirety of the Novo Mercado's requirements relating to mandatory arbitration. Specifically, Article 44 of our bylaws and the Novo Mercado's listing rules provide that our Company, shareholders, executive officers, directors and members of our fiscal council are required to resolve disputes through arbitration proceedings before the Chamber of Market Arbitration ( Câmara de Arbitragem do Mercado ) any disputes or controversies, including those related to or arising out of the status of issuer, shareholder, executive officer, director or fiscal council member, and, especially arising from the provisions of Law 6,385/76, Law 6,404/76, our bylaws, the rules published by the Central Bank, the CVM and other rules applicable to the Brazilian capital markets in general, as well as those set forth under the listing rules of the Novo Mercado and B3 regulations.
The abovementioned mandatory arbitration provision does not impact the rights of the holders of ADSs to pursue claims under the federal securities laws of the United States.
Change of Control
The listing rules of the Novo Mercado provide that a change of our control resulting from a transaction or a series of transactions is subject to the condition that a mandatory tender offer for all of our shares is launched by the acquirer. The tender offer must bear the same terms and conditions of the transaction effecting the change of control and must comply with the terms and conditions under applicable law and the listing rules of the Novo Mercado .
In the event of an indirect change of control, the acquirer must disclose the value assigned to our company for the purpose of defining the price of the tender offer, as well as the assumptions and calculations underlying such valuation.
Annual Calendar
Pursuant to the Novo Mercado regulations, we must, by December 10 of each year, publicly disclose and send to the B3 an annual calendar with a schedule of our corporate events. Any subsequent modification to such schedule must be immediately and publicly disclosed and sent to the B3.
Principal Differences between Brazilian and U.S. Corporate Governance Practices
The Sarbanes-Oxley Act, as well as related rules subsequently implemented by the SEC, require foreign private issuers, such as us, to comply with various corporate governance practices. In addition, following the listing of the ADSs on the NYSE, we will be required to comply with the listing rules of the NYSE, or NYSE rules.
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NYSE rules include certain accommodations to corporate governance requirements that allow foreign private issuers, such as us, to follow "home country" corporate governance practices in lieu of the otherwise applicable corporate governance standards of the NYSE. Under NYSE rules, we are required to:
A summary of the significant differences between our corporate governance practices and those required of U.S. listed companies is included below.
Majority of Independent Directors
NYSE rules require that a majority of the board of a listed company consist of independent directors. Independence is defined by various criteria, including the absence of a material relationship between the director and the listed company. Under the B3 listing rules, our board of directors must be composed of a minimum of two independent directors or a minimum of 20% of our total directors must be independent, whichever is greater. Additionally, pursuant to the Brazilian Corporate Law and CVM regulations, our directors are required to meet certain qualification requirements that address their compensation, duties and responsibilities. While our directors meet the qualification requirements of the Brazilian Corporate Law and CVM regulations, we do not believe that a majority of our directors would be considered independent under the NYSE rules test for director independence.
Executive Sessions
NYSE rules require that independent directors must meet at regularly scheduled executive sessions. The Brazilian Corporate Law does not have a similar provision.
Nominating/corporate governance committee and compensation committee
NYSE rules require that listed companies maintain a nominating/corporate governance committee and a compensation committee comprising entirely independent directors and governed by a written charter addressing each committee's required purpose and detailing its required responsibilities. The responsibilities of the nominating/corporate governance committee include, among other matters, identifying and selecting qualified board member nominees and developing a set of applicable corporate governance principles. The responsibilities of the compensation committee, in turn, include, among other matters, reviewing corporate goals relevant to the chief executive officer's compensation, evaluating the chief executive officer's performance, approving the chief executive officer's compensation levels and recommending to the board compensation of other executive officers, incentive compensation and equity-based compensation plans.
Pursuant to the Brazilian Corporate Law, we are not required to maintain a nominating committee, corporate governance committee or a compensation committee. Aggregate compensation for our directors and executive officers is established by our shareholders at annual shareholders' meetings. The allocation of aggregate compensation among our directors and executive officers is determined by our directors at board of director meetings. The Brazilian
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Corporate Law and CVM regulations establish rules in relation to certain qualification requirements and restrictions, compensation, duties and responsibilities of a company's executives and directors.
Audit Committee and Audit Committee Additional Requirements
Under Section 303A.06 of the NYSE listing rules and the requirements of Rule 10A-3 under the Exchange Act, each U.S. listed company is required to have an audit committee consisting entirely of independent members that comply with the requirements of Rule 10A-3. In addition, the audit committee must have a written charter compliant with the requirements of Section 303A.07(b) of the NYSE listing rules, the listed company must have an internal audit function and the listed company must fulfill all other requirements of the NYSE and Rule 10A-3. The SEC has recognized that, for foreign private issuers, local legislation may delegate some of the functions of the audit committee to other advisory bodies. We have established a statutory audit committee as approved at the annual shareholders' meeting of April 24, 2019. Our statutory audit committee meets the requirements for the exemption available to foreign private issuers under paragraph (c)(3) of Rule 10A-3 under the Exchange Act. The statutory audit committee is not the equivalent of, or wholly comparable to, a U.S. audit committee. Among other differences, it is not required to meet the standards of "independence" established in Rule 10A-3 and is not fully empowered to act on all the matters that are required by Rule 10A-3 to be within the scope of an audit committee's authority. See, "Management Executive Committees Statutory Audit Committee."
Shareholder Approval of Equity Compensation Plans
NYSE rules provide for limited exceptions to the requirement that shareholders be given the opportunity to vote on all equity compensation plans and material revisions to those plans (which may be approved for an undefined period). In contrast, pursuant to the Brazilian Corporate Law, all stock option plans must be submitted for approval by the holders of our common shares.
Corporate Governance Guidelines
NYSE rules require that listed companies adopt and disclose corporate governance guidelines. We comply with the corporate governance guidelines under applicable Brazilian law and the Novo Mercado listing rules. We believe the corporate governance guidelines applicable to us under Brazilian law are consistent with the NYSE rules. We have adopted and observe policies that deal with the public disclosure of all relevant information and which requires management to disclose all transactions relating to our securities as per CVM's regulations and the Novo Mercado listing rules.
Internal Audit Function
NYSE rules require that listed companies maintain an internal audit function to provide management and the audit committee with ongoing assessments of the company's risk management processes and system of internal control.
The Novo Mercado listing rules provide that the listed companies are required to have an audit department whose activities are reported to our board of directors, and which among other matters, is responsible for assessing the quality and effectiveness of our risk management processes.
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DESCRIPTION OF AMERICAN DEPOSITARY SHARES
American Depositary Shares
The Bank of New York Mellon, as depositary, will register and deliver American Depositary Shares, also referred to as ADSs. Each ADS will represent share (or a right to receive share) deposited with Itaú Unibanco S.A., as custodian for the depositary in Brazil. Each ADS will also represent any other securities, cash or other property which may be held by the depositary. The deposited shares together with any other securities, cash or other property held by the depositary are referred to as the deposited securities. The depositary's office at which the ADSs will be administered and its principal executive office are located at 240 Greenwich Street, New York, New York 10286.
You may hold ADSs either (A) directly (i) by having an American Depositary Receipt, also referred to as an ADR, which is a certificate evidencing a specific number of ADSs, registered in your name, or (ii) by having uncertificated ADSs registered in your name, or (B) indirectly by holding a security entitlement in ADSs through your broker or other financial institution that is a direct or indirect participant in The Depository Trust Company, also called DTC. If you hold ADSs directly, you are a registered ADS holder, also referred to as an ADS holder. This description assumes you are an ADS holder. If you hold the ADSs indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of ADS holders described in this section. You should consult with your broker or financial institution to find out what those procedures are.
Registered holders of uncertificated ADSs will receive statements from the depositary confirming their holdings.
As an ADS holder, we will not treat you as one of our shareholders and you will not have shareholder rights. Brazilian law governs shareholder rights. The depositary will be the holder of the shares underlying your ADSs. As a registered holder of ADSs, you will have ADS holder rights. A deposit agreement among us, the depositary, ADS holders and all other persons indirectly or beneficially holding ADSs sets out ADS holder rights as well as the rights and obligations of the depositary. New York law governs the deposit agreement and the ADSs.
The following is a summary of the material provisions of the deposit agreement. For more complete information, you should read the entire deposit agreement and the form of ADR. Directions on how to obtain copies of those documents are provided in "Where You Can Find More Information."
Dividends and Other Distributions
How will you receive dividends and other distributions on the shares?
The depositary has agreed to pay or distribute to ADS holders the cash dividends or other distributions it or the custodian receives on shares or other deposited securities, upon payment or deduction of its fees and expenses. You will receive these distributions in proportion to the number of shares your ADSs represent.
Cash. The depositary will convert any cash dividend or other cash distribution we pay on the shares into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. If that is not possible or if any government approval is needed and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADS holders to whom it is possible to do so. It will hold the foreign currency it cannot convert for the account of the ADS holders who have not been paid. It will not invest the foreign currency and it will not be liable for any interest.
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Before making a distribution, any withholding taxes, or other governmental charges that must be paid will be deducted. See "Dividends and Dividend Policy." The depositary will distribute only whole U.S. dollars and cents and will round fractional cents to the nearest whole cent. If the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency, you may lose some of the value of the distribution.
Shares. The depositary may distribute additional ADSs representing any shares we distribute as a dividend or free distribution. The depositary will only distribute whole ADSs. It will sell shares which would require it to deliver a fraction of an ADS (or ADSs representing those shares) and distribute the net proceeds in the same way as it does with cash. If the depositary does not distribute additional ADSs, the outstanding ADSs will also represent the new shares. The depositary may sell a portion of the distributed shares (or ADSs representing those shares) sufficient to pay its fees and expenses in connection with that distribution.
Rights to purchase additional shares. If we offer holders of our securities any rights to subscribe for additional shares or any other rights, the depositary may (i) exercise those rights on behalf of ADS holders, (ii) distribute those rights to ADS holders or (iii) sell those rights and distribute the net proceeds to ADS holders, in each case after deduction or upon payment of its fees and expenses. To the extent the depositary does not do any of those things, it will allow the rights to lapse. In that case, you will receive no value for them. The depositary will exercise or distribute rights only if we ask it to and provide satisfactory assurances to the depositary that it is legal to do so. If the depositary will exercise rights, it will purchase the securities to which the rights relate and distribute those securities or, in the case of shares, new ADSs representing the new shares, to subscribing ADS holders, but only if ADS holders have paid the exercise price to the depositary. U.S. securities laws may restrict the ability of the depositary to distribute rights or ADSs or other securities issued on exercise of rights to all or certain ADS holders, and the securities distributed may be subject to restrictions on transfer.
Other Distributions. The depositary will send to ADS holders anything else we distribute on deposited securities by any means it thinks is legal, fair and practical. If it cannot make the distribution in that way, the depositary has a choice. It may decide to sell what we distributed and distribute the net proceeds, in the same way as it does with cash. Or, it may decide to hold what we distributed, in which case ADSs will also represent the newly distributed property. However, the depositary is not required to distribute any securities (other than ADSs) to ADS holders unless it receives satisfactory evidence from us that it is legal to make that distribution. The depositary may sell a portion of the distributed securities or property sufficient to pay its fees and expenses in connection with that distribution. U.S. securities laws may restrict the ability of the depositary to distribute securities to all or certain ADS holders, and the securities distributed may be subject to restrictions on transfer.
The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. We have no obligation to register ADSs, shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of ADSs, shares, rights or anything else to ADS holders. This means that you may not receive the distributions we make on our shares or any value for them if it is illegal or impractical for us to make them available to you .
Deposit, Withdrawal and Cancellation
How are ADSs issued?
The depositary will deliver ADSs if you or your broker deposits shares or evidence of rights to receive shares with the custodian. Upon payment of its fees and expenses and of any taxes or
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charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of ADSs in the names you request and will deliver the ADSs to or upon the order of the person or persons that made the deposit.
How can ADS holders withdraw the deposited securities?
You may surrender your ADSs to the depositary for the purpose of withdrawal. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the shares and any other deposited securities underlying the ADSs to the ADS holder or a person the ADS holder designates at the office of the custodian. Or, at your request, risk and expense, the depositary will deliver the deposited securities at its office, if feasible. However, the depositary is not required to accept surrender of ADSs to the extent it would require delivery of a fraction of a deposited share or other security. The depositary may charge you a fee and its expenses for instructing the custodian regarding delivery of deposited securities.
How do ADS holders interchange between certificated ADSs and uncertificated ADSs?
You may surrender your ADR to the depositary for the purpose of exchanging your ADR for uncertificated ADSs. The depositary will cancel that ADR and will send to the ADS holder a statement confirming that the ADS holder is the registered holder of uncertificated ADSs. Upon receipt by the depositary of a proper instruction from a registered holder of uncertificated ADSs requesting the exchange of uncertificated ADSs for certificated ADSs, the depositary will execute and deliver to the ADS holder an ADR evidencing those ADSs.
Voting Rights
How do you vote?
ADS holders may instruct the depositary how to vote the number of deposited shares their ADSs represent. If we request the depositary to solicit your voting instructions (and we are not required to do so), the depositary will notify you of a shareholders' meeting and send or make voting materials available to you. Those materials will describe the matters to be voted on and explain how ADS holders may instruct the depositary how to vote. For instructions to be valid, they must reach the depositary by a date set by the depositary. The depositary will try, as far as practical, subject to the laws of Brazil and the provisions of our articles of association or similar documents, to vote or to have its agents vote the shares or other deposited securities as instructed by ADS holders. If we do not request the depositary to solicit your voting instructions, you can still send voting instructions, and, in that case, the depositary may try to vote as you instruct, but it is not required to do so.
Except by instructing the depositary as described above, you won't be able to exercise voting rights unless you surrender your ADSs and withdraw the shares. However, you may not know about the meeting enough in advance to withdraw the shares. In any event, the depositary will not exercise any discretion in voting deposited securities and it will only vote or attempt to vote as instructed.
We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise voting rights and there may be nothing you can do if your shares are not voted as you requested.
In order to give you a reasonable opportunity to instruct the depositary as to the exercise of voting rights relating to Deposited Securities, if we request the Depositary to act, we agree to give
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the depositary notice of any such meeting and details concerning the matters to be voted upon at least 30 days in advance of the meeting date.
Fees and Expenses
Persons depositing or withdrawing shares
or ADS holders must pay: |
For:
|
|
| | |
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property | |
|
|
Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates |
$.05 (or less) per ADS |
|
Any cash distribution to ADS holders |
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs |
|
Distribution of securities distributed to holders of deposited securities (including rights) that are distributed by the depositary to ADS holders |
$.05 (or less) per ADS per calendar year |
|
Depositary services |
Registration or transfer fees |
|
Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares |
Expenses of the depositary |
|
Cable and facsimile transmissions (when expressly provided in the deposit agreement) |
|
|
Converting foreign currency to U.S. dollars |
Taxes and other governmental charges the depositary or the custodian has to pay on any ADSs or shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes |
|
As necessary |
Any charges incurred by the depositary or its agents for servicing the deposited securities |
|
As necessary |
The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may collect any of its fees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to pay those fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance of the ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performing its duties under the deposit agreement, the depositary
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may use brokers, dealers, foreign currency dealers or other service providers that are owned by or affiliated with the depositary and that may earn or share fees, spreads or commissions.
The depositary may convert currency itself or through any of its affiliates and, in those cases, acts as principal for its own account and not as agent, advisor, broker or fiduciary on behalf of any other person and earns revenue, including, without limitation, transaction spreads, that it will retain for its own account. The revenue is based on, among other things, the difference between the exchange rate assigned to the currency conversion made under the deposit agreement and the rate that the depositary or its affiliate receives when buying or selling foreign currency for its own account. The depositary makes no representation that the exchange rate used or obtained in any currency conversion under the deposit agreement will be the most favorable rate that could be obtained at the time or that the method by which that rate will be determined will be the most favorable to ADS holders, subject to the depositary's obligations under the deposit agreement. The methodology used to determine exchange rates used in currency conversions is available upon request.
Payment of Taxes
You will be responsible for any taxes or other governmental charges payable on your ADSs or on the deposited securities represented by any of your ADSs. The depositary may refuse to register any transfer of your ADSs or allow you to withdraw the deposited securities represented by your ADSs until those taxes or other charges are paid. It may apply payments owed to you or sell deposited securities represented by your American Depositary Shares to pay any taxes owed and you will remain liable for any deficiency. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to ADS holders any proceeds, or send to ADS holders any property, remaining after it has paid the taxes.
Tender and Exchange Offers; Redemption, Replacement or Cancellation of Deposited Securities
The depositary will not tender deposited securities in any voluntary tender or exchange offer unless instructed to do by an ADS holder surrendering ADSs and subject to any conditions or procedures the depositary may establish.
If deposited securities are redeemed for cash in a transaction that is mandatory for the depositary as a holder of deposited securities, the depositary will call for surrender of a corresponding number of ADSs and distribute the net redemption money to the holders of called ADSs upon surrender of those ADSs.
If there is any change in the deposited securities such as a sub-division, combination or other reclassification, or any merger, consolidation, recapitalization or reorganization affecting the issuer of deposited securities in which the depositary receives new securities in exchange for or in lieu of the old deposited securities, the depositary will hold those replacement securities as deposited securities under the deposit agreement. However, if the depositary decides it would not be lawful and practical to hold the replacement securities because those securities could not be distributed to ADS holders or for any other reason, the depositary may instead sell the replacement securities and distribute the net proceeds upon surrender of the ADSs.
If there is a replacement of the deposited securities and the depositary will continue to hold the replacement securities, the depositary may distribute new ADSs representing the new deposited securities or ask you to surrender your outstanding ADRs in exchange for new ADRs identifying the new deposited securities.
If there are no deposited securities underlying ADSs, including if the deposited securities are cancelled, or if the deposited securities underlying ADSs have become apparently worthless, the
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depositary may call for surrender or of those ADSs or cancel those ADSs upon notice to the ADS holders.
Amendment and Termination
How may the deposit agreement be amended?
We may agree with the depositary to amend the deposit agreement and the ADRs without your consent for any reason. If an amendment adds or increases fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or similar items, or prejudices a substantial right of ADS holders, it will not become effective for outstanding ADSs until 30 days after the depositary notifies ADS holders of the amendment. At the time an amendment becomes effective, you are considered, by continuing to hold your ADSs, to agree to the amendment and to be bound by the ADRs and the deposit agreement as amended .
How may the deposit agreement be terminated?
The depositary will initiate termination of the deposit agreement if we instruct it to do so. The depositary may initiate termination of the deposit agreement if
The depositary may also terminate the deposit agreement on 15 days' notice if it is facing potential liability because we have failed to comply with an information request from Brazilian regulators.
If the deposit agreement will terminate, the depositary will notify ADS holders at least 90 days before the termination date. At any time after the termination date, the depositary may sell the deposited securities. After that, the depositary will hold the money it received on the sale, as well as any other cash it is holding under the deposit agreement, unsegregated and without liability for interest, for the pro rata benefit of the ADS holders that have not surrendered their ADSs. Normally, the depositary will sell as soon as practicable after the termination date.
After the termination date and before the depositary sells, ADS holders can still surrender their ADSs and receive delivery of deposited securities, except that the depositary may refuse to accept a surrender for the purpose of withdrawing deposited securities or reverse previously accepted surrenders of that kind if it would interfere with the selling process. The depositary may refuse to accept a surrender for the purpose of withdrawing sale proceeds until all the deposited securities have been sold. The depositary will continue to collect distributions on deposited securities, but , after the termination date, the depositary is not required to register any transfer of ADSs or distribute any dividends or other distributions on deposited securities to the ADSs holder (until they
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surrender their ADSs) or give any notices or perform any other duties under the deposit agreement except as described in this paragraph.
Limitations on Obligations and Liability
Limits on our Obligations and the Obligations of the Depositary; Limits on Liability to Holders of ADSs
The deposit agreement expressly limits our obligations and the obligations of the depositary. It also limits our liability and the liability of the depositary. We and the depositary:
In the deposit agreement, we and the depositary agree to indemnify each other under certain circumstances.
Requirements for Depositary Actions
Before the depositary will deliver or register a transfer of ADSs, make a distribution on ADSs, or permit withdrawal of shares, the depositary may require:
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The depositary may refuse to deliver ADSs or register transfers of ADSs when the transfer books of the depositary or our transfer books are closed or at any time if the depositary or we think it advisable to do so.
Your Right to Receive the Shares Underlying your ADSs
ADS holders have the right to cancel their ADSs and withdraw the underlying shares at any time except:
This right of withdrawal may not be limited by any other provision of the deposit agreement.
Direct Registration System
In the deposit agreement, all parties to the deposit agreement acknowledge that the Direct Registration System, also referred to as DRS, and Profile Modification System, also referred to as Profile, will apply to the ADSs. DRS is a system administered by DTC that facilitates interchange between registered holding of uncertificated ADSs and holding of security entitlements in ADSs through DTC and a DTC participant. Profile is a feature of DRS that allows a DTC participant, claiming to act on behalf of a registered holder of uncertificated ADSs, to direct the depositary to register a transfer of those ADSs to DTC or its nominee and to deliver those ADSs to the DTC account of that DTC participant without receipt by the depositary of prior authorization from the ADS holder to register that transfer.
In connection with and in accordance with the arrangements and procedures relating to DRS/Profile, the parties to the deposit agreement understand that the depositary will not determine whether the DTC participant that is claiming to be acting on behalf of an ADS holder in requesting registration of transfer and delivery as described in the paragraph above has the actual authority to act on behalf of the ADS holder (notwithstanding any requirements under the Uniform Commercial Code). In the deposit agreement, the parties agree that the depositary's reliance on and compliance with instructions received by the depositary through the DRS/Profile system and in accordance with the deposit agreement will not constitute negligence or bad faith on the part of the depositary.
Shareholder communications; inspection of register of holders of ADSs
The depositary will make available for your inspection at its office all communications that it receives from us as a holder of deposited securities that we make generally available to holders of deposited securities. The depositary will send you copies of those communications or otherwise make those communications available to you if we ask it to. You have a right to inspect the register of holders of ADSs, but not for the purpose of contacting those holders about a matter unrelated to our business or the ADSs.
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Jury Trial Waiver
The deposit agreement provides that, to the extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws. If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable in the facts and circumstances of that case in accordance with applicable case law. Notwithstanding the foregoing, ADS holders will not be deemed to have waived our or the depositary's compliance with the U.S. federal securities laws and the rules and regulations promulgated thereunder.
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COMMON SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the ADSs. Each ADS will represent common shares. The principal trading market for our common shares is the B3, which are listed on the B3 under the symbol "LINX3." Future sales of substantial amounts of our common shares, including common shares underlying the ADSs and common shares issued upon the exercise of outstanding options, in the public market after this offering, or the possibility of these sales occurring, could adversely affect the prevailing market price for ADSs and our common shares or impair our ability to raise equity capital.
Upon the closing of the global offering, we will have outstanding common shares, which include common shares represented by ADSs, assuming no exercise by the underwriters of their option to purchase additional common shares, including common shares underlying the ADSs.
Of the ADSs to be outstanding immediately after the closing of this offering, we expect that the ADSs to be sold in the international offering will be freely tradable without restriction under the Securities Act unless purchased by our "affiliates," as that term is defined in Rule 144 under the Securities Act. The remaining common shares outstanding after this offering will be "restricted securities" under Rule 144, and we expect that substantially all of these restricted securities will be subject to the 90-day lock-up period under the lock-up agreements as described below.
These restricted securities may be sold in the public market only if registered or pursuant to an exemption from registration, such as Rule 144 and Rule 701 under the Securities Act.
Lock-up Agreements
We have agreed with the underwriters, subject to certain exceptions, not to issue, offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any of our common stock or ADSs or any securities convertible into or exchangeable or exercisable for any of our common stock and ADSs during the 90 day period after the date of this offering. Our directors and executive officers and certain relevant equity holders have agreed to substantially similar lock up provisions, subject to certain exceptions. See "Underwriting."
Rule 144
In general, under Rule 144, beginning 90 days after the date of this prospectus, any person who is not our affiliate and has held their securities for at least six months, including the holding period of any prior owner other than one of our affiliates, may sell securities without restriction, subject to the availability of current public information about us. In addition, under Rule 144, any person who is not our affiliate and has not been our affiliate at any time during the preceding three months and has held their securities for at least one year, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell an unlimited number of shares immediately upon the closing of this offering without regard to whether current public information about us is available.
Beginning 90 days after the date of this prospectus, a person who is our affiliate or who was our affiliate at any time during the preceding three months may sell any unrestricted securities, as well as restricted securities that the person has beneficially owned for at least six months, including the holding period of any prior owner other than one of our affiliates, under Rule 144. Affiliates selling restricted or unrestricted securities may sell a number of securities within any three-month period that does not exceed the greater of:
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Sales under Rule 144 by our affiliates are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.
Rule 701
Beginning 90 days after the date of this prospectus, persons other than affiliates who purchased our common shares under a written compensatory plan or other written agreement executed prior to the completion of this offering may be entitled to sell such shares in the United States in reliance on Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell these shares in reliance on Rule 144 subject only to its manner-of-sale requirements. However, the Rule 701 shares would remain subject to lock-up arrangements and would only become eligible for sale when the lock-up period expires.
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The following summary contains a description of the material Brazilian and U.S. federal income tax consequences of the acquisition, ownership and disposition of common shares and ADSs. The summary is based upon the tax laws of Brazil and regulations thereunder and on the tax laws of the United States and regulations thereunder as of the date of this prospectus, which are subject to change.
Although there is at present no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may culminate in such a treaty. No assurance can be given, however, as to whether or when a treaty will enter into force or how it will affect the U.S. Holders (as defined below) of common shares or ADSs. Prospective holders of common shares or ADSs should consult their own tax advisors as to the tax consequences of the acquisition, ownership and disposition of common shares or ADSs in their particular circumstances.
Material Brazilian Tax Considerations
The following discussion summarizes the main Brazilian tax consequences of the acquisition, ownership and disposition of common shares and ADSs by an individual, entity, trust or organization that is not domiciled or resident in Brazil for purposes of Brazilian taxation, or a Non-Resident Holder. The following is a general discussion and, therefore, it does not specifically address all of the Brazilian tax considerations applicable to any particular Non-Resident Holder. It is based upon the tax laws and regulations of Brazil as in effect on the date of this prospectus, which are subject to change, possibly with retroactive effect, and to differing interpretations. Any change to the legislation may change the consequences described below. Each prospective purchaser is urged to consult its own tax advisor about the particular Brazilian tax consequences to it of an investment in our common shares or ADSs.
The tax consequences described below do not take into account tax treaties entered into by Brazil and other countries. The summary below does not address any tax consequences under the tax laws of any state or locality of Brazil.
Income Tax
Dividends
Dividends paid by a Brazilian corporation, such as ourselves, including stock dividends and other dividends paid to a Non-Resident Holder of common shares, are currently not subject to withholding income tax in Brazil to the extent that these amounts are related to profits generated on or after January 1, 1996. Dividends paid from profits generated prior to January 1, 1996 may be subject to Brazilian withholding income tax at varying rates, according to the tax legislation applicable to each corresponding year.
Notwithstanding the foregoing, it should be noted that Brazilian GAAP was subject to changes in the end of 2007 (effective as of 2008) in order to conform to IFRS accounting standards. However, until January 1, 2015, the Brazilian companies were still required to adopt, for tax purposes, the accounting rules and criteria that were effective on December 31, 2007, or the old Brazilian GAAP, pursuant to a transitory tax regime ( regime tributário de transição ), or RTT. Law No. 12,973 of May 13, 2014, as amended, or Law No. 12,973/14, extinguished the RTT and approved new rules aimed at permanently aligning the Brazilian tax system with IFRS as of January 1, 2015, including with respect to dividend distributions. For the 2014 fiscal year, the taxpayers were entitled to elect to adopt the new rules or to adopt the RTT.
Under the RTT, there was controversy on how tax authorities would view certain situations, including whether dividends should be calculated in accordance with the IFRS rules or the old
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Brazilian GAAP. It was debatable whether any dividend distributions made in accordance with IFRS rules in excess of the amount that could have been distributed had the profits been ascertained based on the old Brazilian GAAP would be taxable income. In view of such controversy, Law No. 12,973/14 expressly determines that dividends calculated in accordance with the IFRS rules based on profits ascertained between January 1, 2008 and December 31, 2013 should not be subject to taxation.
Notwithstanding the provisions of Law No. 12,973/14, Brazilian tax authorities issued Normative Ruling No. 1,492, of September 17, 2014, which provides that dividend distributions supported by IFRS profits ascertained in the year 2014 that exceed the amount resulting from the adoption of the old Brazilian GAAP should be subject to taxation. However, this rule would only apply to taxpayers that have not elected to account for the effects of Law No. 12,973/14 (i.e., taxation based on IFRS rules) for the 2014 fiscal year.
Despite our belief that the tax exemption on dividends applies to dividends distributed by Brazilian companies out of profits ascertained in accordance with IFRS principles, if the provisions of Normative Ruling No. 1,492/14 are applicable, dividends ascertained in the fiscal year of 2014 based on IFRS that exceed the amount that would result from the adoption of the old Brazilian GAAP could be subject to withholding income tax at the rate of 15%, or 25% if the Non-Resident Holder is domiciled in a country or other jurisdiction (1) that does not impose income tax, (2) where the maximum income tax rate is lower than 20.0% or 17%, as the case may be, or (3) where the applicable local laws impose restrictions on the disclosure of the shareholding composition or the ownership of investments ("Low or Nil Tax Jurisdiction"). See "Discussion on Low or Nil Tax Jurisdictions."
There can be no assurance that the current tax exemption on dividends distributed by Brazilian companies will continue in the future. If this tax exemption does not apply, it could have an adverse impact on Non-Resident Holders.
Interest Attributable to Shareholders' Equity
Law No. 9,249, dated December 26, 1995, as amended, allows a Brazilian corporation, such as ourselves, to make distributions to shareholders of interest on equity and treat those payments as deductible expense, for purposes of calculating Brazilian corporate income tax and social contribution on net profits as long as the limits described below are observed. These distributions may be paid in cash. For tax purposes, this interest is limited to the daily pro rata variation of the TJLP as determined by the Central Bank from time to time, and the amount of the deduction may not exceed the greater of:
Payment of interest on equity to a Non-Resident Holder is subject to withholding income tax at the rate of 15%, or 25% if the Non-Resident Holder is domiciled in a Low or Nil Tax Jurisdiction.
These payments may be included, at their net value, as part of any mandatory dividend. To the extent payment of interest on equity is so included, the corporation is required to distribute to shareholders an additional amount to ensure that the net amount received by them, after payment of the applicable Brazilian withholding income tax, plus the amount of declared dividends is at least equal to the mandatory dividend.
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Distributions of interest on equity to Non-Resident Holders may be converted into U.S. dollars and remitted outside Brazil, subject to applicable exchange controls, to the extent that the investment is registered with the Central Bank.
Capital Gains
According to Article 26 of Law No. 10,833, dated December 29, 2003, as amended, gains related to the sale or disposition of assets located in Brazil, such as our common shares, by a Non-Resident Holder, are subject to withholding income tax in Brazil, regardless of whether the sale or disposition is made by a Non-Resident Holder to another non-resident of Brazil or to a Brazilian resident.
As a general rule, capital gains realized as a result of a sale or disposition of common shares are equal to the positive difference between the amount realized on the sale or disposition and the respective acquisition costs of the common shares.
There is a controversy regarding the currency that should be considered for purposes of determining the capital gain realized by a Non-Resident Holder on a sale or disposition of shares in Brazil, more specifically, if such capital gain is to be determined in foreign or in local currency.
Under Brazilian law, income tax on such gains can vary depending on the domicile of the Non-Resident Holder, the type of registration of the investment by the Non-Resident Holder with the Central Bank and how the disposition is carried out, as described below.
Currently, capital gains realized by Non-Resident Holders on a sale or disposition of shares carried out on the Brazilian stock exchange (including the organized over-the-counter market) are:
A withholding income tax of 0.005% will apply and can be offset against the eventual income tax due on the capital gain. Such withholding does not apply to a 4,373 Holder that is not resident or domiciled in a Low or Nil Tax Jurisdiction.
Under current law, for transactions taking place outside of the Brazilian stock exchange or the organized over-the-counter market, capital gains recognized by a Non-Resident Holder would be, in principle, subject to income tax in Brazil at progressive rates from 15% to 22.5% or 25%, if such Non-Resident Holder is resident or domiciled in a Low or Nil Tax Jurisdiction. The rates mentioned above would apply unless a lower rate is provided for in an applicable tax treaty between Brazil and the country where the non-resident holder is domiciled.
Law No. 13,259 of March 16, 2016 determined the new progressive taxation method over capital gains mentioned above that has been in force since January 1, 2017. Capital gains are subject to income tax based on the following rates:
(i) 15% on any capital gain not exceeding R$5,000,000.00;
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(ii) 17.5% on the portion of the capital gain between R$5,000,000.00 and R$10,000,000.00;
(iii) 20% on the portion of the capital gain between R$10,000,000.00 and R$30,000,000.00; or
(iv) 22.5% on the portion of the capital gain exceeding R$30,000,000.00.
If the Non-Resident Holder is a 4,373 Holder and is not resident or domiciled in a Low or Nil Tax Jurisdiction, it is arguable that the progressive rates mentioned above should not apply and, in such case, the 4,373 Holder would be subject to income tax at a fixed rate of 15%.
In the cases above, if the capital gains are related to transactions conducted on the Brazilian non-organized over-the-counter market with the intermediation of a financial institution the withholding income tax of 0.005% will apply and can be later offset against any income tax due on the capital gains.
The exercise of any preemptive rights relating to our common shares will not be subject to Brazilian income tax. Gains realized by a Non-Resident Holder on the disposition of preemptive rights in Brazil will be subject to Brazilian income tax according to the same rules applicable to the sale or disposition of shares.
There can be no assurance that the current favorable tax treatment of 4,373 Holders will continue in the future.
Discussion on Low or Nil Tax Jurisdictions
According to Law No 9,430, dated December 27, 1996, Low or Nil Tax Jurisdiction is a country or location that (1) does not impose taxation on income, (2) imposes the income tax at a rate lower than 20% or (3) imposes restrictions on the disclosure of shareholding composition or the ownership of the investment. On November 28, 2014, the Brazilian tax authorities issued the Ordinance No. 488, which decreased from 20% to 17% such minimum threshold for specific cases. The 17% threshold applies only to countries and regimes aligned with international standards of fiscal transparency in accordance with rules to be established by the Brazilian tax authorities.
Law No. 11,727/08 created the concept of Privileged Tax Regimes, which encompasses the countries and jurisdictions that: (1) do not tax income or tax it at a maximum rate lower than 20% or 17%, as the case may be; (2) grant tax advantages to a non-resident entity or individual (i) without the need to carry out a substantial economic activity in the country or a said territory or (ii) conditioned to the non-exercise of a substantial economic activity in the country or a said territory; (3) do not tax or taxes proceeds generated abroad at a maximum rate lower than 20%, or 17%, as applicable; or (4) restricts the ownership disclosure of assets and ownership rights or restricts disclosure about economic transactions carried out.
In addition, Brazilian tax authorities enacted Normative Ruling No. 1,037, of June 7, 2010, or Normative Ruling No. 1,037/10, as amended, listing (1) the countries and jurisdictions considered Low or Nil Tax Jurisdictions, and (2) the Privileged Tax Regimes.
The interpretation of the current Brazilian tax legislation should lead to the conclusion that the concept of Privileged Tax Regimes should only apply for certain Brazilian tax purposes, such as transfer pricing and thin capitalization rules. According to this interpretation, the concept of Privileged Tax Regimes should not be applied in connection with the taxation of dividends, interest on equity and gains related to investments made by Non-Brazilian Holders in Brazilian corporations. Regulations and non-binding tax rulings issued by Brazilian federal tax authorities seem to confirm this interpretation.
Notwithstanding the fact that such "privileged tax regime" concept was enacted in connection with transfer pricing rules and is also applicable to thin capitalization and cross-border interest
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deductibility rules, Brazilian tax authorities may take the position that such Privileged Tax Regime definition also applies to other types of transactions.
As a result, there is no assurance that Brazilian tax authorities will not attempt to apply the concept of Privileged Tax Regimes to non-resident investors holding common shares such as a Non-Resident Holder. Prospective purchasers should therefore consult with their own tax advisors regarding the consequences of the implementation of Law No. 11,727/08, Normative Ruling No. 1,037/10, as amended, and of any related Brazilian tax laws or regulations concerning Low or Nil Tax Jurisdictions and Privileged Tax Regimes.
Sales of ADSs
Arguably, the gains realized by a Non-Resident Holder on the disposition of ADSs to another non-Brazilian resident are not subject to Brazilian tax, based on the argument that the ADSs would not constitute assets located in Brazil for purposes of Law No. 10,833/03. However, we cannot assure you how Brazilian courts would interpret the definition of assets located in Brazil in connection with the taxation of gains realized by a Non-Resident Holder on the disposition of ADSs to another non-Brazilian resident. As a result, gains on a disposition of ADSs by a Non-Resident Holder to a Brazilian resident, or even to a Non-Resident Holder in the event that courts determine that the ADSs would constitute assets located in Brazil, may be subject to income tax in Brazil according to the rules described above. If this income tax does apply, it could have an adverse impact on Non-Resident Holders.
Gains on the exchange of ADSs for shares
Non-Resident Holders may exchange ADSs for the underlying shares, sell the shares on a Brazilian stock exchange and remit abroad the proceeds of the sale. As a general rule, the exchange of ADSs for shares is not subject to income taxation in Brazil.
Upon receipt of the underlying shares in exchange for ADSs, Non-Resident Holders may also elect to register with the Central Bank the U.S. dollar value of such shares as a foreign portfolio investment under CMN Resolution No. 4,373/14, which will entitle them to the tax treatment referred above on the future sale of the shares.
Alternatively, the Non-Resident Holder is also entitled to register with the Central Bank the U.S. dollar value of such shares as a foreign direct investment under Law No. 4,131/62, in which case the respective sale would be subject to the tax treatment applicable to transactions carried out of by a Non-Resident Holder that is not a 4,373 Holder.
Gains on the exchange of shares for ADSs
The deposit of shares in exchange for the ADSs by a Non-Resident Holder may be subject to Brazilian withholding income tax on capital gains if the acquisition cost is lower than the shares price verified on the exchange date. The capital gains ascertained by the Non-Resident Holder, in this case, should be subject to taxation at rates that vary from 15% to 22.5%, depending on the amount of the gain, as referred to above; or at 25% if realized by a Non-Resident Holder that is resident or domiciled in a Low or Nil Tax Jurisdiction. In certain circumstances, there may be arguments to sustain the position that such taxation is not applicable to 4,373 Holders that are not resident or domiciled in a Low or Nil Tax Jurisdiction.
IOF/Exchange Tax on Foreign Exchange Transactions
Brazilian law imposes an IOF/Exchange Tax, due on the conversion of Brazilian currency into foreign currency (e.g., for purposes of paying dividends and interest) and the conversion of foreign currency into Brazilian currency. Currently, for most exchange transactions, the rate of IOF/Exchange Tax is 0.38%.
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Effective as of December 1, 2011, IOF/Exchange Tax at a rate of 0% applies to foreign exchange transactions entered into in connection with the inflow of proceeds to Brazil for investments made by a foreign investor (including a Non-Resident Holder) in (1) variable income transactions carried out on the Brazilian stock, futures and commodities exchanges, and (2) the acquisitions of shares of Brazilian publicly-held companies in public offerings or subscription of shares related to capital contributions, provided that the company has registered its shares for trading with the stock exchange. As of June 5, 2013, this beneficial tax treatment was extended to all investments made under the rules of CMN Resolution 4,373/14 in the Brazilian financial and capital markets, including the investment in common shares. The IOF/Exchange Tax at a rate of 0% also applies for the outflow of funds from Brazil related to these types of investments, including payments of dividends and interest on equity and the repatriation of funds invested in the Brazilian market.
Furthermore, the IOF/Exchange Tax is currently levied at a 0% rate on the withdrawal of ADSs into shares. Nonetheless, the Brazilian government may increase the rate at any time up to 25%. However, any increase in rates may only apply to future foreign exchange transactions.
IOF/Bonds Tax on Bonds and Securities Transactions
Brazilian law imposes a Tax on Transactions Involving Bonds and Securities, or IOF/Bonds Tax, on transactions involving bonds and securities, including those carried out on a Brazilian stock exchange. The rate of IOF/Bonds Tax applicable to transactions involving common shares is currently zero percent, although the Brazilian government may increase such rate at any time up to 1.5% of the transaction amount per day, but only in respect of future transactions.
On December 24, 2013, the Brazilian government reduced the IOF/Bonds Tax to zero for transactions involving the deposit of shares which are issued by a Brazilian company admitted to trade on the Brazilian stock exchange with the specific purpose of enabling the issuance of depositary receipts traded outside Brazil.
Other Brazilian Taxes
There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of common shares by a Non-Brazilian Holder, except for gift and inheritance taxes imposed by some Brazilian states on gifts or bequests by individuals or entities not domiciled or residing in Brazil to individuals or entities domiciled or residing within such states. There are no Brazilian stamp, issue, registration, or similar taxes or duties payable by holders of common shares.
Material U.S. Federal Income Tax Considerations for U.S. Holders
The following is a discussion of the material U.S. federal income tax consequences that may be relevant with respect to the acquisition, ownership and disposition of our common shares or the ADSs, which are evidenced by ADRs. This description addresses only the U.S. federal income tax considerations of U.S. holders (as defined below) that will hold common shares or the ADSs as capital assets. This description does not address tax considerations applicable to holders that may be subject to special tax rules, such as banks, financial institutions, insurance companies, real estate investment trusts, grantor trusts, regulated investment companies, dealers or traders in securities or currencies, tax-exempt entities, pension funds, persons that received our common shares or the ADSs pursuant to an exercise of employee stock options or rights or otherwise as compensation for the performance of services, persons that will hold our common shares or the ADSs as a position in a "straddle" or as a part of a "hedging," "conversion" or other risk reduction transaction for U.S. federal income tax purposes, U.S. holders that have a "functional currency" other than the U.S. dollar, persons that will own our common shares or the ADSs through
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partnerships or other pass through entities, holders subject to the alternative minimum tax, certain former citizens or long-term residents of the United States or holders that own (or are deemed to own) 10% or more (either by value or voting power) of our shares.
This description does not address any state, local or non-U.S. tax consequences of the acquisition, ownership and disposition of our common shares or the ADSs. Moreover, this description does not address the consequences of any U.S. federal tax other than income tax, including but not limited to the U.S. federal estate and gift taxes. This description is based on (1) the Internal Revenue Code of 1986, as amended (the "Code"), existing, proposed and temporary U.S. Treasury regulations and judicial and administrative interpretations thereof, in each case as in effect and available on the date of this prospectus and (2), in part, on the representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms. All of the foregoing are subject to change, which change could apply retroactively and could affect the tax consequences described below.
As used below, a "U.S. holder" is a beneficial owner of a common share or an ADS that is, for U.S. federal income tax purposes, (1) an individual citizen or resident of the United States, (2) a corporation organized under the laws of the United States, any state thereof or the District of Columbia, (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (4) a trust if (i) a court within the United States is able to exercise primary supervision over its administration and (ii) one or more U.S. persons have the authority to control all of the substantial decisions of such trust. As used below, a "Non-U.S. holder" is a beneficial owner of a common share or ADS that is neither a U.S. holder nor a partnership (or other entity treated as a partnership for U.S. federal income tax purposes).
If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds common shares or the ADSs, the tax treatment of a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. A partnership or its partners should consult their tax advisor as to its tax consequences.
In general, for U.S. federal income tax purposes, a holder of an ADR evidencing an ADS will be treated as the beneficial owner of our common shares represented by the applicable ADS. The U.S. Treasury Department has expressed concern that depositaries, or other intermediaries between the holders of securities of an issuer and the issuer, may be taking actions that are inconsistent with the claiming of U.S. foreign tax credits by U.S. holders of such securities. Such actions include, for example, a pre-release of an ADS by a depositary. Accordingly, the analysis regarding the availability of a U.S. foreign tax credit for Brazilian taxes, the sourcing rules and the availability of the reduced tax rate for dividends received by certain non-corporate holders, each described below, could be affected by future actions that may be taken by the U.S. Treasury Department.
Taxation of Dividends
Subject to the discussion below under " Passive Foreign Investment Company Rules," in general, the gross amount of a distribution made with respect to a common share or an ADS (which for this purpose shall include distributions of interest attributable to shareholders' equity before any reduction for any Brazilian taxes withheld therefrom) will, to the extent made from the current or accumulated earnings and profits of our company, as determined under U.S. federal income tax principles, constitute a dividend to a U.S. holder for U.S. federal income tax purposes. Non-corporate U.S. holders may be taxed on dividends from a qualified foreign corporation at the lower rates applicable to long-term capital gains (i.e., gains with respect to capital assets held for more than one year). A foreign corporation is treated as a qualified foreign corporation with respect to dividends received from that corporation on shares or the ADSs that are readily tradable on an
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"established securities market" in the United States. U.S. Treasury Department guidance indicates that the ADSs (which will be listed on the NYSE), but not our common shares, are readily tradable on an established securities market in the United States. Thus, subject to the discussion below under " Passive Foreign Investment Company Rules," dividends that we pay on the ADSs, but not on our common shares, currently meet the conditions required for these reduced tax rates. There, however, can be no assurance that the ADSs will be considered readily tradable on an established securities market in later years. Furthermore, a U.S. holder's eligibility for such preferential rate is subject to certain holding period requirements and the non-existence of certain risk reduction transactions with respect to the ADSs. Such dividends will not be eligible for the dividends received deduction generally allowed to corporate U.S. holders. Subject to the discussion below under " Passive Foreign Investment Company Rules," if a distribution exceeds the amount of our company's current and accumulated earnings and profits, it will be treated as a nontaxable return of capital to the extent of the U.S. holder's tax basis in our common share or the ADS on which it is paid and thereafter as capital gain. Our company does not maintain calculations of our earnings and profits under U.S. federal income tax principles. Therefore, U.S. holders should expect that distributions by our company generally will be treated as dividends for U.S. federal income tax purposes.
A dividend paid in reais will be includible in the income of a U.S. holder at its value in U.S. dollars calculated by reference to the prevailing spot market exchange rate in effect on the day it is received by the U.S. holder in the case of our common shares or, in the case of a dividend received in respect of the ADSs, on the date the dividend is received by the depositary, whether or not the dividend is converted into U.S. dollars. Assuming the payment is not converted at that time, the U.S. holder will have a tax basis in reais equal to that U.S. dollar amount, which will be used to measure gain or loss from subsequent changes in exchange rates. Any gain or loss realized by a U.S. holder that subsequently sells or otherwise disposes of reais , which gain or loss is attributable to currency fluctuations after the date of receipt of the dividend, will be U.S. source ordinary gain or loss. The amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution.
The gross amount of any dividend paid (which will include any amounts withheld in respect of Brazilian taxes) with respect to a common share or an ADS will be subject to U.S. federal income taxation as foreign source dividend income, which may be relevant in calculating a U.S. holder's foreign tax credit limitation. Subject to limitations under U.S. federal income tax law concerning credits or deductions for foreign taxes and certain exceptions for short-term and hedged positions, any Brazilian withholding tax will be treated as a foreign income tax eligible for credit against a U.S. holder's U.S. federal income tax liability (or at a U.S. holder's election, may be deducted in computing taxable income if the U.S. holder has elected to deduct all foreign income taxes for the taxable year). The limitation on foreign taxes eligible for the U.S. foreign tax credit is calculated separately with respect to specific "baskets" of income. For this purpose, the dividends should generally constitute "passive category income," or in the case of certain U.S. holders, "general category income." The rules with respect to foreign tax credits are complex, and U.S. holders are urged to consult their own tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
Subject to the discussion below under " Information Reporting and Backup Withholding," a Non-U.S. holder of our common shares or the ADSs generally will not be subject to U.S. federal income or withholding tax on dividends received on such shares or ADSs, unless such income is effectively connected with the conduct by such Non-U.S. holder of a trade or business in the United States.
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Sale, Exchange or Other Disposition of Common Shares or the ADSs
A deposit or withdrawal of common shares by a holder in exchange for an ADS that represents such shares will not result in the realization of gain or loss for U.S. federal income tax purposes. Subject to the discussion below under " Passive Foreign Investment Company Rules," a U.S. holder generally will recognize capital gain or loss upon a sale, exchange or other disposition of a common share or an ADS, as the case may be, in an amount equal to the difference between the U.S. holder's adjusted basis in the common share or the ADS (determined in U.S. dollars) and the U.S. dollar amount realized on the sale, exchange or other disposition. If a Brazilian tax is withheld on the sale, exchange or other disposition of a common share or ADS, the amount realized by a U.S. holder will include the gross amount of the proceeds of that sale, exchange or other disposition before deduction of the Brazilian tax. In the case of a non-corporate U.S. holder, the maximum marginal U.S. federal income tax rate applicable to capital gain will generally be lower than the maximum marginal U.S. federal income tax rate applicable to ordinary income (other than, as discussed above, certain dividends) if such holder's holding period for such common share or the ADS exceeds one year (i.e., such gain is a long-term capital gain). Capital gain or loss, if any, realized by a U.S. holder on the sale, exchange or other disposition of a common share or an ADS generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes. Consequently, in the case of a disposition or deposit of a common share or an ADS that is subject to Brazilian tax, the U.S. holder may not be able to use the foreign tax credit for that Brazilian tax unless it can apply the credit against U.S. tax payable on other income from foreign sources in the appropriate income category, or, alternatively, it may take a deduction for the Brazilian tax if it elects to deduct all of its foreign income taxes for the taxable year. The deductibility of capital losses is subject to limitations under the Code.
With respect to the sale, exchange or other disposition of a common share or an ADS for an amount denominated in a non-U.S. currency, the amount realized generally will be the U.S. dollar value of the payment received determined on (1) the date of receipt of payment in the case of a cash basis U.S. holder and (2) the date of disposition in the case of an accrual basis U.S. holder. If our common shares or the ADSs that are the subject of the disposition are treated as traded on an "established securities market," a cash basis taxpayer, or, if it elects, an accrual basis taxpayer, will determine the U.S. dollar value of the amount realized by translating the amount received at the spot rate of exchange on the settlement date of the disposition.
Subject to the discussion below under " Information Reporting and Backup Withholding," a Non-U.S. holder of our common shares or ADSs generally will not be subject to U.S. federal income or withholding tax on any gain realized on the sale, exchange or other disposition of such shares or ADSs unless (1) such gain is effectively connected with the conduct by such Non-U.S. holder of a trade or business in the United States or (2) in the case of any gain realized by an individual Non-U.S. holder, such holder is present in the United States for 183 days or more in the taxable year of such sale, exchange or other disposition and certain other conditions are met.
Passive Foreign Investment Company Rules
In general, a non-U.S. corporation is treated as a passive foreign investment company, or PFIC, for any taxable year if: (1) 75% or more of its gross income consists of passive income; or (2) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income. For this purpose, passive income generally includes, among other things, dividends, interest, rents, royalties and gains from the disposition of investment assets, subject to various exceptions.
The asset test described in (2) above is generally applied using the fair market value of such non-U.S. corporation's assets. For purposes of the PFIC asset test, we intend to take the position
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that the aggregate fair market value of our assets is equal to the sum of the aggregate value of our outstanding stock and the total amount of our liabilities (our "Market Capitalization"), and that the excess of our Market Capitalization over the book value of all of our assets ("Goodwill") may be treated as a non-passive asset to the extent attributable to our non-passive activities. If we own at least 25% (by value) of the stock of another corporation, we will be treated, for purposes of the PFIC tests, as owning our proportionate share of the other corporation's assets and receiving our proportionate share of the other corporation's income.
Based upon the current and anticipated composition of our gross income and gross assets, our goodwill and the nature of our business, we do not believe that we were a PFIC in 2018, and we do not expect to be a PFIC in 2019 or in the foreseeable future. Our status in 2019 and future years will depend on our income, assets, activities and our Market Capitalization in those years. We have no reason to believe that our activities will change in a manner that would cause us to be classified as a PFIC, but there can be no assurance that we will not be considered a PFIC for any taxable year as a result of an increase in our passive income, an increase in the value or amount of our passive assets or a decrease in our Market Capitalization.
If we are or become a PFIC for any taxable year during which a U.S. holder holds our common shares or the ADSs, then, unless such holder makes a "mark-to-market" election (as discussed below), such U.S. holder generally will be subject to special and adverse tax rules with respect to any "excess distribution" that is received from us and any gain that is recognized from a sale or other disposition, including certain pledges, of our common shares or the ADSs. For this purpose, distributions that a U.S. holder receives in a taxable year that are greater than 125% of the average annual distributions received by such U.S. holder during the shorter of the three preceding taxable years or such U.S. holder's holding period for our common shares or the ADSs will be treated as excess distributions. Under these rules:
If we are a PFIC for any taxable year during which a U.S. holder holds our common shares or the ADSs and any of our non-U.S. subsidiaries is also a PFIC, such U.S. holder would be treated as owning a proportionate amount (by value) of the shares of each such non-U.S. subsidiary classified as a PFIC (each such subsidiary, a "lower tier PFIC") for purposes of the application of these rules. U.S. holders are urged to consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries.
In addition, if we are a PFIC, special rules apply to the amount of foreign tax credits that a U.S. holder may claim on a distribution on our common shares or ADSs and a U.S. holder may not be eligible to claim a foreign tax credit for any Brazilian tax imposed on any such distribution. Prospective purchasers should consult their own tax advisors regarding the application of such rules.
If we are a PFIC for any taxable year during which a U.S. holder holds our common shares or the ADSs, then in lieu of being subject to the tax and interest charge rules discussed above, a U.S.
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holder may make an election to include gain on our common shares or the ADSs as ordinary income under a mark-to-market method, provided that such common shares or the ADSs are "regularly traded" on a "qualified exchange or other market." In general, our common shares or the ADSs will be treated as being "regularly traded" for a given calendar year if more than a de minimis quantity of our common shares or ADSs (as applicable) are traded on a "qualified exchange or other market" on at least 15 days during each calendar quarter of such calendar year (or, for the ADSs in the case of the year of this initial public offering, on one-sixth of the days remaining in the quarter in which the offering occurs, and on at least 15 days during each remaining quarter of the calendar year). We intend to list the ADSs on the NYSE, which is treated as a "qualified exchange". Our common shares are listed on the B3; to be treated as a "qualified exchange" for purposes of mark-to-market election, the B3 must meet certain trading, listing, financial disclosure and other requirements. However, no assurance can be given that the B3 is treated as a "qualified exchange" or that our common shares or the ADSs will be treated as "regularly traded" for purposes of the mark-to-market election. In addition, because a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. holder may continue to be subject to the general PFIC rules described above with respect to such holder's indirect interest in any lower-tier PFIC.
If a U.S. holder makes an effective mark-to-market election, such U.S. holder will include in each year that we are a PFIC as ordinary income the excess of the fair market value of such U.S. holder's common shares or the ADSs at the end of the year over such U.S. holder's adjusted tax basis in our common shares or the ADSs. Such U.S. holder will be entitled to deduct as an ordinary loss in each such year the excess of such U.S. holder's adjusted tax basis in our common shares or the ADSs over their fair market value at the end of the year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. If a U.S. holder makes an effective mark-to-market election, in each year that we are a PFIC any gain such U.S. holder recognizes upon the sale or other disposition of such U.S. holder's common shares or the ADSs will be treated as ordinary income and any loss will be treated as ordinary loss, but only to the extent of the net amount of previously included income as a result of the mark-to-market election.
A U.S. holder's adjusted tax basis in our common shares or the ADSs will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark-to-market rules. If a U.S. holder makes a mark-to-market election, it will be effective for the taxable year for which the election is made and all subsequent taxable years unless our common shares or the ADSs (as applicable) are no longer regularly traded on a qualified exchange or other market or the U.S. Internal Revenue Service (the "IRS") consents to the revocation of the election. U.S. holders are urged to consult their tax advisors about the availability of the mark-to-market election, and whether making the election would be advisable in their particular circumstances.
In certain circumstances, a U.S. holder of shares in a PFIC may avoid the adverse tax and interest-charge regime described above by making a "qualified electing fund" election to include in income its share of the PFIC's income on a current basis. However, you may make a qualified electing fund election with respect to our common shares or the ADSs only if we agree to furnish you annually with a PFIC annual information statement as specified in the applicable Treasury regulations. We currently do not intend to prepare or provide the information that would enable you to make a qualified electing fund election.
If a U.S. holder owns our common shares or the ADSs during any year in which we are a PFIC, the U.S. holder generally will be required to file IRS Form 8621. If we are a PFIC for a given taxable year, then a U.S. holder should consult its tax advisor concerning its annual filing requirements.
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U.S. holders should consult their tax advisors regarding whether we are a PFIC and the potential application of the PFIC rules.
Medicare Tax on "Net Investment Income"
Certain U.S. holders who are individuals, estates or trusts are required to pay an additional 3.8% Medicare tax on, among other things, dividends and capital gains from the sale or other disposition of common shares and the ADSs.
Foreign Asset Reporting
Certain U.S. holders are required to report information relating to an interest in our common shares or the ADSs, subject to certain exceptions (including an exception for shares or ADSs held in custodial accounts maintained with certain financial institutions). U.S. holders of the common shares or the ADSs are urged to consult their tax advisors regarding their information reporting obligations, if any, with respect to their ownership and disposition of our common shares or the ADSs.
Information Reporting and Backup Withholding
U.S. backup withholding tax and information reporting requirements generally apply to certain payments to certain non-corporate holders of common shares or ADSs. Information reporting generally will apply to payments of dividends on, and to the proceeds from the sale or other disposition of, our common shares or the ADSs made within the United States or by a U.S. payor or U.S. middleman to a holder of our common shares or the ADSs, other than an exempt recipient, including a corporation, a payee that is not a U.S. person that provides an appropriate certification and certain other persons. Backup withholding tax will generally apply to any payments of dividends on, and to the proceeds from the sale or other disposition of, our common shares or the ADSs made within the United States or by a U.S. payor or U.S. middleman to a holder of our common shares or the ADSs, other than an exempt recipient, if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption from, the backup withholding tax requirements. The backup withholding tax rate is currently 24%. Non-U.S. holders generally may establish their exemption from information reporting and backup withholding by certifying their status on an IRS form W-8BEN, W-8BEN-E, W-8ECI or W-8IMY, as applicable.
Backup withholding is not an additional tax. Holders generally will be entitled to a credit for any amounts withheld under the backup withholding rules against their U.S. federal income tax liability or a refund of the amounts withheld, provided the required information is furnished to the IRS in a timely manner.
The above description is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership and disposition of common shares or ADSs. Prospective purchasers should consult their own tax advisors concerning the tax consequences of their particular situations.
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The global offering consists of (i) an international offering of our common shares, offered directly or in the form of ADSs, in the United States and elsewhere outside of Brazil and (ii) a Brazilian offering of our common shares, within Brazil. Each ADS represents of our common shares.
Offering of ADSs
Under the terms and subject to the conditions contained in the international underwriting agreement dated the date of this prospectus, we and the selling shareholder are offering the common shares and ADSs described in this prospectus through the international underwriters named below, for whom Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC, Jefferies LLC, BofA Securities, Inc. and Itaú BBA USA Securities, Inc. are acting as representatives, in the United States and other countries outside Brazil. These common shares are being offered directly or in the form of ADSs. The offering of ADSs is being underwritten by the international underwriters. In the case of the common shares, the international underwriters are acting as placement agents on behalf of the Brazilian underwriters named below. The common shares purchased by investors outside Brazil will be settled in Brazil and paid for in reais , and the offering of these common shares is being underwritten by the Brazilian underwriters.
Subject to the terms and conditions of the international underwriting agreement, we and the selling shareholder have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of ADSs listed next to its name in the following table:
International Underwriter |
Number of ADSs | |
Goldman Sachs & Co. LLC |
||
Morgan Stanley & Co. LLC |
||
Jefferies LLC |
||
BofA Securities, Inc. |
||
Itau BBA USA Securities, Inc. |
||
Total |
Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC, Jefferies LLC, BofA Securities, Inc. and Itau BBA USA Securities, Inc. are acting as bookrunners for the international offering.
The international underwriters are committed to purchase all the ADSs offered if they purchase any ADS, other than those ADSs covered by the international underwriters' option to purchase additional shares described below. The international underwriting agreement provides that, if an international underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated. The international underwriting agreement also provides that the obligations of the international underwriters are subject to certain conditions precedent, including the absence of any material adverse change in our business and the receipt of certain certificates, opinions and letters from us, our counsel, our independent auditors, the selling shareholder and the selling shareholder's counsel. We and the selling shareholder have entered into an underwriting agreement with a syndicate of Brazilian underwriters providing for the concurrent offering of common shares in Brazil. The international and the Brazilian offerings are conditioned on the closing of each other.
The international and Brazilian underwriters have entered into an intersyndicate agreement which governs specified matters relating to the global offering. Under this agreement, each international underwriter has agreed that, as part of its distribution of ADSs and subject to permitted
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exceptions, it has not offered or sold, and will not offer or sell, directly or indirectly, any ADSs or distribute any prospectus relating to the ADSs to any person in Brazil or to any other dealer who does not so agree. Each Brazilian underwriter similarly has agreed that, as part of its distribution of common shares and subject to permitted exceptions, it has not offered or sold, and will not offer to sell, directly or indirectly, any common shares or distribute any prospectus relating to the common shares to any person outside Brazil or to any other dealer who does not so agree. These limitations do not apply to stabilization transactions or to transactions between the Brazilian and international underwriters, who have agreed that they may sell ADSs or common shares, as the case may be, between their respective underwriting syndicates. The number of ADSs or common shares, as the case may be, actually allocated to each offering may differ from the amount offered due to reallocation between the international and Brazilian offerings.
Placement of common shares
Pursuant to the terms of the international underwriting agreement and the intersyndicate agreement, the international underwriters are acting as placement agents on behalf of the Brazilian underwriters identified below with respect to the offering of common shares sold to investors located outside Brazil. The Brazilian underwriters will sell common shares to investors located inside Brazil and U.S. and other international investors that are authorized to invest in Brazilian securities under the requirements established by the CMN and the CVM. The Brazilian underwriting agreement provides that, if any of the common shares covered by such agreement are not placed, the Brazilian underwriters are obligated to purchase them on a firm commitment basis on the settlement date, subject to certain conditions and exceptions. Subject to the terms and conditions of the Brazilian underwriting agreement, each of the Brazilian underwriters has severally agreed to place the number of common shares listed next to its name in the following table:
Brazilian Underwriter |
Number of Common Shares | |
Goldman Sachs do Brasil Banco Múltiplo S.A |
||
Banco Morgan Stanley S.A. |
||
Bank of America Merrill Lynch Banco Múltiplo S.A. |
||
Banco Itaú BBA S.A. |
||
Total |
Overallotment Option
We have granted to the international underwriters a 30-day option to purchase up to additional common shares in the form of ADSs, minus the number of common shares sold us by pursuant to the Brazilian underwriters' option to purchase additional shares referred to below, at the initial public offering price, less the underwriting discounts and commissions. This option may be exercised only to cover any over-allotments. We have also granted the Brazilian underwriters a 30-day option, to purchase a maximum of common shares, minus the number of common shares in the form of ADSs sold by us pursuant to the international underwriters' option to purchase additional shares, to cover over-allotments of common shares, if any.
Underwriting Discounts and Commissions
The international underwriters and Brazilian underwriters propose to offer the ADSs and the common shares, as the case may be, directly to the public at the offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of US$ per ADS and R$ per common share. Any such dealers may resell ADSs or common shares, as the case may be, to certain other brokers or dealers at a discount of up to US$ per ADS and R$ per common share from the offering price. The offering of the
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ADSs and the common shares, as the case may be, by the international underwriters and the Brazilian underwriters is subject to receipt and acceptance and subject to the international underwriters and Brazilian underwriters' right to reject any order in whole or in part. After the initial public offering, the offering price and other selling terms may be changed.
The underwriting fee in connection with the offering of ADSs is equal to the public offering price per ADS less the amount paid by the international underwriters to us and the selling shareholder. The underwriting fee is US$ per ADS. The following table shows the per ADS and total underwriting discounts and commissions to be paid to the international underwriters in the international offering, assuming no exercise and full exercise of the international underwriters' option to purchase additional ADSs.
|
No Exercise |
Full Exercise
|
|||||
| | | | | | | |
Initial public offering price |
US$ | US$ | |||||
Underwriting discounts and commissions to be paid by us |
US$ | US$ | |||||
Underwriting discounts and commissions to be paid by the selling shareholder |
US$ | US$ | |||||
Proceeds, before expenses, to us |
US$ | US$ | |||||
Proceeds, before expenses, to the selling shareholder |
US$ | US$ |
The underwriting fee in connection with the offering of common shares is equal to the public offering price per common share less the amount paid by the Brazilian underwriters to us and the selling shareholder. The underwriting fee is R$ per common share. The following table shows the per common share and total underwriting discounts and commissions to be paid to the Brazilian underwriters (in the Brazilian offering and with respect to the placement of the common shares), assuming no exercise and full exercise of the Brazilian underwriters' option to purchase additional common shares.
|
No Exercise |
Full Exercise
|
|||||
| | | | | | | |
Initial public offering price |
R$ | R$ | |||||
Underwriting discounts and commissions to be paid by us |
R$ | R$ | |||||
Underwriting discounts and commissions to be paid by the selling shareholder |
R$ | R$ | |||||
Proceeds, before expenses, to us |
R$ | R$ | |||||
Proceeds, before expenses, to the selling shareholder |
R$ | R$ |
We estimate that the total expenses of the global offering, including taxes, registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately US$ .
No sale of similar securities
We, our directors and executive officers and certain relevant equity holders have entered into lock-up agreements, according to which for a period of 90 days after the date of this offering we will not, subject to certain conditions: (i) issue, offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any of our common stock or ADSs or any securities convertible into or exchangeable or exercisable for any of our common stock and ADSs ("Lock-Up Securities"), (ii) enter into a transaction which would have the same effect, or enter into any swap, hedge or any other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of Lock-Up Securities, whether any such transaction described in (i) or (ii) above is to be settled by delivery of the Lock-Up Securities or such other securities, in cash or otherwise, (iii) publicly disclose the intention to make any such offer, sale, pledge or disposition, or to enter
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into any such transaction, swap, hedge or other arrangement or (iv) make any demand for or exercise any right with respect to, the registration of any Securities or any security convertible into or exercisable or exchangeable for the Lock-Up Securities.
Notwithstanding the foregoing, the Lock-Up Securities holders may transfer the Lock-Up Securities: (i) as a bona fide gift or gifts, provided that prior to any such transfer the recipient thereof agrees in writing to be bound by the terms of the lock-up and confirms that he, she or it has been in compliance with the terms of the lock-up agreement, (ii) to an immediate family member or trust for the direct or indirect benefit of the Lock-Up Securities holders and/or the immediate family and/or affiliate of the Lock-Up Securities holders, provided that the transferee agrees in writing to be bound by the terms of the lock-up agreement prior to such transfer and confirms that he, she or it has been in compliance with the terms of the lock-up agreement, such transfer shall not involve a disposition for value, and no filing by any party (donor, donee, transferor or transferee) under the Securities Exchange Act of 1934 or otherwise shall be required or shall be voluntarily made in connection with such transfer; (iii) to any of its affiliates, provided that prior to any such transfer the recipient thereof agrees in writing to be bound by the terms of the lock-up agreement; (iv) in connection with the exercise of stock options received pursuant to a duly approved stock option plan in force, provided that any shares received in connection with the exercise of such stock options shall remain bound by the terms of the lock-up agreement; or (v) with the prior written consent of the underwriters.
Our shareholders, other than those that are directors and executive officers and/or a selling shareholder have not and will not enter into lock-up agreements.
The underwriters have no current intent or arrangement to release any of the Lock-Up Securities subject to the lock-up restrictions prior to the expiration of the 90-day restricted period. There are no contractually specified conditions for the waiver of lock-up restrictions, and any waiver is at the discretion of the underwriters.
There are no specific criteria for the waiver of lock-up restrictions, and the underwriters cannot in advance determine the circumstances under which a waiver may be granted. Any waiver will depend on the facts and circumstances existing at the time. Among the factors that the underwriters may consider in deciding whether to release the Lock-Up Securities may include the length of time before the lock-up restriction expires, the number of Lock-Up Securities involved, the reason for the requested release, market conditions, the trading price of our Lock-Up Securities, historical trading volumes of our Lock-Up Securities and whether the person seeking the release is our officer, director or affiliate. The underwriters will not consider its own positions in our Lock-Up Securities, if any, in determining whether to consent to a waiver of a lock-up restriction.
Indemnification
We and the selling shareholder have agreed to indemnify the several international underwriters and the Brazilian underwriters and each of the directors and officers and any person who controls such underwriter, against certain liabilities, including liabilities under the Securities Act. Pursuant to the international underwriting and placement agreement, if we are unable to provide the indemnification as required thereunder, we have agreed to contribute to payments the underwriters and each of the directors and officers and any person who controls such underwriter may be required to make in respect of the international offering of our common shares.
Listing
Our common shares are listed on the Novo Mercado of the B3 under the symbol "LINX3." See "Market Information." We intend to apply to list the ADSs on the NYSE, under the symbol "LINX."
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Price Stabilization and Short Positions
In connection with the international offering, the international underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling common shares or ADSs in the open market for the purpose of preventing or retarding a decline in the market price of the common shares or the ADSs while this offering is in progress. These stabilizing transactions may include making short sales of the common shares, including in the form of ADSs, which involves the sale by the underwriters of a greater number of common shares than the number of common shares in the form of ADSs they are required to purchase in this offering, and purchasing common shares, including in the form of ADSs, on the open market to cover positions created by short sales. Short sales may be "covered" shorts, which are short positions in an amount not greater than the international underwriter's option to purchase additional shares referred to above, or may be "naked" shorts, which are short positions in excess of that amount. The international underwriters may close out any covered short position either by exercising their option to purchase additional shares, in whole or in part, or by purchasing shares in the open market. In making this determination, the international underwriters will consider, among other things, the price of common shares available for purchase in the open market compared to the price at which the international underwriter may purchase common shares in the form of ADSs through the option to purchase additional shares. A naked short position is more likely to be created if the international underwriters are concerned that there may be downward pressure on the price of the common shares or the ADSs in the open market that could adversely affect investors who purchase in this offering. To the extent that the international underwriters create a naked short position, they will purchase common shares, including in the form of ADSs, in the open market to cover the position.
The international underwriters have advised us that, pursuant to Regulation M of the Securities Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price of our common shares or the ADSs, including the imposition of penalty bids. This means that if the international underwriters purchase common shares, including in the form of ADSs, in the open market in stabilizing transactions or to cover short sales, the international underwriters may be required repay the underwriting discount received by them.
These activities may have the effect of raising or maintaining the market price of our common shares and the ADSs or preventing or retarding a decline in the market price of our common shares and the ADSs, and, as a result, the price of our common shares and the ADSs may be higher than the price that otherwise might exist in the open market. If the international underwriters commence these activities, they may discontinue them at any time. The international underwriters may carry out these transactions on the NYSE, in the over-the-counter market or otherwise.
In connection with the Brazilian offering, , on behalf of the Brazilian underwriters, may engage in transactions on the B3 that stabilize, maintain or otherwise affect the price of our common shares. In addition, it may bid for, and purchase, common shares in the open market to cover syndicate short positions or stabilize the price of our common shares.
These stabilizing transactions may have the effect of raising or maintaining the market price of our common shares or preventing or retarding a decline in the market price of our common shares. As a result, the price of our common shares (including in the form of ADSs) may be higher than the price that might otherwise exist in the absence of these transactions. These transactions, if commenced, may be discontinued at any time. Reports on stabilization activity are required to be furnished to the CVM. Stabilization activities may be carried out for up to 30 days from the day after the date of this prospectus. A stabilization activities agreement, in a form approved by the CVM and the B3, has been executed simultaneously with the execution of the Brazilian underwriting agreement.
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Other Relationships
The international underwriters and their respective affiliates (including the Brazilian underwriters) are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the international underwriters and their affiliates (including certain Brazilian underwriters) have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us and the selling shareholder and such affiliates in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions.
Selling Restrictions
The common shares, including in the form of ADSs, offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any common shares or ADSs offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Other than with respect to the registration of this offering with the SEC and the CVM, no action has been or will be taken in any country or jurisdiction by us, the selling shareholder or the underwriters that would permit a public offering of the common shares, or possession or distribution of any offering material in relation thereto, in any country or jurisdiction where action for that purpose is required.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a "Relevant Member State") an offer to the public of our common shares (including in the form of ADSs) that are the subject of this offering may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of our common shares that are the subject of this offering may be made at any time under the following exemptions under the Prospectus Directive:
provided that no such offer of our common shares(including in the form of ADSs) that are the subject of this offering shall result in a requirement for the publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.
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United Kingdom
Each underwriter has represented, warranted and agreed that:
a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 200 (the "FSMA") received by it in connection with the issue or sale of our common shares (including in the form of ADSs) that are the subject of this offering; and
b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to our common shares that are the subject of this offering in, from or otherwise involving the United Kingdom.
Argentina
The common shares are not authorized for public offering in Argentina by the Comisión Nacional de Valores pursuant to Argentine Public Offering Law No. 17,811, as amended, and they shall not be sold publicly. Therefore, any transaction carried out in Argentina must be made privately.
Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged or will be lodged with the Australian Securities and Investments Commission (ASIC), in relation to this offering. This document does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the Corporations Act), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the common shares may only be made to persons (the Exempt Investors) who are "sophisticated investors" (within the meaning of section 708(8) of the Corporations Act), "professional investors" (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the common shares without disclosure to investors under Chapter 6D of the Corporations Act.
The common shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under this offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring common shares (including in the form of ADSs) must observe such Australian on-sale restrictions.
The Company is not licensed in Australia to provide financial product advice in relation to the common shares. This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Any advice contained in this document is general advice only. Before making an investment decision on the basis of this document, investors should consider the appropriateness of the information in this document, having regard to their own objectives, financial situation and needs, and, if necessary, seek expert advice on those matters. No cooling off period applies to an acquisition of the common shares (including in the form of ADSs).
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Canada
The common shares (including in the form of ADSs) may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions, and Ongoing Registrant Obligations. Any resale of the common shares (including in the form of ADSs) must be made in accordance with an exemption form, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser's province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser's province or territory of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
Cayman Islands
This prospectus does not constitute a public offer of the common shares (including in the form of ADSs), whether by way of sale or subscription, in the Cayman Islands. The common shares have not been offered or sold, and will not be offered or sold, directly or indirectly, in the Cayman Islands.
Chile
The common shares are not registered in the Securities Registry ( Registro de Valores ) or subject to the control of the Chilean Securities and Exchange Commission ( Superintendencia de Valores y Seguros de Chile ). This prospectus and other offering materials relating to the offer of the common shares do not constitute a public offer of, or an invitation to subscribe for or purchase, the common shares in the Republic of Chile, other than to individually identified purchasers pursuant to a private offering within the meaning of Article 4 of the Chilean Securities Market Act ( Ley de Mercado de Valores ) (an offer that is not "addressed to the public at large or to a certain sector or specific group of the public").
China
The common shares (including in the form of ADSs) may not be offered or sold directly or indirectly to the public in the People's Republic of China (China) and neither this prospectus, which has not been submitted to the Chinese Securities and Regulatory Commission, nor any offering material or information contained herein relating to the common shares may be supplied to the public in China or used in connection with any offer for the subscription or sale of common shares to the public in China. The common shares may only be offered or sold to China-related organizations which are authorized to engage in foreign exchange business and offshore investment from outside of China. Such China-related investors may be subject to foreign exchange control approval and filing requirements under the relevant Chinese foreign exchange regulations. For the purpose of this paragraph, China does not include Taiwan and the special administrative regions of Hong Kong and Macau.
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Colombia
The common shares (including in the form of ADSs) have not been and will not be registered on the Colombian National Registry of Securities and Issuers or in the Colombian Stock Exchange. Therefore, the common shares (including in the form of ADSs) may not be publicly offered in Colombia. This material is for your sole and exclusive use as a determined entity, including any of your shareholders, administrators or employees, as applicable. You acknowledge the Colombian laws and regulations (specifically foreign exchange and tax regulations) applicable to any transaction or investment consummated pursuant hereto and represent that you are the sole liable party for full compliance with any such laws and regulations.
The Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (DFSA). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The common shares (including in the form of ADSs) to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the common shares offered should conduct their own due diligence on the common shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
France
Neither this prospectus nor any other offering material relating to the common shares (including in the form of ADSs)described in this prospectus has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers . The common shares have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the common shares has been or will be: (i) released, issued, distributed or caused to be released, issued or distributed to the public in France; or (ii) used in connection with any offer for subscription or sale of the common shares to the public in France. Such offers, sales and distributions will be made in France only to: (a) persons providing investment services relating to portfolio management for the account of third parties ( personnes fournissant le service d'investissement de gestion de portefeuille pour compte de tiers ), and/or (b) qualified investors ( investisseurs qualifiés ) acting for their own account, and/or (c) a limited circle of investors ( cercle restreint ) acting for their own account, as defined in, and in accordance with, Articles L. 411-1, L. 411-2, D. 411-1 and D. 411-4 of the French Code monétaire et financier .
The common shares (including in the form of ADSs) may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier .
Germany
The common shares (including in the form of ADSs) will not be offered, sold or publicly promoted or advertised in the Federal Republic of Germany other than in compliance with the German Securities Prospectus Act ( Gesetz uber die Erstellung, Billigung und Veroffentlichung des Prospekts, der beim offentlicken Angebot von Wertpapieren oder bei der Zulassung von Wertpapieren zum Handel an einem organisierten Markt zu veroffenlichen ist
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Wertpapierprospektgesetz ) as of June 22, 2005, effective as of July 1, 2005, as amended, or any other laws and regulations applicable in the Federal Republic of Germany governing the issue, offering and sale of securities. No selling prospectus ( Verkaufsprospeckt ) within the meaning of the German Securities Selling Prospectus Act has been or will be registered within the Financial Supervisory Authority of the Federal Republic of Germany or otherwise published in Germany.
Hong Kong
The common shares (including in the form of ADSs) may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) ("Companies (Winding Up and Miscellaneous Provisions) Ordinance") or which do not constitute an invitation to the public within the meaning of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) ("Securities and Futures Ordinance"), or (ii) to "professional investors" as defined in the Securities and Futures Ordinance and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a "prospectus" as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance, and no advertisement, invitation or document relating to the common shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to common shares which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" in Hong Kong as defined in the Securities and Futures Ordinance and any rules made thereunder.
Ireland
The common shares will not be placed in or involving Ireland otherwise than in conformity with the provisions of the Intermediaries Act 1995 of Ireland (as amended) including, without limitation, Sections 9 and 23 (including advertising restrictions made thereunder) thereof and the codes of conduct made under Section 37 thereof.
Israel
This document does not constitute a prospectus under the Israeli Securities Law, 5728-1968, or the Securities Law, and has not been filed with or approved by the Israel Securities Authority. In Israel, this prospectus is being distributed only to, and is directed only at, and any offer of the common shares is directed only at, (i) a limited number of persons in accordance with the Israeli Securities Law and (ii) investors listed in the first addendum, or the Addendum, to the Israeli Securities Law, consisting primarily of joint investment in trust funds, provident funds, insurance companies, banks, portfolio managers, investment advisors, members of the Tel Aviv Stock Exchange, underwriters, venture capital funds, entities with equity in excess of NIS 50 million and "qualified individuals," each as defined in the Addendum (as it may be amended from time to time), collectively referred to as qualified investors (in each case, purchasing for their own account or, where permitted under the Addendum, for the accounts of their clients who are investors listed in the Addendum). Qualified investors are required to submit written confirmation that they fall within the scope of the Addendum, are aware of its meaning and agree to it.
Italy
The offering of the common shares has not been registered pursuant to Italian securities legislation and, accordingly, no common shares may be offered or sold in the Republic of Italy in a solicitation to the public, and sales of the common shares in the Republic of Italy shall be effected
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in accordance with all Italian securities, tax and exchange control and other applicable laws and regulation.
No offer, sale or delivery of the common shares (including in the form of ADSs) or distribution of copies of any document relating to the common shares will be made in the Republic of Italy except: (a) to "Professional Investors", as defined in Article 31.2 of Regulation No. 11522 of 1 July 1998 of the Commissione Nazionale per la Società e la Borsa , or the CONSOB, as amended, or CONSOB Regulation No. 11522, pursuant to Article 30.2 and 100 of Legislative Decree No. 58 of 24 February 1998, as amended, or the Italian Financial Act; or (b) in any other circumstances where an express exemption from compliance with the solicitation restrictions applies, as provided under the Italian Financial Act or Regulation No. 11971 of 14 May 1999, as amended.
Any such offer, sale or delivery of the common shares (including in the form of ADSs) or any document relating to the common shares in the Republic of Italy must be: (i) made by investment firms, banks or financial intermediaries permitted to conduct such activities in the Republic of Italy in accordance with Legislative Decree No. 385 of 1 September 1993 as amended, the Italian Financial Act, CONSOB Regulation No. 11522 and any other applicable laws and regulations; and (ii) in compliance with any other applicable notification requirement or limitation which may be imposed by CONSOB or the Bank of Italy.
Investors should also note that, in any subsequent distribution of the common shares in the Republic of Italy, Article 100-bis of the Italian Financial Act may require compliance with the law relating to public offers of securities. Furthermore, where the common shares are placed solely with professional investors and are then systematically resold on the secondary market at any time in the 12 months following such placing, purchasers of common shares who are acting outside of the course of their business or profession may in certain circumstances be entitled to declare such purchase void and to claim damages from any authorized person at whose premises the common shares were purchased, unless an exemption provided for under the Italian Financial Act applies.
Japan
The securities have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended), or the FIEA. The securities may not be offered or sold, directly or indirectly, in Japan or to or for the benefit of any resident of Japan (including any person resident in Japan or any corporation or other entity organized under the laws of Japan) or to others for reoffering or resale, directly or indirectly, in Japan or to or for the benefit of any resident of Japan, except pursuant to an exemption from the registration requirements of the FIEA and otherwise in compliance with any relevant laws and regulations of Japan.
Kuwait
The common shares (including in the form of ADSs) have not been authorized or licensed for offering, marketing or sale in the State of Kuwait. The distribution of this prospectus and the offering and sale of the common shares in the State of Kuwait is restricted by law unless a license is obtained from the Kuwait Ministry of Commerce and Industry in accordance with Law 31 of 1990. Persons into whose possession this prospectus comes are required by us and the international underwriters to inform themselves about and to observe such restrictions. Investors in the State of Kuwait who approach us or any of the international underwriters to obtain copies of this prospectus are required by us and the international underwriters to keep such prospectus confidential and not to make copies thereof or distribute the same to any other person and are also required to observe the restrictions provided for in all jurisdictions with respect to offering, marketing and the sale of the common shares.
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Mexico
The common shares have not been registered in Mexico with the Securities Section ( Sección de Valores ) of the National Securities Registry ( Registro Nacional de Valores ) maintained by the C omisión Nacional Bancaria y de Valores , and that no action has been or will be taken that would permit the offer or sale of the common shares (including in the form of ADSs) in Mexico absent an available exemption under Article 8 of the Mexican Securities Market Law ( Ley del Mercado de Valores ).
Netherlands
The common shares (including in the form of ADSs) may not be offered, sold, transferred or delivered, in or from the Netherlands, as part of the initial distribution or as part of any reoffering, and neither this prospectus nor any other document in respect of the international offering may be distributed in or from the Netherlands, other than to individuals or legal entities who or which trade or invest in securities in the conduct of their profession or trade (which includes banks, investment banks, securities firms, insurance companies, pension funds, other institutional investors and treasury departments and finance companies of large enterprises), in which case, it must be made clear upon making the offer and from any documents or advertisements in which a forthcoming offering of common shares is publicly announced that the offer is exclusively made to said individuals or legal entities.
Peru
The common shares and this prospectus have not been registered in Peru under the Decreto Supremo Nº 093-2002-EF: Texto Único Ordenado de la Ley del Mercado de Valores , or the Peruvian Securities Law, or before the Superintendencia del Mercado de Valores and cannot be offered or sold in Peru except in a private offering under the meaning of the Peruvian Securities Laws. The Peruvian Securities Law provides that an offering directed exclusively to "institutional investors" (as defined in the Institutional Investors Market Regulations) qualifies as a private offering. The common shares (including in the form of ADSs) acquired by institutional investors in Peru cannot be transferred to a third party, unless such transfer is made to another institutional investor or the common shares have been previously registered with the Registro Público del Mercado de Valores .
Portugal
No document, circular, advertisement or any offering material in relation to the share has been or will be subject to approval by the Portuguese Securities Market Commission ( Comissão do Mercado de Valores Mobiliários ), or the CMVM. No common shares (including in the form of ADSs) may be offered, re-offered, advertised, sold, re-sold or delivered in circumstances which could qualify as a public offer ( oferta pública ) pursuant to the Portuguese Securities Code ( Código dos Valores Mobiliários ), and/or in circumstances which could qualify the issue of the common shares as an issue or public placement of securities in the Portuguese market. This prospectus and any document, circular, advertisements or any offering material may not be directly or indirectly distributed to the public. All offers, sales and distributions of the common shares (including in the form of ADSs) have been and may only be made in Portugal in circumstances that, pursuant to the Portuguese Securities Code, qualify as a private placement ( oferta particular ), all in accordance with the Portuguese Securities Code. Pursuant to the Portuguese Securities Code, the private placement in Portugal or to Portuguese residents of the common shares by public companies ( sociedades abertas ) or by companies that are issuers of securities listed on a market must be notified to the CMVM for statistical purposes. Any offer or sale of the common shares (including in the form of ADSs) in Portugal must comply with all applicable provisions of the Portuguese Securities Code and any applicable CMVM Regulations and all relevant Portuguese laws and regulations. The
199
placement of the common shares (including in the form of ADSs) in the Portuguese jurisdiction or to any entities which are resident in Portugal, including the publication of a prospectus, when applicable, must comply with all applicable laws and regulations in force in Portugal and with the Prospectus Directive, and such placement shall only be performed to the extent that there is full compliance with such laws and regulations.
Qatar
The common shares (including in the form of ADSs) described in this prospectus have not been, and will not be, offered, sold or delivered, at any time, directly or indirectly in the State of Qatar in a manner that would constitute a public offering. This prospectus has not been, and will not be, registered with or approved by the Qatar Financial Markets Authority or Qatar Central Bank and may not be publicly distributed. This prospectus is intended for the original recipient only and must not be provided to any other person. It is not for general circulation in the State of Qatar and may not be reproduced or used for any other purpose.
Saudi Arabia
Any investor in the Kingdom of Saudi Arabia or who is a Saudi person (a Saudi Investor) who acquires the common shares pursuant to this offering should note that the offer of the common shares (including in the form of ADSs) is an exempt offer under sub-paragraph (3) of paragraph (a) of Article 16 of the "Offer of Securities Regulations" as issued by the Board of the Capital Market Authority resolution number 2-11-2004 dated October 4, 2004 and amended by the resolution of the Board of Capital Market Authority resolution number 1-33-2004 dated December 21, 2004 (the KSA Regulations). The common shares may be offered to no more than 60 Saudi Investors and the minimum amount payable per Saudi Investor must not be less than Saudi Riyal (SR) 1 million or an equivalent amount. The offer of common shares is therefore exempt from the public offer provisions of the KSA Regulations, but is subject to the following restrictions on secondary market activity: (a) A Saudi Investor (the transferor) who has acquired common shares pursuant to this exempt offer may not offer or sell common shares to any person (referred to as a transferee) unless the price to be paid by the transferee for such common shares equals or exceeds SR1 million. (b) If the provisions of paragraph (a) cannot be fulfilled because the price of the common shares being offered or sold to the transferee has declined since the date of the original exempt offer, the transferor may offer or sell the common shares to the transferee if their purchase price during the period of the original exempt offer was equal to or exceeded SR1 million. (c) If the provisions of paragraphs (a) and (b) cannot be fulfilled, the transferor may offer or sell the common shares if he/she sells his entire holding of the common shares to one transferee.
Singapore
This prospectus has not been and will not be registered as a prospectus with the Monetary Authority of Singapore under the Securities and Futures Act, Chapter 289 of Singapore (the "SFA"). Accordingly, each underwriter has not offered or sold any common shares or caused such common shares to be made the subject of an invitation for subscription or purchase and will not offer or sell such common shares or cause such common shares to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, this prospectus or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of such common shares, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the SFA, (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
200
Where the Common shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is: (a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the common shares pursuant to an offer made under Section 275 of the SFA, except: (i) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), or to any person arising from an offer referred to in Section 275(1A), or Section 276(4)(i)(B) of the SFA; (ii) where no consideration is or will be given for the transfer; (iii) where the transfer is by operation of law; (iv) as specified in Section 276(7) of the SFA; or (v) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore.
Singapore Securities and Futures Act Product Classification Solely for the purposes of its obligations pursuant to sections 309B(1)(a) and 309B(1)(c) of the Securities and Futures Act (Chapter 289 of Singapore) (the "SFA"), we have determined, and hereby notify all relevant persons (as defined in Section 309A of the SFA) that the common shares are "prescribed capital markets products" (as defined in the Securities and Futures (Capital Markets Products) Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).
South Korea
The Common shares have not been and will not be registered with the Financial Services Commission of Korea for public offering in Korea under the Financial Investment Services and Capital Markets Act, or the FSCMA. The common shares (including in the form of ADSs) may not be offered, sold or delivered, or offered or sold for re-offering or resale, directly or indirectly, in Korea or to any Korean resident (as such term is defined in the Foreign Exchange Transaction Law of Korea, or FETL) other than the Accredited Investors (as such term is defined in Article 11 of the Presidential Decree of the FSCMA), for a period of one year from the date of issuance of the common shares except pursuant to the applicable laws and regulations of Korea, including the FSCMA and the FETL and the decrees and regulations thereunder. The common shares may not be resold to Korean residents unless the purchaser of the common shares complies with all applicable regulatory requirements (including but not limited to government reporting requirements under the FETL and its subordinate decrees and regulations) in connection with the purchase of the common shares.
Spain
The common shares have not been registered with the Spanish National Commission for the Securities Market and, therefore, no common shares (including in the form of ADSs) may be publicly offered, sold or delivered, nor any public offer in respect of the common shares made, nor may any prospectus or any other offering or publicity material relating to the common shares be distributed in Spain by the international agents or any person acting on their behalf, except in compliance with Spanish laws and regulations.
201
Switzerland
The common shares (including in the form of ADSs) may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange ("SIX") or on any other stock exchange or regulated trading facility in Switzerland. This prospectus has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this prospectus nor any other offering or marketing material relating to the common shares or this offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this prospectus nor any other offering or marketing material relating to this offering, or us, the common shares (including in the form of ADSs) have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of common shares will not be supervised by, the Swiss Financial Market Supervisory Authority ("FINMA"), and the offer of common shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes ("CISA"). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of common shares (including in the form of ADSs).
United Arab Emirates
NOTICE TO PROSPECTIVE INVESTORS IN THE UNITED ARAB EMIRATES (EXCLUDING THE DUBAI INTERNATIONAL FINANCIAL CENTRE)
The common shares have not been, and are not being, publicly offered, sold, promoted or advertised in the United Arab Emirates (U.A.E.) other than in compliance with the laws of the U.A.E. Prospective investors in the Dubai International Financial Centre should have regard to the specific notice to prospective investors in the Dubai International Financial Centre set out below. The information contained in this prospectus does not constitute a public offer of the common shares (including in the form of ADSs) in the U.A.E. in accordance with the Commercial Companies Law (Federal Law No. 8 of 1984 of the U.A.E., as amended) or otherwise and is not intended to be a public offer. This prospectus has not been approved by or filed with the Central Bank of the United Arab Emirates, the Emirates Securities and Commodities Authority or the Dubai Financial Services Authority, or DFSA. If you do not understand the contents of this prospectus you should consult an authorized financial adviser. This prospectus is provided for the benefit of the recipient only, and should not be delivered to, or relied on by, any other person.
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EXPENSES OF THE GLOBAL OFFERING
We estimate that our expenses in connection with this offering, other than underwriting discounts and commissions, will be as follows:
Expenses |
Amount
|
|||
| | | | |
U.S. Securities and Exchange Commission registration fee |
US$ | |||
Brazilian offering fees and expenses |
||||
listing fee |
||||
FINRA filing fee |
||||
Printing and engraving expenses |
||||
Legal fees and expenses |
||||
Accounting fees and expenses |
||||
Miscellaneous costs |
||||
| | | | |
Total |
US$ | |||
| | | | |
| | | | |
| | | | |
We anticipate that the total underwriting discount will be approximately US$ , or % of the gross proceeds of the global offering, assuming no exercise of the underwriters' option to purchase additional common shares, including common shares underlying the ADSs. All amounts in the table are estimates except the U.S. Securities and Exchange Commission registration fee, the Brazilian securities regulator, the NYSE listing fee and the FINRA filing fee. We will pay all of the expenses of this offering. The depositary has agreed to pay some of these expenses on our behalf, subject to the closing of the international offering.
203
We are being represented by White & Case LLP with respect to certain legal matters as to United States federal securities laws and New York State law. The underwriters are being represented by Simpson Thacher & Bartlett LLP with respect to certain legal matters as to United States federal securities laws and New York State law. The validity of our common shares underlying the ADSs offered in this offering will be passed upon for us by Pinheiro Neto Advogados. Certain other legal matters as to Brazilian law will be passed upon for us by Pinheiro Neto Advogados and for the underwriters by Pinheiro Guimarães Advogados.
204
The consolidated financial statements of Linx S.A. as of December 31, 2018, 2017 and 2016 and for each of the three years in the period ended December 31, 2018, appearing in this prospectus have been audited by Ernst & Young Auditores Independentes S.S., independent registered public accounting firm, as set forth on their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
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ENFORCEMENT OF JUDGMENTS AND SERVICE OF PROCESS
We are a corporation ( sociedade anônima ) organized under the laws of Brazil. With one exception, all of our directors and officers are Brazilian residents. The majority of our assets are located in Brazil. As a result, it may not be possible, or it may be difficult, for you to effect service of process upon us or these other persons within the United States or to enforce judgments obtained in United States courts against us or them, including those predicated upon the civil liability provisions of the federal securities laws of the United States.
In addition, any claims under the Novo Mercado segment of the B3 regulations must be submitted to arbitration proceedings conducted in accordance with the rules of the Market Arbitration Chamber of the B3. See "Description of Capital Stock Arbitration."
We have been advised by our Brazilian counsel, Pinheiro Neto Advogados, that a judgment of a United States court for civil liabilities predicated upon the federal securities laws of the United States may be enforced in Brazil, subject to certain requirements described below.
Our Brazilian counsel has advised us that a judgment obtained outside Brazil against us, the directors and officers or certain advisors named herein would be enforceable in Brazil without retrial or re-examination of the merits of the original action including, without limitation, any final judgment for payment of a certain amount rendered by any such court, provided that such judgment has been previously recognized by the Superior Court of Justice ( Superior Tribunal de Justiça ), or the STJ. In order to be recognized by the STJ, a foreign judgment must meet the following conditions:
The recognition process may be time-consuming and may also give rise to difficulties in enforcing the foreign judgment in Brazil. Accordingly, we cannot assure you that recognition would be obtained, that the recognition process would be conducted in a timely manner or that a Brazilian court would enforce a monetary judgment, including for violation of the securities laws of countries other than Brazil, including the federal securities laws of the United States.
206
We have been further advised that:
A plaintiff (whether Brazilian or non-Brazilian), who resides outside Brazil or is outside Brazil during the course of the litigation in Brazil and who does not own real estate property in Brazil during the course of litigation in Brazil must provide a bond to guarantee the payment of the defendant's legal fees and court expenses in connection with court procedures for the collection of payments. The bond must have a value sufficient to satisfy the payment of court fees and defendant attorney's fees, as determined by a Brazilian judge. This requirement does not apply (1) when an exemption is provided by an international agreement or treaty that Brazil is a signatory; (2) in the case of claims for collection on a título executivo extrajudicial (an instrument which may be enforced in Brazilian courts without a review on the merits), in the case of enforcement of foreign judgments that have been duly recognized by the STJ; or (3) counterclaims as established, according to Article 83 of the Brazilian Code of Civil Procedure ( Código de Processo Civil ). Notwithstanding the foregoing, we cannot assure you that recognition of any judgment will be obtained, that the process described above can be conducted in a timely manner, or that Brazilian courts will enforce a judgment for violation of the federal securities laws of the United States with respect to the common shares.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the U.S. Securities and Exchange Commission a registration statement (including amendments and exhibits to the registration statement) on Form F-1 under the Securities Act. This prospectus, which is part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits and schedules to the registration statement. For further information, we refer you to the registration statement and the exhibits and schedules filed as part of the registration statement. If a document has been filed as an exhibit to the registration statement, we refer you to the copy of the document that has been filed. Each statement in this prospectus relating to a document filed as an exhibit is qualified in all respects by the filed exhibit.
Upon completion of this global offering, we will be subject to the informational requirements of the Exchange Act that are applicable to foreign private issuers. Accordingly, we will be required to file reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. You may inspect and copy the reports and other information to be filed with the SEC at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington D.C. 20549. Copies of the materials may be obtained from the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. The public may obtain information on the operation of the SEC's Public Reference Room by calling the SEC in the United States at 1-800-SEC-0330. In addition, the SEC maintains an Internet website at http://www.sec.gov, from which you can electronically access the registration statement and its materials.
As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our selling shareholder, executive officers and directors are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.
We will send the depository a copy of all notices of shareholders' meetings and other reports, communications and other reports, communications and information that are made generally available to the common shareholders. The depository has agreed to mail to all common shareholders a notice containing the information (or a summary of the information) contained in any notice of a meeting of our shareholders received by the depository and will make available to all common shareholders such notices and all such other reports and communications received by the depositary.
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Unaudited Individual and Consolidated Financial Statements of Linx S.A. as of March 31, 2019 and December 31, 2018 and for the three months ended March 31, 2019 and 2018 |
||||
Consolidated Interim Statement of Financial Position |
F-2 | |||
Consolidated Interim Statements of Income |
F-4 | |||
Consolidated Interim Statements of Comprehensive Income |
F-5 | |||
Consolidated Interim Statements of Changes in Shareholders' Equity |
F-6 | |||
Consolidated Interim Statements of Cash Flows |
F-7 | |||
Notes to the Financial Statements |
F-8 | |||
Audited Individual and Consolidated Financial Statements of Linx S.A. as of and for the years ended December 31, 2018, 2017 and 2016 |
||||
Report of Independent Registered Public Accounting Firm |
F-51 | |||
Consolidated Statement of Financial Position |
F-52 | |||
Consolidated Statements of Income |
F-54 | |||
Consolidated Statements of Comprehensive Income |
F-55 | |||
Consolidated Statements of Changes in Shareholders' Equity |
F-56 | |||
Consolidated Statements of Cash Flows |
F-57 | |||
Notes to the Financial Statements |
F-58 |
F-1
Linx S.A.
Interim consolidated statements of financial position
As of March 31, 2019 and December 31, 2018
(In
thousands of Brazilian reais)
|
March 31,
2019 |
December 31,
2018 |
|||||
| | | | | | | |
|
(Unaudited) | ||||||
Assets |
|||||||
Current assets |
|||||||
Cash and cash equivalents (Note 4) |
49,945 | 49,850 | |||||
Financial assets (Note 5) |
413,239 | 413,374 | |||||
Trade accounts receivable (Note 6) |
173,025 | 167,102 | |||||
Recoverable taxes (Note 7) |
31,584 | 35,094 | |||||
Other receivables (Note 9) |
32,696 | 43,407 | |||||
| | | | | | | |
Total current assets |
700,489 | 708,827 | |||||
Non-current assets |
|
|
|||||
Trade accounts receivable (Note 6) |
2,978 | 3,280 | |||||
Deferred taxes (Note 16) |
4,312 | 4,449 | |||||
Other receivables (Note 9) |
7,272 | 7,213 | |||||
Property, plant and equipment, net (Note 10) |
75,248 | 74,273 | |||||
Intangible assets, net (Note 11) |
958,561 | 849,634 | |||||
| | | | | | | |
Total non-current assets |
1,048,371 | 938,849 | |||||
| | | | | | | |
Total assets |
1,748,860 |
1,647,676 |
|||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
See the accompanying notes to financial statements.
F-2
Linx S.A.
Interim consolidated statements of financial position (Continued)
As of March 31, 2019 and December 31, 2018
(In thousands of Brazilian reais)
|
March 31,
2019 |
December 31,
2018 |
|||||
| | | | | | | |
|
(Unaudited) | ||||||
Liabilities and shareholders' equity |
|||||||
Current liabilities |
|||||||
Suppliers |
12,543 | 13,623 | |||||
Loans and financing (Note 12) |
54,105 | 40,720 | |||||
Labor obligations (Note 13) |
53,893 | 43,801 | |||||
Taxes payable |
11,400 | 13,455 | |||||
Income tax and social contribution |
1,652 | 1,206 | |||||
Payables for the acquisition of businesses (Note 14) |
49,450 | 57,099 | |||||
Deferred revenue (Note 15) |
41,031 | 40,053 | |||||
Dividends payable |
2,764 | 2,764 | |||||
Other liabilities |
17,380 | 7,979 | |||||
| | | | | | | |
Total current liabilities |
244,218 | 220,700 | |||||
Non-current liabilities |
|||||||
Loans and financing (Note 12) |
276,755 | 209,261 | |||||
Labor obligations (Note 13) |
615 | | |||||
Payables for the acquisition of businesses (Note 14) |
45,494 | 55,388 | |||||
Deferred taxes (Note 16) |
77,189 | 72,635 | |||||
Deferred revenue (Note 15) |
13,736 | 19,195 | |||||
Provision for contingencies (Note 18) |
12,294 | 10,960 | |||||
Other liabilities |
2,044 | 2,328 | |||||
| | | | | | | |
Total non-current liabilities |
428,127 | 369,767 | |||||
Shareholders' equity |
|
|
|||||
Capital (Note 17) |
488,829 | 488,467 | |||||
Capital reserves (Note 17) |
372,176 | 369,879 | |||||
Profit reserves (Note 17) |
179,798 | 179,457 | |||||
Income for the period |
17,180 | | |||||
Additional dividends proposed (Note 17) |
22,236 | 22,236 | |||||
Other comprehensive income (loss) |
(3,704 | ) | (2,830 | ) | |||
| | | | | | | |
|
1,076,515 | 1,057,209 | |||||
| | | | | | | |
Total liabilities and shareholders' equity |
1,748,860 | 1,647,676 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
See the accompanying notes to financial statements.
F-3
Linx S.A.
Interim consolidated statements of income
Three months ended March 31, 2019 and 2018
(In thousands of Brazilian
reais)
(Unaudited)
|
For the three
months ended March 31, |
||||||
| | | | | | | |
|
2019 |
2018
|
|||||
| | | | | | | |
Net operating revenues (Note 19) |
176,805 | 158,410 | |||||
Operating income (expenses) |
|||||||
Cost of services rendered (Note 20) |
(59,999 | ) | (56,656 | ) | |||
General and administrative (Note 20) |
(43,962 | ) | (42,529 | ) | |||
Selling (Note 20) |
(35,325 | ) | (22,059 | ) | |||
Research and development (Note 11/20) |
(18,372 | ) | (16,207 | ) | |||
Other operating income (Note 20) |
8,124 | 8,004 | |||||
Other operating expenses (Note 20) |
(1,934 | ) | 199 | ||||
| | | | | | | |
|
(151,468 | ) | (129,248 | ) | |||
Operating income |
25,337 | 29,162 | |||||
| | | | | | | |
Net financial income (expenses) |
|||||||
Financial income (Note 21) |
10,284 | 12,045 | |||||
Financial expenses (Note 21) |
(12,048 | ) | (8,348 | ) | |||
| | | | | | | |
|
(1,764 | ) | 3,697 | ||||
Income before income tax and social contribution |
23,573 | 32,859 | |||||
| | | | | | | |
Income tax and social contribution current (Note 16) |
(2,025 | ) | (1,664 | ) | |||
Income tax and social contribution deferred (Note 16) |
(4,368 | ) | (4,743 | ) | |||
| | | | | | | |
Net income |
17,180 | 26,452 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Basic earnings per share in Reais (Note 23) |
0.1082 | 0.1611 | |||||
Diluted earning per share in Reais (Note 23) |
0.1064 | 0.1592 |
See the accompanying notes to financial statements.
F-4
Linx S.A.
Interim consolidated statements of other comprehensive income,
Three months ended March 31, 2019 and 2018
(In
thousands of Brazilian reais)
(Unaudited)
|
For the three
months ended March 31, |
||||||
| | | | | | | |
|
2019 |
2018
|
|||||
| | | | | | | |
Net income |
17,180 | 26,452 | |||||
Other comprehensive income to be reclassified to income (loss) for the year in subsequent periods |
|||||||
Exchange differences on translation of foreign operations |
(874 | ) | (120 | ) | |||
Other comprehensive income of the associated company under the equity method |
| (1,027 | ) | ||||
| | | | | | | |
Total comprehensive income |
16,306 | 25,305 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
See the accompanying notes to financial statements.
F-5
Linx S.A.
Consolidated statements of changes in shareholders' equity
Three months ended March 31, 2019 and 2018
(In thousands of Brazilian reais)
|
Capital reserves | Profit reserves | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Capital |
Share
Premium |
Stock
option plan |
Treasury
shares |
Expenditures
with issuance of shares |
Total |
Legal
reserve |
Profit
retention |
Total |
Retained
earnings |
Other
comprehensive income (loss) |
Additional
dividends proposed |
Total
|
|||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at December 31, 2017 |
486,032 | 539,571 | 11,548 | (33,887 | ) | (37,423 | ) | 479,809 | 7,037 | 179,100 | 186,137 | | (247 | ) | 18,789 | 1,170,520 | ||||||||||||||||||||||||
Prior-year adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Effects from the first-time adoption of IFRS 9 |
| | | | | | | (1,015 | ) | (1,015 | ) | | | | (1,015 | ) | ||||||||||||||||||||||||
Effects from the first-time adoption of IFRS 15 |
| | | | | | | (35,668 | ) | (35,668 | ) | | | | (35,668 | ) | ||||||||||||||||||||||||
Opening balances at 01/01/2018, adjusted |
486,032 | 539,571 | 11,548 | (33,887 | ) | (37,423 | ) | 479,809 | 7,037 | 142,417 | 149,454 | | (247 | ) | 18,789 | 1,133,837 | ||||||||||||||||||||||||
Issuance of capital |
1,442 |
|
|
|
|
|
|
|
|
|
|
|
1,442 |
|||||||||||||||||||||||||||
Stock option plan |
| | 379 | | | 379 | | | | | | | 379 | |||||||||||||||||||||||||||
Other comprehensive income |
| | | | | | | | | | (1,147 | ) | | (1,147 | ) | |||||||||||||||||||||||||
Net income for the period (unaudited) |
| | | | | | | | | 26,452 | | | 26,452 | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at March 31, 2018 |
487,474 | 539,571 | 11,927 | (33,887 | ) | (37,423 | ) | 480,188 | 7,037 | 142,417 | 149,454 | 26,452 | (1,394 | ) | 18,789 | 1,160,963 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at December 31, 2018 |
488,467 |
539,571 |
16,104 |
(148,373 |
) |
(37,423 |
) |
369,879 |
7,037 |
172,420 |
179,457 |
|
(2,830 |
) |
22,236 |
1,057,209 |
||||||||||||||||||||||||
Issuance of capital (Note 17) |
362 |
|
|
|
|
|
|
|
|
|
|
|
362 |
|||||||||||||||||||||||||||
Stock option plan (Note 24) |
| | 2,297 | | | 2,297 | | | | | | | 2,297 | |||||||||||||||||||||||||||
Effect from adoption of hyperinflation |
| | | | | | | 341 | 341 | | | | 341 | |||||||||||||||||||||||||||
Exchange differences on translation of foreign operations |
| | | | | | | | | | (874 | ) | | (874 | ) | |||||||||||||||||||||||||
Net income for the period |
| | | | | | | | | 17,180 | | | 17,180 | |||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at March 31, 2019 |
488,829 | 539,571 | 18,401 | (148,373 | ) | (37,423 | ) | 372,176 | 7,037 | 172,761 | 179,798 | 17,180 | (3,704 | ) | 22,236 | 1,076,515 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See the accompanying notes to financial statements.
F-6
Linx S.A.
Interim consolidated statements of cash flows
Three months ended March 31, 2019 and 2018
(In thousands of
Brazilian reais)
(Unaudited)
|
For the three
months ended March 31, |
||||||
| | | | | | | |
|
2019 |
2018
|
|||||
| | | | | | | |
Cash flows from operating activities |
|||||||
Net income for the period |
17,180 | 26,452 | |||||
Adjustments to reconcile income to cash and cash equivalents generated by (used in) operational activities: |
|||||||
Depreciation and amortization (Note 10/11) |
24,348 | 18,430 | |||||
Addition to allowance for doubtful accounts (Note 6) |
529 | 89 | |||||
Losses (gains) on write-off/disposal of goods |
429 | 8,146 | |||||
Addition (reversal) of contingencies related to business acquisitions |
1,531 | (8,961 | ) | ||||
Stock option plan |
2,297 | 379 | |||||
Financial expenses |
7,642 | 2,669 | |||||
Income tax and social contribution deferred (Note 16) |
4,368 | 4,743 | |||||
Income tax and social contribution current (Note 16) |
2,025 | 1,664 | |||||
Provisions for contingency (Note 18) |
1,334 | 758 | |||||
Other operating income (Note 20) |
(9,232 | ) | (8,997 | ) | |||
Income from interest earning bank deposits (Note 21) |
(6,526 | ) | (8,157 | ) | |||
Effect from adoption of hyperinflation |
519 | | |||||
Others |
| (1,027 | ) | ||||
Change in operating assets and liabilities: |
|||||||
Trade accounts receivable |
(6,124 | ) | (6,350 | ) | |||
Recoverable taxes |
3,415 | (3,047 | ) | ||||
Other credits and judicial deposits |
(9,021 | ) | (4,838 | ) | |||
Suppliers |
(1,256 | ) | 2,340 | ||||
Labor obligations |
10,707 | 6,652 | |||||
Taxes and contributions payable |
(2,123 | ) | (1,445 | ) | |||
Deferred income |
(4,481 | ) | (140 | ) | |||
Other accounts payable |
9,117 | (158 | ) | ||||
Income tax and social contribution paid (Note 16) |
(1,093 | ) | (697 | ) | |||
| | | | | | | |
Net cash flows from operating activities |
45,585 | 28,505 | |||||
| | | | | | | |
Cash flows from financing activities |
|||||||
Purchase of fixed assets |
(4,770 | ) | (2,559 | ) | |||
Purchase of intangible assets |
(18,442 | ) | (15,208 | ) | |||
Acquisition of business, net of cash and cash equivalents acquired |
| (14,200 | ) | ||||
Purchase of financial assets (Note 5) |
(117,514 | ) | (139,777 | ) | |||
Proceeds from redemption of financial assets (Note 5) |
124,175 | 148,496 | |||||
| | | | | | | |
Net cash flows from (used in) investing activities |
(16,551 | ) | (23,248 | ) | |||
| | | | | | | |
Cash flows from financing activities |
|||||||
Additions of loans and financing |
| 44,468 | |||||
Payments of loans and financing (Note 12) |
(13,895 | ) | (9,637 | ) | |||
Financial expenses paid (Note 12) |
(3,851 | ) | (1,978 | ) | |||
Payments for the acquisition of subsidiaries (Note 14) |
(10,681 | ) | (33,601 | ) | |||
Proceeds from issuance of shares (Note 18) |
362 | 1,442 | |||||
| | | | | | | |
Net cast flows from (used in) financing activities |
(28,065 | ) | 694 | ||||
| | | | | | | |
Foreign exchange gain or (loss) in cash and cash equivalents |
(874 | ) | (120 | ) | |||
| | | | | | | |
Increase (decrease) in cash and cash equivalents |
95 | 5,831 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Cash and cash equivalents at the beginning of the year |
49,850 | 42,918 | |||||
| | | | | | | |
Cash and cash equivalents at the end of the year |
49,945 | 48,749 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
See the accompanying notes to financial statements.
F-7
Linx S.A.
Notes to interim condensed consolidated financial statements
March 31, 2019
(In thousands of Brazilian reais,
except when otherwise indicated)
(Unaudited)
1. Operations
Linx S.A. (the "Company" or "Linx"), a Brazilian corporation, was incorporated in 1985 and is headquartered at Avenida das Nações Unidas, 7221, 7º Andar, city and state of São Paulo, Brazil.
The Company and its subsidiaries (the "Group") are focused on developing and providing affordable, easy-to-use, reliable and seamlessly integrated software solutions to retailers in Brazil, under a recurring subscription-based software revenue. Linx is a one-stop-shop that offers business management tools, payment solutions, e-commerce and omni-channel applications through a single integrated and ever-evolving platform to retailers of all sizes and capabilities.
The Group offers an integrated set of products which are divided into three product lines: Linx Core, Linx Digital and Linx Pay Hub. The Group initiates its operations through its Linx Core product, principally consisting of Linx's management software solutions. As part of the efforts to adapt to ever-evolving customer needs, the Group created its Linx Digital (e-commerce and omni-channel related products) and Linx Pay Hub (payments related products) product lines. The solutions the Group offers through the product lines are specially designed for the customers' value chain ERP/POS offerings with the objective of developing a fully integrated ecosystem and becoming a one-stop-shop for retailers. These products allows Linx to become a partner of choice to retailers by providing services that increase efficiencies, integrating digital and physical stores while ensuring a flexible payment solution suitable for each.
The Company became a publicly listed corporation in Brazil when its shares were listed on the New Market segment of São Paulo Stock Exchange B3 on February 8, 2013, trading under the ticker symbol LINX3.
These interim condensed consolidated financial statements were approved by Management on May 10, 2019.
2. Basis of preparation
2.1 Basis of presentation
The interim condensed consolidated financial statements were prepared in accordance with IAS 34 Interim Financial Reporting, issued by the International Accounting Standards Board IASB. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual consolidated financial statements as of December 31, 2018.
All relevant pieces of information characteristic of interim financial statements, and only them, are being evidenced and correspond to those used by Management.
2.2 Basis of measurement
The interim condensed consolidated financial statements have been prepared on a historical cost basis except for certain financial assets that have been measured at fair value.
F-8
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
2. Basis of preparation (Continued)
2.3 Functional and presentation currency
Interim condensed consolidated financial statements are presented in Brazilian reais (R$), the Company's functional currency. Each entity of the Group determines its own functional currency and items included in the financial statements are measured using that functional currency, and for those entities whose functional currencies are different from the Brazilian real, the financial statements are translated into reais on the reporting date.
The Company's interim condensed consolidated financial statements as of March 31, 2019 and December 31, 2018 and for the three month periods ended March 31, 2019 and 2018, are presented in thousands of reais (unless otherwise stated).
2.4 Use of estimates and judgments
The interim condensed consolidated financial statements were prepared in accordance with several measurement bases used in accounting estimates. The accounting estimates were based on objective and subjective factors, with a basis on Management's judgment for determination of the adequate amount to be recorded in the financial statements. Significant items subject to these estimates and assumptions include the selection of fixed assets and its recoverability in operations, evaluation of financial assets at fair value, credit risk analysis to determine the allowance for doubtful accounts, and the analysis of the remaining risks to determine other provisions, including for contingencies.
Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. Estimates and assumptions are reviewed by the Group at least annually.
3. Significant accounting policies
The accounting policies have been consistently applied to all the periods presented in these interim condensed consolidated financial statements. The accounting policies have also been consistently applied by the Company's subsidiaries.
3.1. Presentation of segment information
The operating segment information is shown consistently with the internal report reviewed by the chief operating decision maker. The chief operating decision maker, in charge of allocating funds and evaluating performance of operating segments is the Executive Board, also in charge of the Group's strategic decision making. The Executive Board considers the whole Group as a single operating and reportable segment as it makes its operational and strategic decisions based on consolidated income (loss).
F-9
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
3. Significant accounting policies (Continued)
3.2. Consolidation basis
The interim condensed consolidated financial statements comprise the financial statements of the Company and its subsidiaries as of March 31, 2019 and December 31, 2018. Control is obtained when the Group is exposed, or entitled to, variable returns from its involvement with the investee, and has the ability to affect those returns through the power over the investee.
The interim condensed consolidated financial statements include information of Linx S.A. and its subsidiaries, as follows:
|
Ownership percentage
|
||||||
| | | | | | | |
|
March 31,
2019 |
December 31,
2018 |
|||||
| | | | | | | |
Subsidiaries |
|||||||
Linx Sistemas e Consultoria Ltda. |
99.99 | % | 99.99 | % | |||
Linx Telecomunicações Ltda. |
99.99 | % | 99.99 | % | |||
Indirect subsidiaries |
|
|
|||||
Napse S.R.L. |
100.00 | % | 100.00 | % | |||
Sback Tecnologia da Informação Ltda. |
100.00 | % | 100.00 | % | |||
DCG Soluções para Venda Digital S.A. |
100.00 | % | 100.00 | % | |||
Linx Pay Meios de Pagamentos Ltda. |
100.00 | % | 100.00 | % |
The Company and its subsidiaries (jointly, "Group") is the direct parent company of the following companies:
Linx Sistemas e Consultoria Ltda. ("Linx Sistemas") : is engaged in developing management software for the retail segment, providing technical support, advisory and training.
Linx Telecomunicações Ltda. ("Linx Telecomunicações") : engaged in the provision of telecommunication services in general, such as transmission of voice, data, images and sound by any means, including services of networks and circuits, telephony, by any systems, including via Internet.
It is the indirect parent company of the following companies:
Napse S.R.L. ("Napse") : operates in the development and sales of point-of-sale (POS) automation software, electronic payment solutions (TEF) and promotion engine for large retail chains in the main Latin American markets.
Sback Tecnologia da Informação Ltda. ("Sback") : operates in the cloud platform leader in technologies of retention, reengagement and recapture through Big Data and Intelligence for engagement.
F-10
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
3. Significant accounting policies (Continued)
DCG Soluções para Venda Digital S.A. ("DCG") : operating in the development of e-commerce platform, focused on the development of technology solution in the Software as a Service (SaaS) model that allows digital sales and connection with marketplaces.
Linx Pay Meios de Pagamentos Ltda. ("Linx Pay") : operates with the purpose of aggregating all of the Company's initiatives related to fintech such as TEF (payment gateway), DUO (Smart POS) and the newly launched Linx Pay Easy (sub-acquiring), besides the new products aligned with Linx's strategic positioning in such area.
3.3. New or revised standards adopted in 2019
These interim condensed consolidated financial statements have been prepared using accounting policies consistent with those adopted for the preparation of the financial statements for the year ended December 31, 2018 (Note 3 "Significant Accounting Policies") and must be reviewed together with these financial statements, as well as considering the new standards, interpretations and amendments that came into effect from January 1, 2019, described below:
Standards and amended standards
|
||
| | |
IFRS 16 | Financial lease operations | |
IFRIC 23 |
|
Uncertainty related to income tax treatments |
Amendments to IFRS 9 |
|
Characteristics of prepayment with negative remuneration |
Amendments to IAS 28 |
|
Long-term Investment in Associated Companies and Joint Ventures |
IFRS Standards Annual Improvements |
|
Cycle 2015-2017 |
Amendments to IAS 19 |
|
Alteration of plan, Restriction or Settlement |
The Group did not early adopt any other standards. Unless as stated below, the adoption of a number of these standards, amendments and interpretations had no material impacts on the Company upon their first-time adoption:
IFRS 16 Leases
IFRS 16 supersedes IAS 17, Leases , IFRIC 4, D, SIC-15, Operating Leases-Incentives, and SIC-27, Evaluating the Substance of Transactions Involving the Legal Form of a Lease . The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for most leases under a single on-balance sheet model.
Lessor accounting under IFRS 16 is substantially unchanged from IAS 17. Lessors will continue to classify leases as either operating or finance leases using similar principles as in IAS 17. Therefore, IFRS 16 did not have an impact for leases where the Group is the lessor.
F-11
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
3. Significant accounting policies (Continued)
The Group adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application of 1 January 2019. Under this method, the standard is applied retrospectively wth the cumulative effect of initially applying the standard recognized at the date of initial application. The Group elected to use the transition practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 at the date of initial application. The Group also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option.
The effect of adopting IFRS 16 as of January 1, 2019 (increase (decrease)) is as follows:
|
Financial
Statements disclosed on December 31, 2018 |
Impact
concerning the adoption of IFRS 16 |
Financial
statements March 01, 2019 |
|||||||
| | | | | | | | | | |
Assets |
||||||||||
Advance |
10,394 | (10,394 | ) | | ||||||
Other non-current assets |
698,433 | | 698,433 | |||||||
| | | | | | | | | | |
Current assets |
708,827 | (10,394 | ) | 698,433 | ||||||
Intangible assets (Right to use) |
849,634 | 102,190 | 951,824 | |||||||
Other non-current assets |
89,215 | | 89,215 | |||||||
| | | | | | | | | | |
Non-current assets |
938,849 | 102,190 | 1,041,039 | |||||||
| | | | | | | | | | |
Total assets |
1,647,676 | 91,796 | 1,739,472 | |||||||
| | | | | | | | | | |
Liabilities |
||||||||||
Leasing payable |
| 6,531 | 6,531 | |||||||
Other current liabilities |
220,700 | | 220,700 | |||||||
| | | | | | | | | | |
Current liabilities |
220,700 | 6,531 | 227,231 | |||||||
Leasing payable |
| 85,265 | 85,265 | |||||||
Other non-current liabilities |
369,767 | | 369,767 | |||||||
| | | | | | | | | | |
Non-current liabilities |
369,767 | 85,265 | 455,032 | |||||||
| | | | | | | | | | |
Shareholders' equity |
1,057,209 | | 1,057,209 | |||||||
| | | | | | | | | | |
Total liabilities and shareholders' equity |
1,647,676 | 91,796 | 1,739,472 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
F-12
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
3. Significant accounting policies (Continued)
|
Financial
Statements disclosed on March 31, 2019 |
Impact
concerning the adoption of IFRS 16 |
Financial
Statements as of March 31, 2019 without effect of said standards |
|||||||
| | | | | | | | | | |
Income (loss) |
||||||||||
Net revenue |
176,805 | | 176,805 | |||||||
Cost of services rendered |
(59,999 | ) | | (59,999 | ) | |||||
| | | | | | | | | | |
Gross income |
116,806 | | 116,806 | |||||||
| | | | | | | | | | |
Operating expenses |
(91,469 | ) | 4,065 | (87,404 | ) | |||||
| | | | | | | | | | |
Income before financial revenues and expenses |
25,337 | 4,065 | 29,402 | |||||||
| | | | | | | | | | |
Financial results |
(1,764 | ) | 2,004 | 240 | ||||||
| | | | | | | | | | |
Income (loss) before taxes |
23,573 | 6,069 | 29,642 | |||||||
| | | | | | | | | | |
Current and deferred income tax and social contribution |
(6,393 | ) | | (6,393 | ) | |||||
| | | | | | | | | | |
Net income |
17,180 | 6,069 | 23,249 | |||||||
| | | | | | | | | | |
(a) Nature of the effect of adoption of IFRS 16
The Group has lease contracts for various items of plant, equipment and other. Before the adoption of IFRS 16, the Group classified each of its leases (as lessee) at the inception date as either a finance lease or an operating lease. A lease was classified as a finance lease if it transferred substantially all of the risks and rewards incidental to ownership of the leased asset to the Group; otherwise it was classified as an operating lease. Before the adoption of IFRS 16, the Group had no financial leasest. In an operating lease, the leased property was not capitalised and the lease payments were recognised as rent expense in the statement of profit or loss on a straight-line basis over the lease term. Any prepaid rent and accrued rent were recognised under Prepayments and Trade and other payables, respectively.
Upon adoption of IFRS 16, the Group applied a single recognition and measurement approach for all leases that it is the lessee, except for short-term leases and leases of low-value assets. The Group recognised lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
In accordance with the modified retrospective method of adoption, the Group applied IFRS 16 retrospectively with the cumulative effect of initially apply the standard as an adjustment at the date of initial application.
F-13
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
3. Significant accounting policies (Continued)
Leases previously accounted for as operating leases
The Group recognized right-of-use assets and lease liabilities for those leases previously classified as operating leases, except for short-term leases and leases of low-value assets. The right-of-use assets for most leases were recognized based on the carrying amount as if the standard had always been applied, apart from the use of incremental borrowing rate at the date of initial application. In some leases, the right-of-use assets were recognized based on the amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease payments previously recognized. Lease liabilities were recognized based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application.
The Group also applied the available practical expedients wherein it:
Based on the foregoing, as of January 1, 2019:
(b) Summary of new accounting policies
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognized right-of-use assets are depreciated on a
F-14
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
3. Significant accounting policies (Continued)
straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment.
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognized as expense in the period on which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value (i.e., below R$ 20). Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term.
Significant judgement in determining the lease term of contracts with renewal options
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.
The Group has the option, under some of its leases to lease the assets for additional terms of three to five years. The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and
F-15
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
3. Significant accounting policies (Continued)
affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy).
(c) Amounts recognized in the statement of financial position and profit or loss
Set out below, are the carrying amounts of the Group's right-of-use assets and lease liabilities and the movements during the period:
|
Right-of-use assets | |||||||||||||||
| | | | | | | | | | | | | | | | |
|
Property
for rent |
Other
equipment |
Cloud (*) | Total |
Lease
liabilities |
|||||||||||
| | | | | | | | | | | | | | | | |
As of January 1, 2019 |
90,924 | 872 | 10,394 | 102,190 | 91,796 | |||||||||||
Additions |
| | 8,194 | 8,194 | | |||||||||||
Depreciation expense |
(2,404 | ) | (22 | ) | (1,639 | ) | (4,065 | ) | | |||||||
Interest expense |
| | | | 2,003 | |||||||||||
Payments |
| | | | (3,563 | ) | ||||||||||
| | | | | | | | | | | | | | | | |
As of 31 March 2019 |
88,520 | 850 | 16,949 | 106,319 | 90,236 | |||||||||||
| | | | | | | | | | | | | | | | |
4. Cash and cash equivalents
|
March 31,
2019 |
December 31,
2018 |
|||||
| | | | | | | |
Cash and banks |
45,841 | 45,422 | |||||
Short-term interest earning bank deposits |
4,104 | 4,428 | |||||
| | | | | | | |
|
49,945 | 49,850 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Highly liquid short-term interest earning bank deposits are promptly convertible into a known sum of cash and subject to an insignificant risk of change of value.
Short-term interest earning bank deposits refer to Fixed Income Funds accruing interest at 101.03% of the Interbank Deposit Certificate (CDI).
The exposure of the Company and its subsidiaries to risk and the sensitivity analysis are disclosed in Note 22.8.
F-16
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
5. Financial assets
Type |
Name |
Date of
investment |
Maturity |
Average yield in
relation to CDI (%) |
March 31,
2019 |
December 31,
2018 |
||||||||||
| | | | | | | | | | | | | | | | |
Fund |
Retail Private Fixed-Income Credit | 10/03/2016 | Indefinite | 103.20 | % | 413,239 | 413,374 | |||||||||
| | | | | | | | | | | | | | | | |
|
413,239 | 413,374 | ||||||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
The balance of the Fixed Income Fund comprises:
Type |
Code |
Date of
investment |
Issue | Maturity | Quantity | Index |
Amount
of the investment |
December 31,
2018 |
||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Fixed income |
LF (1) |
10/21/2016-
03/19/2018 |
10/21/2016-
03/19/2018 |
04/22/2019-
06/09/2020 |
81 |
CDI D 101.75-
104.5% |
21,700 | 25,033 | ||||||||||||
Fixed income |
LFS (2) |
02/15/2013 |
01/16/2013 |
01/15/2019 |
28 |
CDI D 111% |
8,453 |
16,166 |
||||||||||||
Fixed income |
Eligible LFS (2) |
08/01/2018 |
08/01/2018 |
08/01/2025 |
17 |
CDI D 108.75% |
5,100 |
5,273 |
||||||||||||
Fixed income |
LFT (3) |
10/03/2016- 12/21/2018 |
07/01/2000- 01/05/2018 |
09/01/2021- 03/01/2024 |
7,066 |
LFT / SELIC |
65,133 |
69,779 |
||||||||||||
Fixed income |
LTN (4) |
12/31/2018 |
12/31/2018 |
07/01/2020 |
50,503 |
PRE 6.40% p.a. |
45,303 |
45,303 |
||||||||||||
Investment fund |
Other funds (5) |
|
|
|
5,940,011 |
|
235,767 |
235,767 |
||||||||||||
Fixed income |
LAMDI (6) |
11/27/2018- 12/03/2018 |
11/27/2018- 12/03/2018 |
11/29/2019- 12/03/2019 |
16,000 |
CDI 103.0-
|
16,000 |
16,088 |
||||||||||||
| | | | | | | | | | | | | | | | | | | | |
|
413,409 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
|
Fund expenses |
(36 |
) |
|||||||||||||||||
|
Treasury balance |
1 |
||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
|
413,374 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
F-17
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
5. Financial assets (Continued)
Type |
Code |
Date of
investment |
Issue | Maturity | Quantity | Index |
Amount
of the investment |
March 31,
2019 |
||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Fixed income |
LF (1) |
11/16/2017 a
03/19/2019 |
11/16/2017 a
03/19/2019 |
02/17/2020 a
03/18/2022 |
293 | CDI D 102 a 105,5% | 72,336 | 73,557 | ||||||||||||
Fixed income |
LFS Elegível (2) |
08/01/2018 |
08/01/2018 |
08/01/2018 |
23 |
CDI D 108,75% |
5,100 |
5,377 |
||||||||||||
Fixed income |
LFT (3) |
10/03/2016 a 12/21/2018 |
07/01/2000 a 01/05/2018 |
09/01/2021 a 03/01/2024 |
7,066 |
LFT / SELIC |
65,133 |
70,838 |
||||||||||||
Fixed income |
LTN (4) |
03/28/2019 |
03/28/2019 |
05/15/2019 |
2,677 |
PRE 6,40 a,a |
8,770 |
8,770 |
||||||||||||
Fixed income |
Other funds (5) |
|
|
|
5,764,138 |
|
233,368 |
233,368 |
||||||||||||
Investment fund |
LAMDI (6) |
11/27/2018 a 02/26/2019 |
11/27/2018 a 02/26/2019 |
11/29/2019 a 02/28/2020 |
3 |
CDI 103% |
21,366 |
21,284 |
||||||||||||
| | | | | | | | | | | | | | | | | | | | |
|
413,194 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
|
Despesas do fundo |
41 |
||||||||||||||||||
|
Saldo em tesouraria |
4 |
||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
|
413,239 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Management's policy is to use these funds for specific payments, such as for the acquisition of businesses and for payment of interest on equity, and not to use these funds to cover operating cash flow needs.
The exposure of the Group to risk and the sensitivity analysis are disclosed in Note 22.8.
F-18
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
6. Trade accounts receivable
|
March 31,
2019 |
December 31,
2018 |
|||||
| | | | | | | |
Days: |
|||||||
1-30 |
15,021 | 9,591 | |||||
31-60 |
4,851 | 3,468 | |||||
61-90 |
3,951 | 3,063 | |||||
91-180 |
4,949 | 4,483 | |||||
>181 |
6,669 | 5,952 | |||||
| | | | | | | |
|
35,441 | 26,557 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The Company and its subsidiaries estimated an allowance for expected credit losses based on receivables past due over 180 days that basically represents the historical loss and trade notes receivable under discussion in court. The Company also recognizes a provision for expected losses
F-19
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
6. Trade accounts receivable (Continued)
in trade accounts receivable that comprise outstanding accounts receivable base. The estimated percentage loss for each aging band is shown below.
Maturity |
Loss %
|
|||
| | | | |
Falling due (days): |
||||
>1 |
0.3 | % | ||
up to 1 |
0.3 | % | ||
1-30 |
2.4 | % | ||
31-60 |
7.0 | % | ||
61-90 |
12.9 | % | ||
91-120 |
20.4 | % | ||
121-150 |
26.4 | % | ||
151-180 |
29.3 | % |
The changes in the allowance for expected credit losses is as follows:
|
March 31,
2019 |
December 31,
2018 |
|||||
| | | | | | | |
Opening balance |
(4,215 | ) | (1,183 | ) | |||
Initial adoption of IFRS 9 as of January 1, 2018 |
| (1,539 | ) | ||||
Addition of provision |
(1,314 | ) | (5,734 | ) | |||
Use/reversal |
785 | 4,241 | |||||
| | | | | | | |
Closing balance |
(4,744 | ) | (4,215 | ) | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
7. Recoverable taxes
|
March 31,
2019 |
December 31,
2018 |
|||||
| | | | | | | |
Brazilian State VAT (ICMS) |
4,453 | 4,286 | |||||
Withholding taxes and contributions |
25,358 | 29,272 | |||||
Brazilian Federal Revenue taxes (PIS and COFINS) |
456 | 456 | |||||
Other |
1,317 | 1,080 | |||||
| | | | | | | |
|
31,584 | 35,094 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
F-20
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
8. Related parties
8.1 Remuneration of key management personnel
Compensation of key management personnel of the Group (07 and 06 persons in 2019 and 2018, respectively) for the periods ended March 31, 2019 and 2018 is as follows:
|
March 31,
2019 |
March 31,
2018 |
|||||
| | | | | | | |
Short-term employee benefits |
3,957 | 3,366 | |||||
Share-based payment transactions |
744 | 814 | |||||
| | | | | | | |
|
4,701 | 4,180 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
9. Other receivables
|
March 31,
2019 |
December 31,
2018 |
|||||
| | | | | | | |
Prepaid expenses Services |
7,838 | 21,696 | |||||
Indemnification assets from business combinations (*) |
13,975 | 13,560 | |||||
Advance to suppliers |
3,728 | 7,102 | |||||
Advance to employees, vacations and 13th salary |
6,990 | 2,619 | |||||
Other (**) |
7,437 | 5,643 | |||||
| | | | | | | |
|
39,968 | 50,620 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Current assets |
32,696 | 43,407 | |||||
Non-current assets |
7,272 | 7,213 |
F-21
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
10. Property, plant and equipment, net
|
December 31, 2018
|
|||||||||
| | | | | | | | | | |
|
Cost |
Accumulated
depreciation |
Net
|
|||||||
| | | | | | | | | | |
Computers and electronics |
43,544 | (30,599 | ) | 12,945 | ||||||
Vehicles |
14,668 | (9,574 | ) | 5,094 | ||||||
Furniture and fixtures |
14,587 | (5,554 | ) | 9,033 | ||||||
Facilities, machinery and equipment |
36,246 | (14,212 | ) | 22,034 | ||||||
Leasehold improvements |
37,041 | (15,558 | ) | 21,483 | ||||||
Real estate |
3,348 | (669 | ) | 2,679 | ||||||
Other components |
1,005 | | 1,005 | |||||||
| | | | | | | | | | |
Total |
150,439 | (76,166 | ) | 74,273 | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
March 31, 2019
|
|||||||||
| | | | | | | | | | |
|
Cost |
Accumulated
depreciation |
Net amount
|
|||||||
| | | | | | | | | | |
Computers and electronics |
47,339 | (31,785 | ) | 15,554 | ||||||
Vehicles |
15,173 | (10,018 | ) | 5,155 | ||||||
Furniture and fixtures |
14,568 | (5,850 | ) | 8,718 | ||||||
Facilities, machinery and equipment |
36,499 | (15,022 | ) | 21,477 | ||||||
Leasehold improvements |
36,962 | (16,269 | ) | 20,693 | ||||||
Real estate |
3,348 | (702 | ) | 2,646 | ||||||
Other components |
1,005 | | 1,005 | |||||||
| | | | | | | | | | |
Total |
154,894 | (79,646 | ) | 75,248 | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
F-22
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
10. Property, plant and equipment, net (Continued)
Changes in property and equipment balances are as follows
|
Cost
|
|||||||||||||||
| | | | | | | | | | | | | | | | |
|
December 31,
2018 |
Additions (*) | IAS 29 (**) | Disposals |
March 31,
2019 |
|||||||||||
| | | | | | | | | | | | | | | | |
Computers and electronics |
43,544 | 3,902 | (49 | ) | (58 | ) | 47,339 | |||||||||
Vehicles |
14,668 | 612 | (3 | ) | (104 | ) | 15,173 | |||||||||
Furniture and fixtures |
14,587 | 12 | (4 | ) | (27 | ) | 14,568 | |||||||||
Facilities, machinery and equipment |
36,246 | 361 | (47 | ) | (61 | ) | 36,499 | |||||||||
Leasehold improvements |
37,041 | 59 | | (138 | ) | 36,962 | ||||||||||
Real estate |
3,348 | | | | 3,348 | |||||||||||
Other components |
1,005 | | | | 1,005 | |||||||||||
| | | | | | | | | | | | | | | | |
Total |
150,439 | 4,946 | (103 | ) | (388 | ) | 154,894 | |||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
|
Accumulated depreciation
|
|||||||||
| | | | | | | | | | |
|
December 31,
2018 |
Depreciation
expense |
March 31,
2019 |
|||||||
| | | | | | | | | | |
Computers and electronics |
(30,599 | ) | (1,186 | ) | (31,785 | ) | ||||
Vehicles |
(9,574 | ) | (444 | ) | (10,018 | ) | ||||
Furniture and fixtures |
(5,554 | ) | (296 | ) | (5,850 | ) | ||||
Facilities, machinery and equipment |
(14,212 | ) | (810 | ) | (15,022 | ) | ||||
Leasehold improvements |
(15,558 | ) | (711 | ) | (16,269 | ) | ||||
Real estate |
(669 | ) | (33 | ) | (702 | ) | ||||
| | | | | | | | | | |
Total |
(76,166 | ) | (3,480 | ) | (79,646 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Additions to accumulated depreciation, stated in changes for the period, were recorded under "Operating, general and administrative expenses".
F-23
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
11. Intangible assets, net
|
December 31, 2018
|
|||||||||
| | | | | | | | | | |
|
Cost |
Accumulated
amortization |
Net amount
|
|||||||
| | | | | | | | | | |
Software (1) |
62,193 | (30,671 | ) | 31,522 | ||||||
Software development (2) |
15,634 | | 15,634 | |||||||
Software developed (3) |
156,885 | (121,708 | ) | 35,177 | ||||||
Software development capitalized interest |
8,786 | (4,728 | ) | 4,058 | ||||||
Brands acquired |
46,187 | (4,076 | ) | 42,111 | ||||||
Acquired Technology |
130,679 | (90,273 | ) | 40,406 | ||||||
Client portfolio acquisitions |
136,787 | (63,697 | ) | 73,090 | ||||||
Goodwill |
607,633 | | 607,633 | |||||||
Other |
3 | | 3 | |||||||
| | | | | | | | | | |
Total |
1,164,787 | (315,153 | ) | 849,634 | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
March 31, 2019
|
|||||||||
| | | | | | | | | | |
|
Cost |
Accumulated
amortization |
Net amount
|
|||||||
| | | | | | | | | | |
Software (i) |
68,804 | (33,308 | ) | 35,496 | ||||||
Software development (ii) |
18,933 | | 18,933 | |||||||
Software developed (iii) |
163,999 | (128,479 | ) | 35,520 | ||||||
Software development capitalized interest |
11,173 | (5,249 | ) | 5,924 | ||||||
Brands acquired |
46,187 | (4,316 | ) | 41,871 | ||||||
Acquired Technology |
130,679 | (93,420 | ) | 37,259 | ||||||
Client portfolio acquisitions |
136,787 | (67,184 | ) | 69,603 | ||||||
Goodwill |
607,633 | | 607,633 | |||||||
Right to use IFRS 16 |
110,384 | (4,065 | ) | 106,319 | ||||||
Other |
3 | | 3 | |||||||
| | | | | | | | | | |
Total |
1,294,582 | (336,021 | ) | 958,561 | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
F-24
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
11. Intangible assets, net (Continued)
Changes in intangible assets balances are as follows
|
Cost
|
|||||||||||||||
| | | | | | | | | | | | | | | | |
|
December 31,
2018 |
Addition (*) | IAS 29 (**) | Disposals |
March 31,
2019 |
|||||||||||
| | | | | | | | | | | | | | | | |
Software (i) |
62,193 | 6,727 | (75 | ) | (41 | ) | 68,804 | |||||||||
Software development (ii) |
15,634 | 3,299 | | | 18,933 | |||||||||||
Software developed (iii) |
156,885 | 7,114 | | | 163,999 | |||||||||||
Software development capitalized interest |
8,786 | 2,387 | | | 11,173 | |||||||||||
Brands acquired |
46,187 | | | | 46,187 | |||||||||||
Acquired Technology |
130,679 | | | | 130,679 | |||||||||||
Client portfolio acquisitions |
136,787 | | | | 136,787 | |||||||||||
Goodwill (*) |
607,633 | | | | 607,633 | |||||||||||
Right to use IFRS 16 |
| 110,384 | | | 110,384 | |||||||||||
Other |
3 | | | | 3 | |||||||||||
| | | | | | | | | | | | | | | | |
Total |
1,164,787 | 129,911 | (75 | ) | (41 | ) | 1,294,582 | |||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
|
Accumulated amortization
|
|||||||||
| | | | | | | | | | |
|
December 31,
2018 |
Amortization
expense |
March 31,
2019 |
|||||||
| | | | | | | | | | |
Software (i) |
(30,671 | ) | (2,637 | ) | (33,308 | ) | ||||
Software developed (iii) |
(121,708 | ) | (6,771 | ) | (128,479 | ) | ||||
Software development capitalized interest |
(4,728 | ) | (521 | ) | (5,249 | ) | ||||
Brands acquired |
(4,076 | ) | (240 | ) | (4,316 | ) | ||||
Acquired Technology |
(90,273 | ) | (3,147 | ) | (93,420 | ) | ||||
Client portfolio acquisitions |
(63,697 | ) | (3,487 | ) | (67,184 | ) | ||||
Right to use IFRS 16 |
| (4,065 | ) | (4,065 | ) | |||||
| | | | | | | | | | |
Total |
(315,153 | ) | (20,868 | ) | (336,021 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
F-25
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
11. Intangible assets, net (Continued)
11.1 Software development
The activity of the subsidiary Linx Sistemas e Consultoria Ltda. assumes the continuous development of new systems and applications aimed at increasing the range of options to the current clients and potential new clients, in view of the increasing market demand for computerized solutions for the businesses in general. In this context, several projects intended for client systems and applications are being developed. The amounts recorded in intangibles correspond to portion of the cost of the project development department, determined based on the number of hours of the respective employees. Each project is amortized as from the moment the asset is available for use for an average period of three years, which according to management, reflects the expected period of financial return of the projects.
In the period ended March 31, 2019, the amount of R$ 18.372 (R$ 16,207 on March 31, 2018) was recognized in income (loss) for the period in the consolidated, and was related to research and maintenance of the software developed.
12. Loans and financing
Type |
Charges (*) |
Effective
rate |
Maturity | Covenants |
March 31,
2019 |
December 31,
2018 |
||||||||||||
| | | | | | | | | | | | | | | | | | |
Loan BNDES bank |
TLP + Spread 1.37% p.a. | | 12/31/2027 | 13.2 | (a) | 147,278 | 146,602 | |||||||||||
Loan BNDES bank |
TJLP + 1.67% p.a. | 9.446 | %. | 02/15/2021 | 13.2 | (b) | 51,043 | 57,526 | ||||||||||
Loan BNDES bank |
TJLP + 1.96% p.a. | 9.751 | % | 03/15/2022 | 13.2 | (c) | 41,251 | 44,560 | ||||||||||
Loan BNDES bank |
TJLP + 1.00% p.a. | 8.768 | % | 09/16/2019 | 353 | 528 | ||||||||||||
Loan Itaú bank |
TJLP + 7.20% p.a. | 14.980 | % | 04/16/2021 | 699 | 761 | ||||||||||||
Leases |
9.15% p.a. | | 12/31/2028 | 90,236 | | |||||||||||||
Other |
| 4 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | |
|
330,860 | 249,981 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Current liabilities |
54,105 | 40,720 | ||||||||||||||||
Non-current liabilities |
276,755 | 209,261 |
Prevailing loan contracts do not have assets pledged in guarantee.
F-26
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
12. Loans and financing (Continued)
The maturity profile of the Group's non-current liabilities is as follows:
Period |
March 31,
2019 |
December 31,
2018 |
|||||
| | | | | | | |
2020 |
34,928 | 40,012 | |||||
2021 |
48,974 | 39,387 | |||||
2022 |
34,051 | 24,615 | |||||
2023 |
30,554 | 21,043 | |||||
2024 |
29,829 | 21,043 | |||||
2025 |
29,829 | 21,043 | |||||
2026 |
29,829 | 21,043 | |||||
2027 |
29,962 | 21,075 | |||||
2028 |
8,799 | | |||||
| | | | | | | |
|
276,755 | 209,261 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Changes in loans and financing are shown below:
|
March 31,
2019 |
December 31,
2018 |
|||||
| | | | | | | |
Previous balance |
249,981 | 97,288 | |||||
Funds from acquisition of subsidiaries |
| 1,097 | |||||
Adoption of IFRS 16 |
91,796 | | |||||
Additions of loans and financing |
| 191,837 | |||||
Financial charges |
6,829 | 9,658 | |||||
Financial charges paid |
(3,851 | ) | (9,048 | ) | |||
Payments of loans and financing |
(13,895 | ) | (40,851 | ) | |||
| | | | | | | |
|
330,860 | 249,981 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
12.1 Changes in liabilities from financing activities
|
December 31,
2017 |
Payments | Receipts |
Exchange-
rate change |
New
acquisitions |
Other (*) |
March 31,
2018 |
|||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Loans and financing |
97,288 | (11,615 | ) | 44,468 | | | 2,232 | 132,373 | ||||||||||||||
Accounts payable from acquisition of subsidiaries |
130,767 | (33,601 | ) | | (35 | ) | 11,100 | (17,555 | ) | 90,676 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total liabilities from financing activities |
228,055 | (45,216 | ) | 44,468 | (35 | ) | 11,100 | (15,323 | ) | 223,049 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
F-27
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
12. Loans and financing (Continued)
|
December 31,
2018 |
Payments |
Exchange-
rate change |
Other (*) |
March 31,
2019 |
|||||||||||
| | | | | | | | | | | | | | | | |
Loans and financing |
249,981 | (17,746 | ) | | 98,625 | 330,860 | ||||||||||
Accounts payable from acquisition of subsidiaries |
112,487 | (10,681 | ) | 279 | (7,141 | ) | 94,944 | |||||||||
| | | | | | | | | | | | | | | | |
Total liabilities from financing activities |
362,468 | (28,427 | ) | 279 | 91,484 | 425,804 | ||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
12.2 Covenants
In order to determine the indices, the following definitions and criteria should be adopted:
In the hypothesis that levels established in the item VII of the Clause Nine (Obligations of the Intervening Parent Company) are not met, the Company must present, within 120 days counted as of notification date, in written, from BNDES, real guarantees accepted by BNDES at an amount corresponding to at least 130% of financing value or deriving debt, except if within that period, above mentioned levels were re-established.
We detected no event of non-compliance with covenants at March 31, 2019.
F-28
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
12. Loans and financing (Continued)
In order to determine the indices, the following definitions and criteria should be adopted:
In the hypothesis that levels established in the contract are not met, the Company must present, within 180 days counted as of default date, real guarantees accepted by BNDES at an amount corresponding to at least 130% of financing value or deriving debt, or present a bank guarantee to be provided by the financial institution at BNDES criteria, and it is in financial economic situation assuring the degree of notorious solvency, the total amount of the debt, except if within that period, above mentioned levels were re-established.
We detected no event of non-compliance with covenants at March 31, 2019.
In order to determine the indices, the following definitions and criteria should be adopted:
F-29
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
12. Loans and financing (Continued)
In the hypothesis that levels established in the contract are not met, the Company must present, within 180 days counted as of default date, real guarantees accepted by BNDES at an amount corresponding to at least 130% of financing value or deriving debt, or present a bank guarantee to be provided by the financial institution at BNDES criteria, and it is in financial economic situation assuring the degree of notorious solvency, the total amount of the debt, except if within that period, above mentioned levels were re-established.
We detected no event of non-compliance with covenants at March 31, 2019.
13. Labor obligations
|
March 31,
2019 |
December 31,
2018 |
|||||
| | | | | | | |
Provision for 13th salary and payroll charges |
31,316 | 26,542 | |||||
Social security payable |
6,159 | 6,673 | |||||
Provision for profit sharing |
7,812 | 3,876 | |||||
Severance fund contributions payable |
2,042 | 2,137 | |||||
Salaries payable |
2,930 | 1,344 | |||||
Other |
4,249 | 3,229 | |||||
| | | | | | | |
|
54,508 | 43,801 | |||||
| | | | | | | |
Current liabilities |
53,893 | 43,801 | |||||
| | | | | | | |
Non-current liabilities |
615 | | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
14. Payables related to business acquisitions
Payables related to business acquisitions refer to amounts due to the previous owners for the acquisition of shares or quotas representing the capital of these companies. Debts are indexed to inflation indices under contractual clauses and mature as follows:
|
March 31,
2019 |
December 31,
2018 |
|||||
| | | | | | | |
Installments not subject to restatement (*) |
34,572 | 46,542 | |||||
Napse installments indexed to exchange-rate change and LIBOR. |
42,270 | 41,951 | |||||
Installments indexed to the change in the CDI rate 3,17% |
3,142 | 3,608 | |||||
Installments indexed to the change in the extended consumer price index 2.60% |
15,656 | 22,774 | |||||
Installments indexed to the change in the IGPM rate 5.40% |
7,825 | 7,690 | |||||
Adjustment to present value (**) |
(8,521 | ) | (10,078 | ) | |||
| | | | | | | |
|
94,944 | 112,487 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Current liabilities |
49,450 | 57,099 | |||||
Non-current liabilities |
45,494 | 55,388 |
F-30
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
14. Payables related to business acquisitions (Continued)
The amount classified in non-current liabilities mature as follows:
Period |
March 31,
2019 |
December 31,
2018 |
|||||
| | | | | | | |
2020 |
23,965 | 35,373 | |||||
2021 |
10,015 | 14,225 | |||||
2022 |
6,032 | 5,065 | |||||
2023 |
5,482 | 725 | |||||
| | | | | | | |
|
45,494 | 55,388 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Of total amount payable on March 31, 2019, R$ 90,414 is related to contingent consideration (R$ 111,545 as of December 31, 2018). The Company expects to fully settle amounts related to contingent considerations, and there were no significant changes in expectations in relation to prior year. The fair value of these obligations also considered a market interest rate (Selic). Fair value hierarchy of contingent consideration is classified as level 3 (Note 22.7).
The changes in the payables related to business acquisitions are shown as follow:
|
March 31,
2019 |
December 31,
2018 |
|||||
| | | | | | | |
Previous balance |
112,487 | 130,767 | |||||
Addition due to acquisition |
| 38,881 | |||||
Payment of principal and interest |
(10,681 | ) | (45,878 | ) | |||
Accrued interest |
2,370 | 3,057 | |||||
Contingencies resolved and paid (*) |
| (5,343 | ) | ||||
Earn-Out reversed (**) |
(9,232 | ) | (8,997 | ) | |||
| | | | | | | |
|
94,944 | 112,487 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
F-31
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
15. Deferred revenue
|
March 31,
2019 |
December 31,
2018 |
|||||
| | | | | | | |
Revenue from consulting services |
11,502 | 8,902 | |||||
Revenue from subscriptions |
43,265 | 50,346 | |||||
| | | | | | | |
|
54,767 | 59,248 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Current |
41,031 | 40,053 | |||||
Non-current |
13,736 | 19,195 |
16. Income tax and social contribution
16.1 Income tax and social contribution expense
|
March 31,
2019 |
March 31,
2018 |
|||||
| | | | | | | |
Current tax |
|||||||
Current tax on income for the period |
(2,025 | ) | (1,664 | ) | |||
Deferred tax |
|||||||
Deferred tax on income for the period |
(4,368 | ) | (4,743 | ) | |||
| | | | | | | |
Income and social contribution tax expense for effective income |
(6,393 | ) | (6,407 | ) | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
F-32
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
16. Income tax and social contribution (Continued)
The reconciliation between the tax expense as calculated by the combined nominal rates and the income tax and social contribution expense charged to income is presented below:
|
March 31,
2019 |
March 31,
2018 |
|||||
| | | | | | | |
Income (loss) before income tax and social contribution |
23,573 | 32,859 | |||||
| | | | | | | |
Rate income tax and social contribution |
34 | % | 34 | % | |||
Income tax and social contribution at the rate of 34% |
(8,015 | ) | (11,172 | ) | |||
Permanent differences |
|||||||
Permanent additions (gifts, fines and nondeductible expenses) |
119 | 402 | |||||
Law 11,196/05 (research and development incentive) |
2,124 | 2,444 | |||||
Tax loss (compensation and constitution) |
(399 | ) | (1,098 | ) | |||
Income tax and social contribution difference by the deemed profit |
(647 | ) | (571 | ) | |||
Effects of tax rates of foreign subsidiaries |
949 | 601 | |||||
Provision for royalties (IFRS15) and expectation of loss (IFRS09) |
(2,386 | ) | (697 | ) | |||
Other net differences |
1,862 | 3,684 | |||||
| | | | | | | |
Income tax expense |
(6,393 | ) | (6,407 | ) | |||
| | | | | | | |
Effective rate |
27 | % | 19 | % | |||
| | | | | | | |
16.2 Deferred taxes
Deferred income tax and social contribution are recorded so as to reflect future tax effects on temporary differences existing between assets and liabilities tax base and the corresponding carrying amount.
F-33
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
16. Income tax and social contribution (Continued)
Temporary deferred income tax and social contribution are as follows:
|
March 31,
2019 |
December 31,
2018 |
|||||
| | | | | | | |
Tax goodwill |
(78,101 | ) | (72,425 | ) | |||
Assets identified in acquisitions |
(31,136 | ) | (31,161 | ) | |||
Deferred IFRS 9 and 15 |
14,617 | 17,004 | |||||
Inc. tax and soc. contr. on companies abroad |
(229 | ) | (283 | ) | |||
Tax loss and negative basis |
3,649 | 3,953 | |||||
Allowance for doubtful accounts |
1,179 | 620 | |||||
Provision for post-employment benefits |
411 | 411 | |||||
Provision for contingencies |
1,263 | 809 | |||||
Provision for adjustment to present value |
2,540 | 2,019 | |||||
Stock option plan |
2,990 | 2,235 | |||||
Provision of bonuses and overtime |
3,451 | 1,993 | |||||
Other provisions |
2,177 | 2,190 | |||||
| | | | | | | |
Deferred taxes, net |
(77,189 | ) | (72,635 | ) | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
17. Shareholders' equity
17.1 Capital
The Company is authorized to increase capital by up to R$1,000,000, irrespective of amendments to its articles of incorporation and bylaws, as deliberated by the Board of Directors.
Capital solely comprises common shares and each of them corresponds to a vote in Shareholders' Meeting decisions.
The Board of Directors is the competent body to decide on issuances and will determine share issuance conditions, subscription, payment form and deadline, price per share, placement form (public or private) and its distribution in Brazil and/or abroad.
At the discretion of the Board of Directors, a share issue may be made, without right of preference or with a reduction of the time frame addressed by article 171, §4 of Law 6404, dated December 15, 1976, as amended ("Corporation Law") of shares and debentures that are convertible into shares or a subscription bonus, the flotation of which is made through a sale on the stock exchange or by public subscription, or even through an exchange for shares in a takeover bid, in the terms established in law, within the limits of the authorized capital.
F-34
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
17. Shareholders' equity (Continued)
On February 28, 2019, the Company's capital increase was approved, within the limit of the authorized capital, in the amount of R$ 362, which will increase from R$ 488,467 (total on December 31, 2018) to R$ 488,829, through the issuance of 25,578 new nominative, book-entry common shares with no par value
Capital is represented by authorized, subscribed and fully paid-up shares with no par value and is divided as follows:
|
Founding
shareholders |
Treasury
shares |
Free
float (*) |
Consolidated
|
|||||||||
| | | | | | | | | | | | | |
December 31, 2018 |
28,037,764 | 7,502,115 | 130,743,503 | 166,283,382 | |||||||||
March 31, 2019 |
27,382,764 | 7,502,115 | 131,424,081 | 166,308,960 |
The changes in the number of subscribed and fully paid-up shares are as follows:
December 31, 2018 |
166,283,382 | |||
| | | | |
Capital increase |
25,578 | |||
| | | | |
March 31, 2019 |
166,308,960 | |||
| | | | |
| | | | |
| | | | |
17.2 Capital reserves
Regarding the issuance of shares on September 26, 2016, it resulted in a share premium of R$ 325,440 and transaction costs incurred in the obtainment of resources by means of the issuance of membership certificates of R$ 12,317 recorded in a reduction account, net of deferred income tax and social contribution.
The capital reserve is set up as follows:
|
March 31,
2019 |
December 31,
2018 |
|||||
| | | | | | | |
Share premium (a) |
539,571 | 539,571 | |||||
Stock option plan (Note 24) |
18,401 | 16,104 | |||||
Treasury shares purchased (b) |
(148,373 | ) | (148,373 | ) | |||
Expenditures with issuance of shares (c) |
(37,423 | ) | (37,423 | ) | |||
| | | | | | | |
|
372,176 | 369,879 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
F-35
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
17. Shareholders' equity (Continued)
held in treasury, disposed or canceled, without reduction of the Company's capital, in compliance with the provisions of item 1 of article 30 of the Brazilian Corporation Law, and the standards set forth in ICVM 567/15.
17.3 Legal reserve
It is formed of 5% of net income for the fiscal year, in conformity with article 193 of Law no. 6,404/76, up to the limit of 20% of the capital.
For the period ended March 31, 2019, pursuant to paragraph 1 of article 193 of Law 6,404/76, the Company did not set up a legal reserve, as the capital reserve amount exceeded the percentage of 30% of capital.
17.4 Dividends
The Company's Bylaws establishes a minimum dividend of 25%, calculated on annual net income, adjusted as provided for in article 202 of Law 6,404/76.
The total balance of dividends payable on the balance sheet was R$ 25,000 as of March 31, 2019, of which R$ 2,764 are mandatory minimum dividends and R$ 22,236 are additional dividends proposed by Management.
18. Provision for contingencies
The Group is defendant to judicial and administrative proceedings in various courts and governmental agencies, arising from the normal course of operations, involving tax, labor, civil and other issues.
At March 31, 2019, management, based on information provided by its legal advisors, keep a provision amounting to R$ 12,294 and, at December 31, 2018, amounting to R$ 10,960.
There are other lawsuits evaluated by legal advisors as being a possible risk in the amount of R$ 12,527 as of March 31, 2019 (R$ 10,986 as of December 31, 2018), for which no provision has been formed in view of the fact that the accounting practices adopted in Brazil do not require to be accounted for.
The possible contingencies of the acquired companies will be guaranteed by the former owners according to contracts of purchase and sale. The Group has sufficient amounts held to
F-36
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
18. Provision for contingencies (Continued)
meet these commitments, classified under other receivables in the balance sheet, based on diligences carried out during the acquisition process.
Changes |
Labor | Civil |
Addition
acquisition (*) |
Total
|
|||||||||
| | | | | | | | | | | | | |
Balance at December 31, 2018 |
1,358 | 1,022 | 8,580 | 10,960 | |||||||||
| | | | | | | | | | | | | |
Additions |
1,338 | 288 | | 1,626 | |||||||||
Write-offs |
(239 | ) | (86 | ) | | (325 | ) | ||||||
Restatement |
22 | 11 | | 33 | |||||||||
| | | | | | | | | | | | | |
Balance at March 31, 2019 |
2,479 | 1,235 | 8,580 | 12,294 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
19. Net operating revenue
Below, we show the reconciliation between gross revenue and net operating revenues for the period:
|
Three-month period ended
|
||||||
| | | | | | | |
|
March 31,
2019 |
March 31,
2018 |
|||||
| | | | | | | |
Gross operating revenue |
|||||||
Subscription revenues |
180,515 | 162,362 | |||||
Consulting service revenues |
21,976 | 19,561 | |||||
| | | | | | | |
|
202,491 | 181,923 | |||||
Sales deductions |
|||||||
PIS |
(1,165 | ) | (1,066 | ) | |||
COFINS |
(5,378 | ) | (4,920 | ) | |||
ISS |
(4,648 | ) | (4,007 | ) | |||
INSS (Social security) |
(7,399 | ) | (6,819 | ) | |||
Other |
(1,159 | ) | (1,055 | ) | |||
Cancellations and rebates |
(5,937 | ) | (5,646 | ) | |||
| | | | | | | |
|
(25,686 | ) | (23,513 | ) | |||
| | | | | | | |
|
176,805 | 158,410 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The Group does not have clients that individually represent more than 10% of operating revenues for any of the periods ended March 31, 2019 and 2018.
F-37
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
19. Net operating revenue (Continued)
Table below presents geographical information as required by IFRS 8 Operating segments:
|
Geographical information
|
||||||
| | | | | | | |
|
March 31,
2019 |
March 31,
2018 |
|||||
| | | | | | | |
Net revenue |
|||||||
Brazil |
167,775 | 148,972 | |||||
International |
9,030 | 9,438 | |||||
| | | | | | | |
|
176,805 | 158,410 | |||||
Non-current assets |
|
|
|||||
Brazil |
1,715,801 | 1,575,708 | |||||
International |
33,059 | 23,156 | |||||
| | | | | | | |
|
1,748,860 | 1,598,864 |
20. Costs, expenses and other operating expense / income
|
Three-month period ended
|
||||||
| | | | | | | |
|
March 31,
2019 |
March 31,
2018 |
|||||
| | | | | | | |
Nature |
|||||||
Rentals |
(28 | ) | (4,260 | ) | |||
Commissions |
(9,310 | ) | (8,779 | ) | |||
Depreciation and amortization |
(24,348 | ) | (18,430 | ) | |||
Maintenance and preservation |
(1,468 | ) | (4,645 | ) | |||
Personnel |
(87,960 | ) | (71,471 | ) | |||
Advertising and publicity |
(3,080 | ) | (1,820 | ) | |||
Outsourced services |
(14,914 | ) | (10,348 | ) | |||
Travel and accommodation |
(3,067 | ) | (3,203 | ) | |||
Telecommunications expenses |
(7,249 | ) | (7,435 | ) | |||
IT expenses |
(917 | ) | (631 | ) | |||
Other income |
8,124 | 8,004 | |||||
Other |
(7,251 | ) | (6,230 | ) | |||
| | | | | | | |
|
(151,468 | ) | (129,248 | ) | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Function |
|||||||
Cost of services rendered |
(59,999 | ) | (56,656 | ) | |||
Administrative and general expenses |
(43,962 | ) | (42,529 | ) | |||
Selling expenses |
(35,325 | ) | (22,059 | ) | |||
Research and maintenance of software developed |
(18,372 | ) | (16,207 | ) | |||
Other operating income (expenses) |
6,190 | 8,203 | |||||
| | | | | | | |
|
(151,468 | ) | (129,248 | ) | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
F-38
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
21. Financial income (expenses)
|
Three-month period ended
|
||||||
| | | | | | | |
|
March 31,
2019 |
March 31,
2018 |
|||||
| | | | | | | |
Financial income |
|||||||
Asset interest |
763 | 968 | |||||
Interest on finance assets |
6,152 | 7,685 | |||||
Discounts obtained |
73 | 16 | |||||
Foreign-exchange gain |
3,616 | 1,906 | |||||
Other revenues |
(320 | ) | 1,470 | ||||
| | | | | | | |
|
10,284 | 12,045 | |||||
| | | | | | | |
Financial expenses |
|
|
|||||
Liability interest |
(906 | ) | (73 | ) | |||
Interest on loans and financing |
(2,304 | ) | (1,851 | ) | |||
Discount granted |
(2,413 | ) | (2,829 | ) | |||
Foreign exchange loss |
(3,256 | ) | (2,328 | ) | |||
Tax on financial operations |
(242 | ) | (203 | ) | |||
Effect from adoption of IAS 29 |
(538 | ) | | ||||
Other expenses |
(2,389 | ) | (1,064 | ) | |||
| | | | | | | |
|
(12,048 | ) | (8,348 | ) | |||
| | | | | | | |
|
(1,764 | ) | 3,697 | ||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
22. Financial risk management
The Group are exposed to the following risks from the use of financial instruments:
22.1 Credit risk
Credit risk is the possibility of financial loss to the Group if a client or a counterpart to a financial instrument fails to fulfill its contractual obligations arising mainly from trade accounts receivable and investments of its subsidiaries.
F-39
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
22. Financial risk management (Continued)
The exposure of the Group to credit risk is influenced, mainly, by the individual characteristics of each client. The Group established a credit policy whereby every new client has its credit capacity individually analyzed prior to the standard payment terms and conditions.
The Group has a very diversified client portfolio with low concentration level, and the largest customer accounts for only 2.3% of gross subscription revenue.
The Group sets an allowance for doubtful accounts that represents its estimate of losses incurred in relation to trade accounts receivable (See Note 6). The main component of this allowance is specific and related to significant individual risks.
On March 31, 2019, the Group's maximum exposure to credit risk on cash and cash equivalents, financial assets and trade accounts receivable was:
|
March 31,
2019 |
December 31,
2018 |
|||||
| | | | | | | |
Cash and cash equivalents (Note 4) |
49,945 | 49,850 | |||||
Financial assets (Note 5) |
413,239 | 413,374 | |||||
| | | | | | | |
|
463,184 | 463,224 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
March 31,
2019 |
December 31,
2018 |
|||||
| | | | | | | |
Trade accounts receivable, net (Note 6) |
176,003 | 170,382 | |||||
| | | | | | | |
|
176,003 | 170,382 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
22.2 Liquidity risk
Liquidity risk is the risk of the Group encountering difficulties in performing the obligations associated with its financial liabilities that are settled with cash payments or with other financial assets. The approach of the Group in liquidity management is to guarantee, as much as possible, that it will always have sufficient liquidity to perform its obligations upon maturity, under normal and stress conditions, without causing unacceptable losses or with a risk of sullying the reputation of the Group.
F-40
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
22. Financial risk management (Continued)
The table below shows the maturity profile of the Group's financial liabilities:
Operation |
Up to 1
year |
Up to 2
years |
From 3 to
5 years |
> 5 years |
Total
|
|||||||||||
| | | | | | | | | | | | | | | | |
Suppliers |
12,543 | | | | 12,543 | |||||||||||
Loans and financing (Note 12) |
54,105 | 83,902 | 154,092 | 38,761 | 330,860 | |||||||||||
Payables for the acquisition of businesses Earn Out (Note 14) |
27,834 | 36,426 | 4,760 | | 69,020 | |||||||||||
Payables for the acquisition of businesses retained installments (Note 14) |
17,118 | 2,324 | 10,472 | | 29,914 | |||||||||||
Payables for the acquisition of businesses Other (Note 14) |
4,498 | 33 | | | 4,531 | |||||||||||
Other liabilities |
17,380 | 2,044 | | | 19,424 | |||||||||||
| | | | | | | | | | | | | | | | |
|
133,478 | 124,729 | 169,324 | 38,761 | 466,292 | |||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
As amounts included in this table are non-discounted cash flows, they will not be reconciled to the amounts disclosed in the statement of financial position for payables for the acquisition of businesses.
Typically, the Group ensures that it has sufficient cash to cover expected operating expenses, including to comply with its financial obligations; this excludes the potential impact of extreme situations that cannot be reasonably foreseen, such as natural disasters.
22.3 Market risk
Interest rate and inflation risk : Interest rate risk derives from the portion of debt indexed to TJLP, TLP, IPCA, IGPM, CDI and LIBOR rates, and from interest earning bank deposits and financial assets indexed to the CDI rate, that may adversely affect financial income or expenses in case an unfavorable movement occurs in interest and inflation rates. This risk exposure as shown in the sensitivity analysis provided below.
22.4 Operating risk
Operating risk is the risk of direct or indirect losses arising from different causes related to the processes, personnel, technology and infrastructure of the Group, and external factors, except credit, market and liquidity risks, as those arising from legal and regulatory requirements and from generally accepted corporate behavior standards. The objective of the Group is to manage the operating risk and the service quality risk in order to avoid sustaining financial losses and harming the reputation of the Group.
F-41
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
22. Financial risk management (Continued)
22.5 Capital management
The policy of the Executive Board is to maintain a solid capital base to maintain the confidence of investors, creditors and market and the future development of the business. The Executive Board monitors returns on capital, which the Group defines as income (loss) from operating activities divided by total shareholders' equity. Executive Board also monitors the level of dividends to its shareholders.
22.6 Financial instruments' analysis
There is a comparison below, by class of book and fair value of the Group's financial instruments:
|
Carrying
amount |
Fair
value |
Carrying
amount |
Fair
value |
||||||||||||
| | | | | | | | | | | | | | | | |
|
Level |
March 31,
2019 |
March 31,
2019 |
December 31,
2018 |
December 31,
2018 |
|||||||||||
| | | | | | | | | | | | | | | | |
Financial assets |
||||||||||||||||
Cash and cash equivalents (Note 4) |
2 | 49,945 | 49,945 | 49,850 | 49,850 | |||||||||||
Financial assets (Note 5) |
2 | 413,239 | 413,239 | 413,374 | 413,374 | |||||||||||
Trade accounts receivable (Note 6) |
2 | 176,003 | 176,003 | 170,382 | 170,382 | |||||||||||
Other receivables |
2 | 39,968 | 39,968 | 50,620 | 50,620 | |||||||||||
| | | | | | | | | | | | | | | | |
Total |
679,155 | 679,155 | 684,226 | 684,226 | ||||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Financial liabilities |
||||||||||||||||
Suppliers |
2 | 12,543 | 12,543 | 13,623 | 13,623 | |||||||||||
Loans and financing (Note 12) |
2 | 330,860 | 330,860 | 249,981 | 249,981 | |||||||||||
Accounts payable for the acquisition of businesses (Note 14) |
3 | 94,944 | 94,944 | 112,487 | 112,487 | |||||||||||
Other liabilities |
2 | 19,424 | 19,424 | 10,307 | 10,307 | |||||||||||
| | | | | | | | | | | | | | | | |
Total |
457,771 | 457,771 | 386,398 | 386,398 | ||||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Amounts of these instruments recognized in the statement of financial position do not significantly differ from their fair values.
F-42
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
22. Financial risk management (Continued)
Financial instruments per category:
|
March 31, 2019 |
December 31, 2018
|
|||||||||||
| | | | | | | | | | | | | |
|
Fair value
through profit or loss |
Amortized
cost |
Fair value
through profit or loss |
Amortized
cost |
|||||||||
| | | | | | | | | | | | | |
Financial assets |
|||||||||||||
Cash and cash equivalents (Note 4) |
| 49,945 | | 49,850 | |||||||||
Financial assets (Note 5) |
413,239 | | 413,374 | | |||||||||
Trade accounts receivable (Note 6) |
| 176,003 | | 170,382 | |||||||||
Other receivables |
| 39,968 | | 50,620 | |||||||||
| | | | | | | | | | | | | |
|
413,239 | 265,916 | 413,374 | 270,852 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Financial liabilities |
|||||||||||||
Suppliers |
| 12,543 | | 13,623 | |||||||||
Loans and financing (Note 12) |
| 330,860 | | 249,981 | |||||||||
Accounts payable for the acquisition of businesses (Note 14) |
| 94,944 | | 112,487 | |||||||||
Other liabilities |
| 19,424 | | 10,307 | |||||||||
| | | | | | | | | | | | | |
|
| 457,771 | | 386,398 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
22.7 Fair value hierarchy
The Company applies the following hierarchy to determine the fair value of financial instruments:
The Company uses appropriate valuation techniques with the aid of sufficient data available to measure fair value, maximizing the use of relevant observable data and minimizing the use of unobservable data.
22.8 Sensitivity analysis for financial assets and liabilities
Main risks related to the Group's transactions are linked to TJLP, TLP, CDI, IPCA, IGPM, IPC, SELIC and LIBOR change for BNDES financing and payables for the acquisition of businesses, and to CDI for interest earning bank deposits.
F-43
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
22. Financial risk management (Continued)
The investments with CDI are recorded at market value, according to quotations announced by the respective financial institutions and the others mainly refer to bank deposit certificates. Therefore, the recorded value of these securities does not differ from the market value.
In order to check the sensitivity of the indexer of interest earning bank deposits to which the Company was exposed to at March 31, 2019, we defined three scenarios for the risk of decrease in CDI. The March 2019 index, which was 6.40% (6.40% as of December 31, 2018), was defined as probable scenario; based thereon, 25% and 50% scenarios were defined.
Operation |
Balance at
March 31, 2019 |
Risk |
Scenario I
(probable) |
Scenario II |
Scenario III
|
||||||||||
| | | | | | | | | | | | | | | |
Interest earning bank deposits |
413,239 | CDI decr. | 6.40 | % | 4.80 | % | 3.20 | % | |||||||
| | | | | | | | | | | | | | | |
Financial revenue |
26,447 | 19,835 | 13,224 | ||||||||||||
| | | | | | | | | | | | | | | |
In order to analyze sensitivity of debt indexes, to which the Group is exposed at March 31, 2019, three different scenarios were defined for the risk of increase in such indexes. This was based on TJLP, TLP, IPCA, IPC, IGPM, CDI and SELIC amounts in effect at March 31, 2019, available at CETIP, IBGE, Central Bank of Brazil, FGV, among others. Accordingly, a probable scenario was defined for 2019, based on which, 25% and 50% differences were calculated.
For each scenario the Group calculated the gross financial expense, not taking into account the taxes levied and the flow of maturities for each contract scheduled for 2018. The base date
F-44
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
22. Financial risk management (Continued)
used for financings was March 31, 2019, projecting indices for one year and verifying their sensitivity in each scenario.
Operation |
Balance at
March 31, 2019 |
Risk |
Scenario I
(probable) |
Scenario II |
Scenario III
|
||||||||||
| | | | | | | | | | | | | | | |
Financings BNDES |
330,860 | TJLP incr. | 23,259 | 29,083 | 34,906 | ||||||||||
| | | | | | | | | | | | | | | |
Rate subject to change |
7.03 | % | 8.79 | % | 10.55 | % | |||||||||
Payables for the acquisition of businesses |
7,825 |
IGPM incr. |
169 |
211 |
254 |
||||||||||
| | | | | | | | | | | | | | | |
Rate subject to change |
2.16 | % | 2.70 | % | 3.24 | % | |||||||||
Payables for the acquisition of businesses |
3,142 |
CDI incr. |
201 |
251 |
302 |
||||||||||
| | | | | | | | | | | | | | | |
Rate subject to change |
6.40 | % | 8.00 | % | 9.60 | % | |||||||||
Payables for the acquisition of businesses |
15,656 |
IPCA incr. |
236 |
294 |
354 |
||||||||||
| | | | | | | | | | | | | | | |
Rate subject to change |
1.51 | % | 1.88 | % | 2.26 | % | |||||||||
Payables for the acquisition of businesses |
42,270 |
R$ decr. |
1,649 |
2,063 |
2,473 |
||||||||||
| | | | | | | | | | | | | | | |
Rate subject to change |
3.90 | % | 4.88 | % | 5.85 | % |
23. Earnings per share
Basic earnings per share is calculated by dividing profit attributable to the Group's shareholders by the weighted average number of common shares, as follows:
|
March 31,
2019 |
March 31,
2018 |
|||||
| | | | | | | |
Net income for the period |
17,180 | 26,452 | |||||
Weighted average of shares |
158,790,077 | 164,154,259 | |||||
Basic earnings per share (in reais) |
0.1082 | 0.1611 |
Diluted profit per share is calculated by adjusting the weighted average number of common shares, presuming the conversion of all the potential diluted common shares. The Group has a
F-45
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
23. Earnings per share (Continued)
Stock Option Plan that provides for the granting of 4,060,627 stock options with the Plan's total dilutive potential being represented by 920,545 stock options, including initial granting.
|
March 31,
2019 |
March 31,
2018 |
|||||
| | | | | | | |
Net income for the period |
17,180 | 26,452 | |||||
Weighted average number of shares (*) |
161,525,764 | 166,129,818 | |||||
Diluted earnings per share (in reais) |
0.1064 | 0.1592 |
24. Share-based payment
On January 22, 2019, the Board of Directors approved a grant of restricted shares totaling 1,011,846 shares, of which 183,286 for the members of the statutory executive board, 303,560 for employees and 525,000 referring to the "Extraordinary Program of Restricted Shares Linx Pay Hub", at a fair value of R$28.31 (market price at the date of grant), subject to adjustments deriving from stock split, grouping and bonus, and also adjusted for possible dividend and/or interest on equity payment. These restricted shares vest 100% at the end of four years.
Changes in stock option plans are as follows:
|
Stock option
|
||||||
| | | | | | | |
|
Number of
outstanding shares |
Weighted
average price (in Reais) |
|||||
| | | | | | | |
December 31, 2018 (1) |
946,123 | 16.41 | |||||
Exercised |
(25,578 | ) | 14.15 | ||||
| | | | | | | |
March 31, 2019 (2) |
920,545 | 16.41 |
F-46
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
24. Share-based payment (Continued)
Changes in restricted shares are as follows:
|
Restricted shares
|
||||||
| | | | | | | |
|
Number of
outstanding shares |
Weighted
average price (in Reais) |
|||||
| | | | | | | |
December 31, 2018 |
1,033,868 | 18.55 | |||||
Granted |
1,011,846 | 28.31 | |||||
Canceled |
(20,887 | ) | 32.10 | ||||
| | | | | | | |
March 31, 2019 |
2,024,827 | 22.70 |
The expense related to share-based compensation in the period ended March 31, 2019 is R$ 2,912 (R$ 379 as of March 31, 2018) recorded in the statement of income as payroll expenses. This effect did not impact the Company's cash.
The accumulated balance in shareholders' equity presented in the capital reserve under "stock option plan" in the period ended March 31, 2019 is R$ 18,401 (R$ 16,104 as of December 31, 2018).
25. Subsequent event
25.1 Acquisition of Hiper Software S.A.
On April 2, 2019, Linx S.A acquired 100% of the total capital stock of Hiper Software S.A. ("Hiper") for a total of R$ 17,7 million in cash plus contingent consideration payable upon the achievement of financial and operational targets related to the penetration of TEF and Linx Pay solutions into its customer base, for the years between 2019 through 2021totaling up to R$ 32,3 million.
The primary reason for the acquisition of Hiper is to increase the penetration of TEF and Linx Pay, which represents an important growth opportunity for the Company.
F-47
Linx S.A.
Notes to interim condensed consolidated financial statements (Continued)
March 31, 2019
(In thousands of Brazilian reais, except when otherwise indicated)
(Unaudited)
25. Subsequent event (Continued)
The following financial position of Hiper in:
March 31, 2019 |
||||
Assets |
||||
Cash and cash equivalents |
937 | |||
Trade accounts receivable |
343 | |||
Other receivables |
149 | |||
| | | | |
Current assets |
1,429 | |||
Property, plant and equipment, net |
1,373 | |||
| | | | |
Non-current assets |
1,373 | |||
| | | | |
Total assets |
2,802 | |||
| | | | |
| | | | |
| | | | |
Liabilities |
||||
Suppliers |
122 | |||
Labor obligations |
1,160 | |||
Taxes payable |
78 | |||
Other liabilities |
3 | |||
| | | | |
Current liabilities |
1,363 | |||
Capital |
4,006 | |||
Accumulated losses |
(2,567 | ) | ||
| | | | |
Shareholders' equity |
1,439 | |||
| | | | |
Total liabilities and shareholders' equity |
2,802 | |||
| | | | |
| | | | |
| | | | |
25.2 Payment of dividends
On April 24, 2019, Linx SA ("Linx" or "Company") notified its shareholders and the market in general that, as resolved at the Annual and Extraordinary Shareholders' Meeting held on the same date, the Company will pay dividends to its shareholders in the amount of R$ 25 million, corresponding to R$ 0.157423945 per outstanding share issued by the Company.
Dividends will be paid to shareholders as of May 15, 2019, based on the shareholding position of April 24, 2019, with the shares traded ex dividends as of April 25, 2019.
F-48
Consolidated Financial Statements
Linx S.A.
December 31, 2018, 2017 and 2016
with Report of Independent Registered Public Accounting Firm
F-49
Contents
F-50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Linx S.A.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Linx S.A. (the Company) as of December 31, 2018, 2017 and 2016, the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the "consolidated financial statements").
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards BoardIASB.
Basis for Opinion
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/
ERNST & YOUNG Auditores Independentes S.S.
We have served as the Company's auditor since 2017
São
Paulo, Brazil,
March 29, 2019
F-51
Linx S.A.
Consolidated statements of financial position
December 31, 2018, 2017 and 2016
(In thousands of reais)
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Assets |
||||||||||
Current assets |
||||||||||
Cash and cash equivalents (Note 5) |
49,850 | 42,918 | 7,227 | |||||||
Financial assets (Note 6) |
413,374 | 487,816 | 639,185 | |||||||
Trade accounts receivable (Note 7) |
167,102 | 128,177 | 107,290 | |||||||
Recoverable taxes (Note 8) |
35,094 | 33,054 | 29,687 | |||||||
Other receivables (Note 10) |
43,407 | 28,119 | 12,230 | |||||||
| | | | | | | | | | |
Total current assets |
708,827 | 720,084 | 795,619 | |||||||
Non-current assets |
|
|
|
|||||||
Financial assets (Note 6) |
| 20,990 | 19,036 | |||||||
Trade accounts receivable (Note 7) |
3,280 | 2,952 | 1,774 | |||||||
Deferred taxes (Note 17) |
4,449 | 4,272 | 4,168 | |||||||
Other receivables (Note 10) |
7,213 | 1,485 | 10,875 | |||||||
Property, plant and equipment, net (Note 11) |
74,273 | 62,332 | 51,258 | |||||||
Intangible assets, net (note 12) |
849,634 | 751,909 | 600,642 | |||||||
| | | | | | | | | | |
Total non-current assets |
938,849 | 843,940 | 687,753 | |||||||
| | | | | | | | | | |
Total assets |
1,647,676 | 1,564,024 | 1,483,372 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
See the accompanying notes to financial statements.
F-52
Linx S.A.
Consolidated statements of financial position (Continued)
December 31, 2018, 2017 and 2016
(In thousands of reais)
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Liabilities and shareholders' equity |
||||||||||
Current liabilities |
||||||||||
Suppliers |
13,623 | 8,518 | 6,254 | |||||||
Loans and financing (Note 13) |
40,720 | 31,783 | 34,499 | |||||||
Labor obligations (Note 14) |
43,801 | 38,869 | 31,204 | |||||||
Taxes payable |
13,455 | 13,194 | 6,368 | |||||||
Income tax and social contribution |
1,206 | 485 | 2,878 | |||||||
Payables for the acquisition of businesses (Note 15) |
57,099 | 56,087 | 23,508 | |||||||
Deferred revenue (Note 16) |
40,053 | 8,478 | 7,176 | |||||||
Dividends payable |
2,764 | 4,211 | 1,125 | |||||||
Other liabilities |
7,979 | 7,613 | 4,110 | |||||||
| | | | | | | | | | |
Total current liabilities |
220,700 | 169,238 | 117,122 | |||||||
Non-current liabilities |
|
|
|
|||||||
Loans and financing (Note 13) |
209,261 | 65,505 | 96,268 | |||||||
Payables for the acquisition of businesses (Note 15) |
55,388 | 74,680 | 57,086 | |||||||
Deferred taxes (Note 17) |
72,635 | 80,324 | 57,169 | |||||||
Deferred revenue (Note 16) |
19,195 | | | |||||||
Provision for contingencies (Note 19) |
10,960 | 2,776 | 518 | |||||||
Other liabilities |
2,328 | 981 | 1,931 | |||||||
| | | | | | | | | | |
Total non-current liabilities |
369,767 | 224,266 | 212,972 | |||||||
Shareholders' equity |
|
|
|
|||||||
Capital (Note 18) |
488,467 | 486,032 | 480,808 | |||||||
Capital reserves (Note 18) |
369,879 | 479,809 | 512,303 | |||||||
Profit reserves (Note 18) |
179,457 | 186,137 | 141,292 | |||||||
Additional dividends proposed (Note 18) |
22,236 | 18,789 | 18,875 | |||||||
Other comprehensive income (loss) |
(2,830 | ) | (247 | ) | | |||||
| | | | | | | | | | |
|
1,057,209 | 1,170,520 | 1,153,278 | |||||||
| | | | | | | | | | |
Total liabilities and shareholders' equity |
1,647,676 | 1,564,024 | 1,483,372 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
See the accompanying notes to financial statements.
F-53
Linx S.A.
Consolidated statements of income
Years ended December 31, 2018, 2017 and 2016
(In thousands of reais)
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Net operating revenues (Note 20) |
685,559 | 571,590 | 494,583 | |||||||
Operating income (expenses) |
|
|
|
|||||||
Cost of services rendered (Note 21) |
(245,622 | ) | (211,595 | ) | (183,462 | ) | ||||
General and administrative (Note 21) |
(168,595 | ) | (148,148 | ) | (116,252 | ) | ||||
Selling (Note 21) |
(111,008 | ) | (72,393 | ) | (62,453 | ) | ||||
Research and development (Note 12/21) |
(73,527 | ) | (64,280 | ) | (59,894 | ) | ||||
Other operating income (Note 21) |
8,401 | 4,311 | 1,216 | |||||||
Other operating expenses (Note 21) |
(5,145 | ) | (5,117 | ) | (5,562 | ) | ||||
| | | | | | | | | | |
|
(595,496 | ) | (497,222 | ) | (426,407 | ) | ||||
Operating income |
90,063 |
74,368 |
68,176 |
|||||||
| | | | | | | | | | |
Net financial income (expenses) |
||||||||||
Financial income (Note 22) |
46,868 | 58,421 | 49,467 | |||||||
Financial expenses (Note 22) |
(44,787 | ) | (24,028 | ) | (24,744 | ) | ||||
| | | | | | | | | | |
|
2,081 | 34,393 | 24,723 | |||||||
Income before income tax and social contribution |
92,144 |
108,761 |
92,899 |
|||||||
| | | | | | | | | | |
Income tax and social contribution current (Note 17) |
(9,959 | ) | (9,217 | ) | (10,595 | ) | ||||
Income tax and social contribution deferred (Note 17) |
(11,130 | ) | (14,699 | ) | (13,803 | ) | ||||
| | | | | | | | | | |
Net income |
71,055 | 84,845 | 68,501 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Basic earnings per share in Reais (Note 24) |
0.4357 | 0.5155 | 0.4632 | |||||||
Diluted earning per share in Reais (Note 24) |
0.4329 | 0.5111 | 0.4567 |
See the accompanying notes to financial statements.
F-54
Linx S.A.
Consolidated statements of comprehensive income
Years ended December 31, 2018, 2017 and 2016
(In thousands of
reais)
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Net income |
71,055 | 84,845 | 68,501 | |||||||
Other comprehensive income to be reclassified to income (loss) for the year in subsequent periods |
|
|
|
|||||||
Exchange differences on translation of foreign operations |
(2,437 | ) | (247 | ) | | |||||
Other comprehensive income not reclassified to income (loss) for the year in subsequent periods |
|
|
|
|||||||
Remeasurement gain (loss) on post-employment benefits |
(146 | ) | | | ||||||
| | | | | | | | | | |
Total comprehensive income |
68,472 | 84,598 | 68,501 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
See the accompanying notes to financial statements.
F-55
Consolidated statements of changes in shareholders' equity
Years ended December 31, 2018, 2017 and 2016
(In thousands of reais)
|
Capital reserves | Profit reserves | ||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Capital |
Share
Premium |
Stock
option plan |
Treasury
shares |
Expenditures
with issuance of shares |
Total |
Legal
reserve |
Profit
retention |
Total |
Retained
earnings |
Other
comprehensive income (loss) |
Additional
dividends proposed |
Total
|
|||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at December 31, 2015 |
352,501 | 214,131 | 6,508 | | (24,692 | ) | 195,947 | 7,037 | 101,754 | 108,791 | | | 8,000 | 665,239 | ||||||||||||||||||||||||||
Issuance of capital |
128,307 |
325,440 |
|
|
|
325,440 |
|
|
|
|
|
|
453,747 |
|||||||||||||||||||||||||||
Expenditures with issuance of shares |
| | | | (12,317 | ) | (12,317 | ) | | | | | | | (12,317 | ) | ||||||||||||||||||||||||
Stock option plan |
| | 3,233 | | | 3,233 | | | | | | | 3,233 | |||||||||||||||||||||||||||
Dividend distribution |
| | | | | | | | | (17,125 | ) | | (8,000 | ) | (25,125 | ) | ||||||||||||||||||||||||
Net income for the year |
| | | | | | | | | 68,501 | | | 68,501 | |||||||||||||||||||||||||||
Allocations |
||||||||||||||||||||||||||||||||||||||||
Additional dividend proposed |
| | | | | | | | | (18,875 | ) | | 18,875 | | ||||||||||||||||||||||||||
Profit retention |
| | | | | | | 32,501 | 32,501 | (32,501 | ) | | | | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at December 31, 2016 |
480,808 | 539,571 | 9,741 | | (37,009 | ) | 512,303 | 7,037 | 134,255 | 141,292 | | | 18,875 | 1,153,278 | ||||||||||||||||||||||||||
Issuance of capital |
5,224 |
|
|
|
|
|
|
|
|
|
|
|
5,224 |
|||||||||||||||||||||||||||
Additional dividend paid |
| | | | | | | | | | | (18,875 | ) | (18,875 | ) | |||||||||||||||||||||||||
Expenditure with issuance of shares |
| | | | (414 | ) | (414 | ) | | | | | | | (414 | ) | ||||||||||||||||||||||||
Repurchase of treasury shares |
| | | (33,887 | ) | | (33,887 | ) | | | | | | | (33,887 | ) | ||||||||||||||||||||||||
Stock option plan |
| | 1,807 | | | 1,807 | | | | | | | 1,807 | |||||||||||||||||||||||||||
Exchange differences on translation of foreign operations |
| | | | | | | | | | (247 | ) | | (247 | ) | |||||||||||||||||||||||||
Net income for the year |
| | | | | | | | | 84,845 | | | 84,845 | |||||||||||||||||||||||||||
Allocations |
||||||||||||||||||||||||||||||||||||||||
Additional dividend proposed |
| | | | | | | | | (18,789 | ) | | 18,789 | | ||||||||||||||||||||||||||
Dividend distribution |
| | | | | | | | | (4,211 | ) | | | (4,211 | ) | |||||||||||||||||||||||||
Interest on equity |
| | | | | | | | | (17,000 | ) | | | (17,000 | ) | |||||||||||||||||||||||||
Profit retention |
| | | | | | | 44,845 | 44,845 | (44,845 | ) | | | | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at December 31, 2017 |
486,032 | 539,571 | 11,548 | (33,887 | ) | (37,423 | ) | 479,809 | 7,037 | 179,100 | 186,137 | | (247 | ) | 18,789 | 1,170,520 | ||||||||||||||||||||||||
Prior-year adjustments |
||||||||||||||||||||||||||||||||||||||||
Effects from the first-time adoption of IFRS 9 |
| | | | | | | (1,015 | ) | (1,015 | ) | | | | (1,015 | ) | ||||||||||||||||||||||||
Effects from the first-time adoption of IFRS 15 |
| | | | | | | (38,542 | ) | (38,542 | ) | | | | (38,542 | ) | ||||||||||||||||||||||||
Opening balances at 01/01/2018, adjusted |
486,032 | 539,571 | 11,548 | (33,887 | ) | (37,423 | ) | 479,809 | 7,037 | 139,543 | 146,580 | | (247 | ) | 18,789 | 1,130,963 | ||||||||||||||||||||||||
Issuance of capital |
2,435 |
|
|
|
|
|
|
|
|
|
|
|
2,435 |
|||||||||||||||||||||||||||
Repurchase of treasury shares (Note 18) |
| | | (114,486 | ) | | (114,486 | ) | | | | | | | (114,486 | ) | ||||||||||||||||||||||||
Additional dividend paid (Note 18) |
| | | | | | | | | | | (18,789 | ) | (18,789 | ) | |||||||||||||||||||||||||
Stock option plan (Note 25) |
| | 4,556 | | | 4,556 | | | | | | | 4,556 | |||||||||||||||||||||||||||
Effect from adoption of hyperinflation |
| | | | | | | 1,822 | 1,822 | | | | 1,822 | |||||||||||||||||||||||||||
Remeasurement of post-employment benefit |
| | | | | | | | | | (146 | ) | | (146 | ) | |||||||||||||||||||||||||
Exchange differences on translation of foreign operations |
| | | | | | | | | | (2,437 | ) | | (2,437 | ) | |||||||||||||||||||||||||
Net income for the year |
| | | | | | | | | 71,055 | | | 71,055 | |||||||||||||||||||||||||||
Allocations |
||||||||||||||||||||||||||||||||||||||||
Additional dividends proposed (Note 18) |
| | | | | | | | | (22,236 | ) | | 22,236 | | ||||||||||||||||||||||||||
Distribution of dividends (Note 18) |
| | | | | | | | | (2,764 | ) | | | (2,764 | ) | |||||||||||||||||||||||||
Interest on equity |
| | | | | | | | | (15,000 | ) | | | (15,000 | ) | |||||||||||||||||||||||||
Profit retention (Note 18) |
| | | | | | | 31,055 | 31,055 | (31,055 | ) | | | | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at December 31, 2018 |
488,467 | 539,571 | 16,104 | (148,373 | ) | (37,423 | ) | 369,879 | 7,037 | 172,420 | 179,457 | | (2,830 | ) | 22,236 | 1,057,209 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See the accompanying notes to financial statements.
F-56
Linx S.A.
Consolidated statements of cash flows
Years ended December 31, 2018, 2017 and 2016
(In thousands of reais)
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Cash flows from operating activities |
||||||||||
Net income for the year |
71,055 | 84,845 | 68,501 | |||||||
Adjustments to reconcile income to cash and cash equivalents generated by (used in) operational activities: |
||||||||||
Depreciation and amortization (Note 12/11) |
78,729 | 69,983 | 56,316 | |||||||
Addition to allowance for doubtful accounts (Note 7) |
2,956 | 1,432 | 381 | |||||||
Losses (gains) on write-off/disposal of goods |
10,310 | 966 | 285 | |||||||
Addition (reversal) of contingencies related to business acquisitions |
(5,266 | ) | 2,781 | | ||||||
Stock option plan |
4,556 | 1,807 | 3,233 | |||||||
Financial expenses |
17,842 | 11,720 | 16,429 | |||||||
Income tax and social contribution deferred (Note 17) |
11,130 | 14,699 | 13,803 | |||||||
Income tax and social contribution current (Note 17) |
9,959 | 9,217 | 10,595 | |||||||
Provisions for contingency (Note 19) |
(495 | ) | 71 | | ||||||
Other operating income (Note 21) |
(8,997 | ) | (4,853 | ) | | |||||
Income from interest earning bank deposits (Note 22) |
(26,500 | ) | (56,781 | ) | (45,793 | ) | ||||
Effect from adoption of hyperinflation |
1,163 | | | |||||||
Change in operating assets and liabilities: |
||||||||||
Trade accounts receivable |
(41,938 | ) | (14,507 | ) | (14,481 | ) | ||||
Recoverable taxes |
(7,156 | ) | (5,181 | ) | (3,486 | ) | ||||
Other credits and judicial deposits |
(17,393 | ) | (6,225 | ) | (9,818 | ) | ||||
Suppliers |
4,022 | (2,841 | ) | (532 | ) | |||||
Labor obligations |
3,426 | 7,665 | 1,346 | |||||||
Taxes and contributions payable |
1,891 | 6,826 | (633 | ) | ||||||
Deferred income |
(7,037 | ) | 1,302 | (3,417 | ) | |||||
Other accounts payable |
1,445 | (5,872 | ) | (2,441 | ) | |||||
Income tax and social contribution paid (Note 17) |
(6,003 | ) | (9,796 | ) | (8,377 | ) | ||||
| | | | | | | | | | |
Net cash flows from operating activities |
97,699 | 107,258 | 81,911 | |||||||
| | | | | | | | | | |
Cash flows from investment activities |
||||||||||
Purchase of fixed assets |
(25,132 | ) | (25,151 | ) | (12,279 | ) | ||||
Purchase of intangible assets |
(57,681 | ) | (40,394 | ) | (35,507 | ) | ||||
Acquisition of business, net of cash and cash equivalents acquired |
(75,132 | ) | (84,727 | ) | (28,197 | ) | ||||
Purchase of financial assets (Note 6) |
(774,028 | ) | (478,956 | ) | (1,157,186 | ) | ||||
Proceeds from redemption of financial assets (Note 6) |
897,614 | 685,153 | 773,849 | |||||||
| | | | | | | | | | |
Net cash flows from (used in) investing activities |
(34,359 | ) | 55,925 | (459,320 | ) | |||||
| | | | | | | | | | |
Cash flows from financing activities |
||||||||||
Additions of loans and financing |
191,837 | | 10,000 | |||||||
Payments of loans and financing (Note 13) |
(40,851 | ) | (33,959 | ) | (11,184 | ) | ||||
Financial expenses paid (Note 13) |
(9,028 | ) | (9,480 | ) | (9,491 | ) | ||||
Payments for the acquisition of subsidiaries (Note 15) |
(45,878 | ) | (19,454 | ) | (30,544 | ) | ||||
Interest on equity paid |
(15,000 | ) | (17,000 | ) | (20 | ) | ||||
Purchase of treasury shares |
(114,486 | ) | (33,887 | ) | | |||||
Proceeds from issuance of shares |
2,435 | 5,224 | 128,307 | |||||||
Proceeds from share premium |
| | 325,440 | |||||||
Expenditure with issuance of shares |
| (414 | ) | (18,662 | ) | |||||
Dividends paid |
(23,000 | ) | (20,000 | ) | (24,000 | ) | ||||
| | | | | | | | | | |
Net cast flows from (used in) financing activities |
(53,971 | ) | (128,970 | ) | 369,846 | |||||
| | | | | | | | | | |
Foreign exchange gain or (loss) in cash and cash equivalents |
(2,437 | ) | 1,478 | | ||||||
| | | | | | | | | | |
Increase (decrease) in cash and cash equivalents |
6,932 | 35,691 | (7,563 | ) | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Cash and cash equivalents at the beginning of the year |
42,918 | 7,227 | 14,790 | |||||||
| | | | | | | | | | |
Cash and cash equivalents at the end of the year |
49,850 | 42,918 | 7,227 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
See the accompanying notes to financial statements.
F-57
Linx S.A.
Notes to the consolidated financial statements
(In thousands of Brazilian reais, unless otherwise stated)
1. Operations
Linx S.A. (the "Company" or "Linx"), a Brazilian corporation, was incorporated in 1985 and is headquartered at Avenida das Nações Unidas, 7221, 7° Andar, city and state of São Paulo, Brazil.
The Company and its subsidiaries (the "Group") are focused on developing and providing affordable, easy-to-use, reliable and seamlessly integrated software solutions to retailers in Brazil, under a recurring subscription-based software revenue. Linx is a one-stop-shop that offers business management tools, payment solutions, e-commerce and omni-channel applications through a single integrated and ever-evolving platform to retailers of all sizes and capabilities.
The Group offers an integrated set of products which are divided into three product lines: Linx Core, Linx Digital and Linx Pay Hub. The Group initiates its operations through its Linx Core product, principally consisting of Linx's management software solutions. As part of the efforts to adapt to ever-evolving customer needs, the Group created its Linx Digital (e-commerce and omni-channel related products) and Linx Pay Hub (payments related products) product lines. The solutions the Group offers through the product lines are specially designed for the customers' value chain ERP/POS offerings with the objective of developing a fully integrated ecosystem and becoming a one-stop-shop for retailers. These products allows Linx to become a partner of choice to retailers by providing services that increase efficiencies, integrating digital and physical stores while ensuring a flexible payment solution suitable for each.
The Company became a publicly listed corporation in Brazil when its shares were listed on the New Market segment of São Paulo Stock Exchange B3 on February 8, 2017, trading under the ticker symbol LINX3.
These consolidated financial statements were approved by the Board of Directors on March 29, 2019.
2. Basis of preparation
2.1. Basis of presentation
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
2.2. Basis of measurement
The consolidated financial statements have been prepared on a historical cost basis except for certain financial assets that have been measured at fair value.
2.3 Current versus non-current classification
The Group presents assets and liabilities in the statement of financial position based on current or non-current classification.
An asset is current when it is:
F-58
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
2. Basis of preparation (Continued)
All other assets are classified as non-current.
A liability is current when:
The Group classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
2.4 Measurement of fair value
The Group measures financial instruments, principally fixed income funds, at fair value on each reporting date. Fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The measurement of fair value is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
The principal or most advantageous market must be accessible by the Group.
The fair value of an asset or liability is measured based on the assumptions that market participants would use when establishing a price for an asset or liability, assuming that market participants act in their best economic interest.
Measurement of the fair value of a non-financial asset takes into account the ability of a market participant to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant who would also use the asset in its highest and best use.
The Group uses valuation techniques which are appropriate according to the circumstances and for which there is sufficient data available to measure the fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
F-59
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
2. Basis of preparation (Continued)
All assets and liabilities for which the fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy described as follows, based on the lowest level inputs that is significant to the measurement of the fair value as a whole:
Level 1 |
Prices quoted (not adjusted) in active markets for identical assets and liabilities | ||
Level 2 |
Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable. |
||
Level 3 |
Valuation techniques for which the lowest level input that is significant to fair the value measurement is unobservable. |
For assets and liabilities recognized in the financial statements at fair value on a recurring basis, the Group determines whether transfers occurred between levels of the hierarchy, by reassessing the categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
The Group's management determines the policies and procedures for both recurring fair value and measurement, such as unquoted financial assets, and for non-recurring measurements. External appraisers are involved in the valuation of significant assets, as, for example, unquoted financial assets, and significant liabilities, such as contingent consideration.
The involvement of external valuers is annually decided by Management. The selection criteria include market knowledge, reputation, independence and whether the professional standards are followed. Management decides, after discussing with the Group's external valuers, which valuation techniques and inputs are used in each case.
At each reporting date, Management analyzes the changes in the amounts of assets and liabilities which are re-measured or reassessed according to the accounting policies of the Group. For purposes of this analysis, Management verifies the main inputs used in the last evaluation, by comparing the information included in the valuation calculation with the contracts and other relevant documents.
Management, together with the Group's external valuers, also compares the change in the fair values of each asset and liability with the relevant external sources to determine whether the change is reasonable.
For the purposes of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy, as explained above. The corresponding fair value disclosures of financial instruments and non-financial assets measured at fair value or at the time of disclosure of fair values are summarized in the respective notes.
2.5 Significant accounting judgments, estimates and assumptions
The preparation of the Group's consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of
F-60
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
2. Basis of preparation (Continued)
contingent liabilities. Significant items subject to these estimates and assumptions include the selection of useful lives and estimating recoverable amounts of property, plant and equipment and intangible assets, deferred taxes, the measurement of financial assets at fair value, credit risk analyses in determining the allowance for doubtful accounts, and the analysis of risks in determining other provisions, including for contingencies.
Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. Estimates and assumptions are reviewed by the Group at least annually.
Impairment of non-financial assets
An impairment loss is recognized when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value, less costs of disposal, and value in use. The fair value, less costs of disposal is based on information available on similar assets' selling transactions or market prices less incremental costs of disposal. The value-in-use calculation is based on the discounted cash flow model. Cash flows are estimated using detailed budgets and forecast calculations over a period of five years and do not include restructuring activities to which the Group has not yet committed or significant future investments that will enhance the asset base of the cash generating unit. The estimation of the recoverable amount is sensitive to key assumptions including the discount rate used in determining present values, expected future cash-inflows and the long term growth rate used for estimating cash flows in perpetuity. The key assumptions used to determine the recoverable value in use, including a sensitivity analysis, are disclosed in Note13.1.
Provision for estimated credit losses on accounts receivable
The Group uses a provision matrix to calculate the estimated credit loss for accounts receivable and contract assets. The provision rates are based on days past due for groupings of client segments that show similar loss patterns (for example, by geographical region, product type or client type, and credit risk, among others).
The provision matrix is initially based on the historical observed default rates noted by the Group. The Group reviews the matrix prospectively to adjust it according to the historical credit loss experience. For example, if there is expectation of adverse changes in the forecast of economic conditions in the following year (for example, gross domestic product), which could lead to an increase in default in the manufacturing sector, the historical observed default rates are adjusted. At every reporting date, the observed historical loss rates are updated and changes in prospective estimates are analyzed.
The evaluation of the correlation between observed historical loss rates, forecast of economic conditions and estimated credit losses are a significant estimate. The quantity of estimated credit losses is sensitive to changes in circumstances and estimated economic conditions. The Group's historical credit loss experience and the provision of economic conditions may also not represent the actual pattern of the client in the future.
F-61
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
2. Basis of preparation (Continued)
Taxes
Deferred tax assets are recognized for unused tax losses to the extent that it is probable that future taxable income will be available against which they can be utilized. Substantial management judgment is required to determine the amount of deferred tax assets that can be recognized, based on the likely timing and level of future taxable income, together with future tax planning strategies.
Provisions for tax, civil and labor risks
The Group recognizes provisions for civil and labor claims. Determination of the likelihood of loss includes the assessment of all available evidence, legal precedence and interpretations, recent court decisions, as well as an assessment by external lawyers. Provisions are reviewed and adjusted to consider changes in circumstances, such as applicable statute of limitations, conclusions of tax audits or additional exposures identified based on new litigation, claims or court rulings.
3. Significant accounting policies
The accounting policies described in detail below have been consistently applied to all the periods presented in these consolidated financial statements.
3.1. Presentation of segment information
The operating segment information is shown consistently with the internal report reviewed by the chief operating decision maker. The chief operating decision maker, in charge of allocating funds and evaluating performance of operating segments is the Executive Board, also in charge of the Group's strategic decision making. The Executive Board considers the whole Group as a single operating and reportable segment as it makes its operational and strategic decisions based on consolidated income (loss).
3.2. Basis of consolidation
The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as of December 31, 2018, 2017 and 2016. Control is obtained when the Group is exposed, or entitled to, variable returns from its involvement with the investee, and has the ability to affect those returns through the power over the investee. Specifically, the Group controls an investee if, and only if, it has:
Generally, there is a presumption that the majority of voting rights results in control. To support this presumption, and when the Group has less than the majority of or similar voting rights of an
F-62
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
investee, the Group considers all relevant facts and circumstances when assessing whether it has power over an investee, including:
The Group re-evaluates whether or not it exercises control over an investee if facts and circumstances indicate that there are changes in one or more of the three control elements. The consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ends when the Group ceases to exercise said control. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group obtains control through the date the Group ceases to exercise control over the subsidiary.
Profit (loss) and each component of other comprehensive income are attributed to the Group's controlling and non-controlling shareholders, even if this results in the non-controlling shareholders having a deficit balance. Whenever necessary, adjustments are made to the financial statements of the subsidiaries to align their accounting practices with the Group's accounting practices.
All assets and liabilities, equity, income, expenses and cash flows of intra-group transactions are eliminated in the preparation of the consolidated financial statements. The consolidated financial statements include information of the Company and its subsidiaries, as follows:
|
Ownership percentage
|
|||||||||
| | | | | | | | | | |
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Subsidiaries |
||||||||||
Linx Sistemas e Consultoria Ltda. (****) |
99.99% | 99.99% | 99.99% | |||||||
Linx Telecomunicações Ltda. (****) |
99.99% | 99.99% | 99.99% | |||||||
Linx Gerenciamento de Redes Ltda. (*) (****) |
| | 99.99% | |||||||
Indirect subsidiaries |
|
|
|
|||||||
Chaordic Corporation (**) |
| 100.00% | 100.00% | |||||||
Intercamp Sistemas e Comércio de Informática S.A. (*) |
| | 100.00% | |||||||
Napse S.R.L. |
100.00% | 100.00% | | |||||||
Sback Tecnologia da Informação Ltda. |
100.00% | 100.00% | | |||||||
Percycle Serviços Ltda. (**) |
| 100.00% | | |||||||
DCG Soluções para Venda Digital S.A. |
100.00% | | | |||||||
Linx Pay Meios de Pagamentos Ltda. (***) |
100.00% | | |
F-63
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
3.3. Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, valued at fair value on the acquisition date, including the value of any non-controlling interest in the acquiree. For each business combination, the Group measures any non-controlling interest in the acquired business at the proportionate share of the acquiree's identifiable net assets. Acquisition related costs are expensed as incurred.
When acquiring a business, the Group assesses the financial assets and liabilities assumed for proper classification and designation in accordance with contractual terms, economic circumstances and pertinent conditions on the acquisition date, which includes segregation of embedded derivatives in host contracts.
Any contingent payments to be transferred by the acquirer will be recognized at fair value on the acquisition date. Subsequent changes in fair value of contingent consideration considered as an asset or a liability shall be recognized in the statement of profit or loss. For the years 2016, 2017 and 2018, the Group has assessed that it expects to pay-out 100% of these payments related to these acquisitions.
The Group measures goodwill at cost, being the excess of the consideration transferred over the net identifiable assets acquired and liabilities assumed.
After initial recognition, the goodwill is carried at cost less any accumulated impairment losses. For impairment testing purposes, goodwill acquired in a business combination is, from the acquisition date, allocated to each cash-generating units of the Group that are expected to benefit from synergies of combination, regardless of other assets or liabilities of the acquiree being allocated to those units. The Group consists of a single CGU which is the whole Group.
3.4. Financial instruments Initial recognition and subsequent measurement
A financial instrument is any contract that generates a financial asset to an entity and a financial liability or equity instrument of another entity.
Initial recognition and measurement
Financial assets are classified, at initial recognition, and subsequently measured at: amortized cost; fair value through other comprehensive income (OCI) or fair value through profit or loss.
The classification of financial assets in initial recognition depends on the characteristics of contractual cash flows of the financial assets and the Group's business model for managing them. With exception of trade accounts receivable that do not contain a significant financial component or for which the Group has adopted the practical expedient, the Group initially measures the financial asset at its fair value plus transaction costs, in case of financial asset not measured at fair value through profit or loss. Trade accounts receivable that do not contain a significant financial
F-64
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
component, or for which the Group has opted for the practical expedient, are measured at the transaction price determined according to IFRS 15.
For a financial asset to be classified and measured at amortized cost or fair value through OCI, it has to generate cash flows that are "solely payments of principal and interest" on the outstanding principal amount. This evaluation is performed at instrument level.
The Group's business model to manage financial assets refers how it manages its financial assets to generate cash flows. The business model determines whether the cash flows will result from collecting contractual cash flows, selling financial assets, or both.
Purchases or sales of financial assets that require the delivery of assets within an established schedule by regulation or convention in the market place are recognized on the trade date, that is, the date when the Group commits to buy or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, the financial assets are classified into four categories:
Financial assets at amortized cost
The Group measures the financial assets at amortized cost if both of the following conditions are met:
The financial assets at amortized cost are subsequently measured using the effective interest method (EIR) and are subject to impairment. Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.
The Group's financial assets at amortized cost include trade accounts receivable and loans to executive officers, included in other non-current financial assets.
F-65
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
Financial assets measured at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated in the initial recognition at fair value through profit or loss or financial assets mandatorily measured at fair value. Financial assets are classified as held-for-trading if they are acquired for the purpose of selling or repurchasing in the short term. As of December 31, 2018, 2017 and 2016, the Company had fixed income investments in financial assets that are measured at fair value through profit or loss.
Financial assets at fair value through profit or loss are presented in the statement of financial position at fair value, with the net changes of fair value recognized in the statement of profit or loss.
This category contemplates listed equity investments, if any, which the Group has not irrevocably classified based on fair value through OCI. Dividends on listed equity investments are also recognized as other income in statement of profit or loss when the right to payment is established.
Derecognition
A financial asset (or, when appropriate, part of a financial asset or part of a group of similar financial assets) is derecognized when:
When the Group transfers its rights to receive the cash flows of an asset or enters into a transfer agreement, it evaluates if and to which extent, it retains the ownership risks and rewards. When it neither transfers nor retains substantially all the risks and rewards of the asset, or transfers the control of the asset, the Group continues to recognize the transferred asset to the extent of its continuing involvement. In such case, the Group also recognizes a related liability. The transferred asset and associated liability are measured on a base that reflects the rights and obligations retained by the Group.
Continuing involvement that takes the form of guaranteeing the transferred asset is measured at the lower of (i) the amount of the asset and (ii) the maximum amount of the consideration that the Group could be required to repay.
Impairment of financial assets
Additional disclosure regarding the impairment of financial assets are also provided in the following notes:
F-66
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
The Group recognizes a provision for estimated credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows payable according to the contract and all cash flows that the Group expects to receive, discounted at an approximation of the original EIR. The expected cash flows will include the cash flows from the sale of collateral held or other credit enhancements that are included in contractual terms.
For trade accounts receivable and contract assets, the Group applies a simplified approach in the calculation of ECLs. Therefore, the Group does not track the changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date. The Group established a provision matrix that is based on its historical credit loss experience, adjusted to specific prospective factors for the debtors and economic environment.
Initial recognition and measurement
Financial liabilities are classified in the initial recognition as financial liabilities at fair value through profit or loss, loans and financings, accounts payable, as appropriate. All financial liabilities are initially measured at their fair values, and in the case of loans and financing, net of directly attributable transaction costs.
The Group's financial liabilities include trade and other accounts payable, loans and financing.
Subsequent measurement
The measurement of financial liabilities depends on their classification as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities designated at initial recognition at fair value through profit or loss are designated at the initial recognition date, and only if the criteria of IFRS 9 are met. The Group has not designated any financial liabilities as at fair value through profit or loss.
Loans and financing
This is the most relevant category to the Group. After initial recognition, interest-bearing loans and financing are subsequently measured at amortized cost, using the EIR method. Gains and losses are recognized in profit or loss when liabilities are derecognized, as well as through the EIR amortization process.
Amortized cost is calculated considering any discount or premium upon acquisition and fees or costs that are an integral component of the financing which are not comprised by the EIR method. The EIR amortization is included as a financial expense in the statement of profit or loss.
This category usually applies to interest bearing loans and financing. Refer to Note 13.
F-67
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by another liability of the same lender on different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit or loss.
Financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial position only if there is a legally enforceable right currently applicable to offset the amounts recognized and if there is intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.
3.5 Cash and cash equivalents
Cash equivalents are maintained for the purpose of meeting short-term cash commitments rather than for investment or other purposes. The Group considers as cash equivalents highly liquid short-term investments, that are subject to an insignificant risk of changes in its value. Consequently, an investment normally qualifies as a cash equivalent when it has short-term maturity of three months or less, as of the initial recognition date.
3.6 Capital
Common shares
Additional costs directly attributable to the issue of shares and share options are recognized as a reduction from shareholders' equity as "expenditure with issuance of shares". Tax benefits related to the deduction of these transaction costs are calculated in accordance with IAS 12.
3.7 Property, plant and equipment
Recognition and measurement
Property, plant and equipment items are measured at historical cost, net of accumulated depreciation and any impairment loss, if any. The cost includes expenditures that are directly attributable to the acquisition of assets.
Purchased software that is integral to the functionality of a piece of equipment is capitalized as part of that equipment.
When significant parts of a property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of Property, plant and equipment and depreciated over their specific useful lives.
F-68
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
Gains and losses on disposal of a property, plant and equipment item are determined by comparing the proceeds from disposal with the carrying amount of the asset and are recognized net within "other operating income" in the statement of profit or loss.
Subsequent costs
The replacement cost of a component of property, plant and equipment is recognized in the carrying amount of the item when it is probable that the future economic benefits embodied in the component will flow to the Group and cost can be reliably measured. The carrying amount of the component that has been replaced by another is written off. Costs of normal repairs and maintenance on property, plant and equipment are recognized in income (loss) as incurred.
Depreciation
Depreciation is calculated on the depreciable values, which is the cost of an asset, less residual values.
Depreciation is calculated on a straight-line basis over the estimated useful lives of the fixed asset, as this method most closely reflects the pattern of consumption of future economic benefits embodied in the asset.
The estimated useful lives are shown in the Note 11.
The depreciation methods, useful lives and residual values are reviewed at the end of fiscal year and adjusted prospectively.
3.8 Intangible assets and goodwill
Intangible assets acquired separately are measured at cost upon initial recognition. The cost of intangible assets acquired in a business combination is their fair value at the acquisition date. Following initial recognition, the intangible assets are carried at cost less accumulated amortization and accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized, and the related expenditure is reflected in the statement of profit or loss in the year in which the expenditure is incurred. The useful life of the intangible asset is classified as finite or indefinite. Goodwill arising from the acquisition of subsidiaries is included in intangible assets in the consolidated financial statements.
Intangible assets with finite lives are amortized over the economic useful life and assessed for impairment whenever there is an indication that the asset may be impaired. The amortization method and period of an intangible asset with defined life are reviewed at least at the end of each year. Changes in the estimated useful lives or the expected pattern of consumption of future economic benefits are accounted for through changes in amortization method or period, as applicable, and are addressed as changes in accounting estimates. The amortization of intangible assets with defined life is recognized in the statement of operations in the category of expense consistent with the function of the intangible assets.
Intangible assets with indefinite useful lives, if any, are not amortized but tested for impairment on an annual basis, individually or at cash generating unit level. The evaluation of indefinite useful
F-69
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
life is reviewed annually to determine whether it is still justifiable. Otherwise, the change in useful life from indefinite to finite is made on a prospective basis.
An intangible asset is derecognized when it is sold (that is, date when the seller no longer retains control over the related asset) or when no future economic benefit is expected from its use or sale. Any gains or losses from the derecognition of assets (the difference between the net sales price and carrying amount) are recognized in the statement of profit or loss in the year.
The impairment test for goodwill and indefinite lived intangible assets, if any, is carried out on an annual basis as of December 31 or when circumstances indicated a potential impairment loss may exist.
Research and development
Research costs are expensed as incurred.
Development activities involve a plan or project aimed at producing new or substantially improved products. Development expenditures are capitalized only when all of the following elements are present: (i) technical feasibility to complete the intangible asset in order for it to be available for use or sale; (ii) intention to complete the intangible asset and use or sell it; (iii) ability to use or sell the intangible asset; (iv) the intangible assets should result in future economic benefit, useful for internal use or asset sale; (v) availability of adequate technical, financial and other resources to complete its development and use the intangible asset; and (vi) ability to safely measure the expenditures attributable to the intangible asset during its development. The expenditures capitalized include the cost of labor and materials that are directly attributable to preparing the asset. Other development expenditures are recognized in the statement of profit or loss as incurred.
After initial recognition, the asset is stated at cost less accumulated amortization and impairment losses. Amortization is triggered when the development is complete and the asset is available for use. During the development period, the asset is tested for impairment on an annual basis.
Other intangible assets
Other intangible assets that are acquired and have finite useful lives are measured at cost less accumulated amortization and any impairment losses.
Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures, including expenditures on internally-generated goodwill and trademarks, are expensed as incurred.
Amortization is recognized in income (loss) on a straight-line basis over the estimated useful lives of the intangible assets, except goodwill, from the date they are available for use, since this is the method that best reflects the pattern of consumption of the future economic benefits embodied in the asset.
F-70
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
3.9 Impairment of non-financial assets
The carrying amounts of the non-financial assets of the Group, except for inventories and deferred income tax and social contribution assets are reviewed at each reporting date for indication of impairment. If any indicators exist, the Group estimates the recoverable amount of the asset.
An impairment loss is recognized when the carrying amount of an asset or its CGU (cash generating unit) exceeds its recoverable amount.
The recoverable amount of an asset or cash-generating unit is the higher of its value in use or its fair value less incremental costs of disposal. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset or cash generating unit. The fair value less incremental costs of disposal is based on information available on similar assets' selling transactions or market prices less costs of disposal.
For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such indicators exist, the Group estimates the asset's or CGU's recoverable amount. A reversal in impairment loss is only recognized if there has been a change in assumptions used to determine the asset's or CGU's recoverable amount. A reversal of impairment loss is limited to the carrying amount of the asset that would have been calculated, net of depreciation or amortization, had the impairment loss not been recognized in prior years.
3.10 Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, if it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense related to any provision is presented in the statement of profit or loss, net of any reimbursement.
If the effect of the time value of money is material, the provisions are discounted using the current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as financing cost.
Provisions for tax, civil and labor risks
The Group is a party to several judicial and administrative proceedings. Provisions are recognized for all contingencies or obligations related to litigation in which an outflow of resources embodying economic benefit is probable, and a reasonable estimate of the probable loss can be made. Determination of the likelihood of loss includes an assessment of all information available, available case law, recent court decisions and their relevance thereof in legal system, as well as an
F-71
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
assessment made by the Group's external lawyers. Provisions are reviewed and adjusted so as to consider changes in circumstances, such as applicable statute of limitations, conclusions of tax audits or additional exposures identified based on new matters or court rulings.
Contingent liabilities recognized in a business combination
A contingent liability recognized in a business combination is initially measured at fair value. Subsequently, it is measured at the higher amount that would be recognized in accordance with the requirements for provisions discussed above or (when applicable) the amount initially recognized less cumulative amortization recognized under the requirements of the Group's revenue recognition policy.
3.11 Transactions involving share-based payment
Group employees receive remuneration in the form of share-based payments whereby the employees render services in exchange for equity instruments ("equity-settled transactions").
Equity settled transactions
The cost of equity settled transactions is determined by the fair value on the date in which they were granted. To determine the fair value of the stock options, the Group may use an external evaluation expert, which uses an appropriate evaluation method. For restricted shares, the fair value of the award equals the market price on the date of grant.
This cost is recognized in employee benefit expenses together with the corresponding increase in shareholders' equity (in other reserves), over the period in which the service is provided, and, when applicable, performance conditions are met (vesting period). The accumulated expense recognized for equity settled transactions at each reporting date up to the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of grants that will ultimately vest. The expense or credit in the statement of profit or loss for the period represents the changes in accumulated expense recognized at the start and end of that period.
When the terms of an equity-settled award are modified (for example, due to plan modifications), the minimum recognized expense is the fair value at the grant date, provided the original vesting conditions are met. An additional expense, measured on the modification date is recognized for any modification that increases the fair value of the share-based payment or otherwise, benefits the employee. When a grant is cancelled by the entity or counterpart, any remaining element of the fair value of the grant is immediately expensed through profit or loss.
The dilutive effect of outstanding options is reflected as additional shares dilution in the calculation of diluted earnings per share.
3.12 Foreign currency
The consolidated financial statements are presented in Brazilian reais (R$), the Company's functional currency. Each entity of the Group determines its own functional currency and items included in the financial statements are measured using that functional currency, and for those
F-72
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
entities whose functional currencies are different from the Brazilian real, the financial statements are translated into reais on the reporting date.
Transactions and balances
Transactions in foreign currencies are initially recorded at the functional currency spot rate at the date the transaction is recognized. Monetary assets and liabilities denominated in foreign currency are translated at the functional currency spot rate on the reporting date.
All differences are recorded in the statement of profit or loss, except for the cash items designated as part of a net investment hedge of a foreign operation, if any. These differences are recognized in OCI until disposal of the net investment, when the cumulative amount is recognized in the statement of profit or loss. The deferred tax expenses and credits attributed to exchange-rate differences on such monetary items are also recognized in OCI.
Non-monetary items that are measured at the historical cost in a foreign currency are translated using the foreign rate at the initial transaction date. Non-monetary assets measured at fair value in a foreign currency would be translated based on current foreign exchange rates on the dates the fair value was determined. The gains or losses arising from the translation of non-monetary items measured at fair value are treated according to the recognition applicable to the gain or loss on the change in the fair value of the item (that is, translation differences for items whose gain or loss on fair value is recognized in OCI or profit or loss for the year are also recognized in OCI or profit or loss for the year, respectively).
When determining the spot exchange rate to be used in the initial recognition of the respective asset, expense or income (or a portion of it) related to the payment or receipt in advance, the transaction date is the date when the Group initially recognizes the non-monetary asset or non-monetary liability arising from advance consideration. If there are multiple advance payments or receipts, the Group determines the transaction date for each advance payment or receipt of advance consideration.
Foreign subsidiaries
The assets and liabilities of foreign operations are translated into reais at the closing exchange rate on the statement of financial position date, and the corresponding statements of profit or loss and cash flow are translated at the exchange rates prevailing when the transactions occur. Foreign exchange rate differences resulting from such translation for consolidation are recognized in OCI. Upon disposal of a foreign operation the cumulative amount of exchange-rate differences recognized in OCI is reclassified to profit or loss.
3.13 Revenue from contracts with clients
Revenue from contracts with customer is recognized when control of the services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those services.
F-73
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
The Group's revenue is generated from its performance obligations consisting of
If billed amounts exceed recognized revenue, the difference is stated in the statement of financial position (current liabilities) as deferred revenue. Subscription services are recognized ratably as the subscription service is provided commencing with the date the subscription service is available to the customer and all other revenue recognition criteria are satisfied. Subscription services are billed monthly and non-refundable.
Consulting services (implementation, installation, customization and training services) are recognized as rendered and billed on a per-hour basis.
In some arrangements, the Group charges an upfront payment associated with the subscription service. In 2016 and 2017, this upfront payment was recognized upon commencement of the contract as the customer had access to the software. In 2018, under IFRS 15, this upfront payment was amortized over the average customer life as it relates to the subscription service performance obligation.
The monthly subscription revenue applies to the Linx Core product line. The operations initiated through Linx Core product line, which is comprised of management software and is provided by the Group on a monthly subscription base.
By the end of 2018, the Group launched Linx Digital (e-commerce related products) and Linx Pay Hub (payments related products) product line as complementary services to the existing offerings, which are separate performance obligations. The revenues for Linx Digital and Linx Pay Hub products are recognized as a percentage of the sales through the platform and recognized when the customer's transaction occurs, however these revenues were not significant in 2016 - 2018.
For contractual arrangements with multiple elements, the contract value will be allocated on the relative stand-alone selling price of each performance obligation included in the arrangement.
Any direct costs incurred related to acquisition of the contracts with clients is amortized over the expected life of the customer or contract period, as appropriate.
3.14 Financial income and expenses
Financial income comprises principally of interest earned on financial assets. Financial expenses comprise of bank fees and interest on loans and financings. Interest is recognized in the statement of profit or loss for the period using the EIR method.
F-74
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
3.15 Trade accounts receivable
An account receivable represents the Group's right to an amount of unconditional consideration (i.e. only the passage of time is required before payment of the consideration is due).
3.16 Income tax and social contribution
Income taxes are comprised of Corporate Income Tax (IRPJ) and Social Contribution (CSLL) on income on the Group's Brazilian entities. According to Brazilian tax law, income taxes and social contribution are assessed and paid by each legal entity and not on a consolidated basis.
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income. The Brazilian entities of the Group record a monthly provision for income tax (25%) and Social Contribution (9%), on an accrual basis, paying taxes based on the monthly estimate.
Income tax and social contribution expense comprises both current and deferred taxes. Current taxes and deferred taxes are recognized in income (loss) unless they are related to the business combination, or items directly recognized in shareholders' equity or other comprehensive income.
Deferred taxes are recognized using the liability method on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the related tax bases.
Deferred tax assets and liabilities are offset when there is a legal enforceable right to offset current tax assets and liabilities, and the latter relate to income taxes levied by the same tax authority on the same legal entity.
A deferred income tax and social contribution asset is recognized for unused tax losses, tax carryforwards and deductible temporary differences, to the extent that it is probable that future taxable income will be available against which the unused tax losses and credits can be utilized. In accordance with the Brazilian tax legislation, unused tax loss carryforwards can be used to offset up to 30% of taxable profit for the year and do not expire.
Deferred income tax and social contribution assets are reviewed at each reporting date and derecognized when their realization is no longer probable.
As permitted by Brazilian tax legislation, the subsidiary Sback Tecnologia da Informação Ltda. adopts the deemed income taxation method. For these subsidiaries, income tax and social contribution are calculated at the rate of 32% on income from services and 100% on financial income. The regular rates of the respective tax and contribution apply to these.
Tax exposures
To determine current and deferred income tax, the Group take into consideration the impact of uncertainties on positions taken on taxes and if the additional income tax and interest payment has to be made. The Group believe that the provision for income tax recorded is adequate for all
F-75
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
outstanding tax periods, based on its evaluation of several factors, including interpretations of tax laws and past experience. This assessment is based on estimates and assumptions that involve the use of judgments on future events. New information may be made available, leading the Group to change its judgment on the adequacy of existing provision. These changes are recorded inincome tax expenses in the year in which they occur.
3.17 Accounts payable to suppliers
Trade accounts payable are obligations due for assets or services acquired in the normal course of business, and are classified as current liabilities if payment is due within one year. Otherwise, accounts payable are presented as non-current liabilities.
They are initially recognized at fair value and, subsequently, measured at amortized cost using the EIR method.
3.18 Short-term employee benefits
Obligations for short-term employee benefits are measured on an undiscounted basis and expensed as the services are rendered.
The liability is recognized at the amount expected to be paid under the cash bonus plans or short-term profit sharing if the Group has a legal or constructive obligation to pay this amount as a result of prior service rendered by the employee, and the obligation can be reliably estimated.
The Group does not have any private pension plans for its employees.
The Group provides benefit plans for management and employees in the form of profit sharing and bonus plans.
Profit sharing and bonus plans are expected to be settled within12 months and are presented at fair value.
The Group offers health care plans to its employees; the Group co-sponsors these plans and employees contribute a monthly amount and the plans may be extended to spouses and dependents. Costs with monthly defined contributions made by the Group are expensed monthly, on an accrual basis.
Costs, contributions and actuarial liabilities related to such plans are determined annually, based on a calculation carried out by independent actuaries using the projected unit credit method.
The Group offers long-term incentive plans to its executives comprised of share-based compensation plans.
F-76
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
3.19 IAS 29 Adoption of the accounting and reporting standard in highly hyperinflationary economy
In July 2018, considering that the inflation accumulated in the past three years in Argentina was higher than 100%, the adoption of the accounting and reporting standard in hyperinflationary economy (IAS 29) became mandatory in relation to the subsidiary Napse S.R.L., located in Argentina. The cumulative index at 31 December 2018 is 184.85%, while on an annual basis the index for 2018 is 48%.
As a result of its inflation exceeding 100%, Argentina was classified as a hyperinflationary economy in July 2018 with retrospective effect to January 1, 2018, the Group has revisited its presentation policy for the equity effects of the hyperinflation situation that currently affects the Argentine economy.
The main implications are as follows:
In order to present more relevant and reliable information, the Group included in a single line item all the equity effects derived from hyperinflation, i.e.: (a) the restatement for inflation of the financial statements of the Group companies operating in hyperinflationary economies, and (b) the effects of translating their respective financial statements into reais using the exchange rate at the end of the period.
The Group has included these effects within profit retention reserve rather than presenting them under Translation Differences within Other Comprehensive Income, the first-time adoption generated an increase to profit retention reserve as of January 1, 2018 of R$ 1,822 and a negative impact in the net income of R$ 1,163 for the year ended December 31, 2018.
3.20 Statement of cash flow
Finance costs paid is classified as cash flows from financing activities in the Statement of Cash Flow.
F-77
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
In the years ended December 31, 2018, 2017 and 2016 the following transactions did not affect the cash, as they were acquired through financing leases:
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 | 2016 | |||||||
| | | | | | | | | | |
Acquisition of computers, furniture and facilities |
341 | 469 | | |||||||
Acquisition of software and software developed |
| 599 | |
3.21 New or revised standards adopted in 2018
The Group adopted for the first time certain revised standards, effective for annual periods beginning on or after January 1, 2018. The Group decided not to early adopt any other standard, interpretation or change that has been issued but is not yet effective. The nature and impact of each of the new standards and revised standards are set out below:
IFRS 15 Revenue from Contracts with Customers
IFRS 15 supersedes IAS 11 (Construction Contracts), IAS 18 (Revenues) and related interpretations, and it applies to all revenues arising from contracts with customers, with limited exceptions. IFRS 15 establishes a five-stage model to account for revenue arising from contracts with customers and requires that revenues to be recognized at an amount that reflects the consideration that the entity expects to receive in exchange for transfer of assets or services to a customer.
IFRS 15 requires entities to exercise judgment, taking into consideration all relevant facts and circumstances when applying each step of the model to contracts with their customers. This standard also specifies the accounting for the incremental costs of obtaining a contract and costs directly related to fulfilling a contract. In addition, this standard requires more extensive disclosures.
The Group adopted IFRS 15 using the modified retrospective adoption method. The Group did not apply any of the other available optional practical expedients.
IFRS 9 Financial instruments
IFRS 9 (Financial Instruments), replaces IAS 39 (Financial Instruments: Recognition and Measurement) for annual periods starting on or after January 1, 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment, and hedge accounting.
The Group applied IFRS 9 on a prospective basis with the initial adoption date being January 1, 2018. This change did not materially impact the Group's cash flows or net income.
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Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
The nature of these adjustments are described below:
In accordance with IFRS 9, debt instruments are subsequently measured at fair value through profit or loss, amortized cost or fair value through OCI. Classification is based on two criteria: The Group's business model for managing the assets and whether the instruments' contractual cash flows represent only payments of principal and interest on the principal amount outstanding.
The assessment of the Group's business model was made as of the date of initial adoption, January 1, 2018. Evaluation of whether debt instruments' contract cash flows are exclusively comprised of payments of principal and interest was carried out based on facts and circumstances existing at the initial recognition of the assets.
Requirements for classification and measurement of IFRS 9 did not significantly impact the Group. The Group continued to measure at fair value all financial assets previously held at fair value in accordance with IAS 39. Changes to the Group's classification of assets are as follows:
Classification Financial assets and liabilities:
|
Classification
IAS 39 |
IFRS 9
Classification |
||
| | | | |
Financial assets (Current / Non-current) |
||||
Cash and cash equivalents |
Loans and receivables | Amortized cost | ||
Financial assets |
FVTPL | FVTPL | ||
Trade accounts receivable |
Loans and receivables | Amortized cost | ||
Other receivables |
Loans and receivables | Amortized cost | ||
Financial liabilities (Current / Non-current) |
|
|
||
Suppliers |
Amortized cost | Amortized cost | ||
Loans and financing |
Amortized cost | Amortized cost | ||
Payables for the acquisition of businesses |
Amortized cost | Amortized cost | ||
Other liabilities |
Amortized cost | Amortized cost |
IFRS 9
replaces the 'incurred loss' model of IAS 39 with a prospective ECL model. The new model for ECLs is applicable to assets measured at amortized cost, contractual
assets and debt instruments measured at FVTOCI.
IFRS 9 requires the Group to recognize a provision for ECLs expected in the future for all contract assets and debt instruments that are not maintained at fair value through profit or loss. Provisions for ECLs were measured considering the simplified approach and were calculated based
F-79
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
on
actual credit loss experience calculated based on historical analysis of losses in the last 12 months.
Reconciliation from the consolidated statement of financial position for year ended December 31, 2017 to the adjusted opening balance on January 1, 2018, to reflect the impacts of the adoption of the new standards is presented below:
|
As of
December 31, 2017 |
Impacts from
the adoption of IFRS 15 and IFRS 9 |
As of
January 1, 2018 |
|||||||
| | | | | | | | | | |
Assets |
||||||||||
Trade accounts receivable (a) |
128,177 |
(1,539 |
) |
126,638 |
||||||
Other current assets |
591,907 | | 591,907 | |||||||
| | | | | | | | | | |
Current assets |
720,084 | (1,539 | ) | 718,545 | ||||||
Deferred taxes (c) |
4,272 |
19,789 |
24,061 |
|||||||
Other non-current assets |
839,668 | | 839,668 | |||||||
| | | | | | | | | | |
Non-current assets |
843,940 | 19,789 | 863,729 | |||||||
| | | | | | | | | | |
Total assets |
1,564,024 | 18,250 | 1,582,274 | |||||||
| | | | | | | | | | |
Liabilities |
||||||||||
Deferred revenue (b) |
8,478 |
30,850 |
39,328 |
|||||||
Other current liabilities |
160,760 | | 160,760 | |||||||
| | | | | | | | | | |
Non-current assets |
169,238 | 30,850 | 200,088 | |||||||
Deferred revenue (b) |
|
26,957 |
26,957 |
|||||||
Other non-current liabilities |
224,266 | | 224,266 | |||||||
| | | | | | | | | | |
Non-current liabilities |
224,266 | 26,957 | 251,223 | |||||||
Shareholders' equity |
1,170,520 |
(39,557 |
) |
1,130,963 |
||||||
| | | | | | | | | | |
Total liabilities and shareholders' equity |
1,564,024 | 18,250 | 1,582,274 | |||||||
| | | | | | | | | | |
F-80
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
For comparison purposes, we presented a reconciliation of impacts on consolidated income (loss) for the period ended December 31, 2018, without the effects of the new standards:
|
Year ended
December 31, 2018 |
Impacts from
the adoption of IFRS 15 and IFRS 9 |
Year ended
December 31, 2018 without effect of said standards |
|||||||
| | | | | | | | | | |
Profit (loss) |
||||||||||
Net revenue (b) |
685,559 | (8,731 | ) | 676,828 | ||||||
Cost of services rendered |
(245,622 | ) | | (245,622 | ) | |||||
| | | | | | | | | | |
(=) Gross profit |
439,937 | (8,731 | ) | 431,206 | ||||||
Operating expenses (a) |
(349,874 | ) | 931 | (348,943 | ) | |||||
(=) Income (loss) before financial income and expenses |
90,063 | (7,800 | ) | 82,263 | ||||||
Finance income (cost) |
2,081 | | 2,081 | |||||||
(=) Income (loss) before taxes |
92,144 | (7,800 | ) | 84,344 | ||||||
Current and deferred income tax and social contribution (c) |
(21,089 | ) | 1,992 | (19,097 | ) | |||||
| | | | | | | | | | |
(=) Net income |
71,055 | (5,808 | ) | 65,247 |
3.22 New or revised standards adopted in 2017
The Group adopted for the first time certain revised standards, effective for annual periods beginning on or after January 1, 2017. The Group decided not to early adopt any other standard, interpretation or change that has been issued but is not yet effective. The nature and impact of each of the new standards and revised standards are set out below:
IAS 7 Statement of Cash Flows, amendments: these amendments are part of a disclosure initiative by IASB and require that the entity provide disclosures that allow financial statements users to evaluate changes in liabilities resulting from financing activities, including both changes resulting from cash flows and non-cash changes. Upon first-time adoption of this amendment, entities are
F-81
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
not required to provide prior-period comparative information. Application of these amendments had no material impacts on the disclosure of Group's cash flows.
IAS 12 Income Taxes, amendments: these amendments clarify that an entity should consider whether the tax legislation restricts the sources of taxable profits against which it may make deductions on the reversal of this temporarily non-deductible difference. In addition, these amendments provide guidance on how an entity should determine future taxable profits, and explain the circumstances under which taxable profit may include recovery of some assets for amounts that exceed their carrying amounts. If an entity adopts these amendments for a prior period, it must disclose this fact. Application of these amendments had no material impacts on the Group's financial position.
3.23 Standards issued that are not yet effective
The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group's financial statements are disclosed below. The Group intends to adopt these new and amended standards and interpretations, if applicable, when they become effective. The Group did not early adopt any standard.
|
Effective date
(annual periods starting on or after) |
|||
| | | | |
IFRS 16 |
Financial lease operations | January 1, 2019 | ||
IFRIC 23 |
Uncertainty related to income tax treatments | January 1, 2019 | ||
Amendments to IFRS 9 |
Characteristics of prepayment with negative remuneration | January 1, 2019 | ||
Amendments to IAS 28 |
Long-term Investment in Associated Companies and Joint Ventures | January 1, 2019 | ||
IFRS Standards Annual Improvements |
Cycle 2015-2017 | January 1, 2019 | ||
Amendments to IAS 19 |
Alteration of plan, Restriction or Settlement | January 1, 2019 | ||
IFRS 17 |
Insurance contracts | January 1, 2021 |
The Group does not expect to be materially impacted by the above standards, except for IFRS 16, described below.
IFRS 16 Leases
IFRS 16 (Leases) was issued in January 2016 to replace IAS 17, IFRS 4, SIC-15 and SIC-27. IFRS 16 establishes principles for recognition, measurement, presentation and disclosure of lease transactions and requires lessees to account for all leases under a single on-balance sheet model, similar to the accounting for financial leases under IAS 17. This standard includes two recognition exemptions for lessees: leases of "low-value" assets (i.e., personal computers) and short-term leases (i.e, leases with maturity of 12 months or less). At the commencement date of a lease, a lessee recognizes a liability to make lease payments (a lease liability) and an asset representing the
F-82
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
right to use the underlying asset during the lease period (right-of-use asset). Lessees must separately recognize interest expense on the lease liability and with depreciation expense on the right-of-use asset.
Lessees must also remeasure the lease liability upon the occurrence of certain events (e.g., change in lease term, change in future lease payments as a result of change in rate or fee used to determine such payments). In general, lessee will recognize the remeasurement of the lease liability as an adjustment to the right-of-use asset.
IFRS 16, which is effective for annual periods beginning on or after January 1, 2019, requires lessees and lessors to make more extensive disclosures than under IAS 17.
Transition to IFRS 16
The Group plans to adopt IFRS 16 using the modified retrospective method. The Group will elect to apply the standard to contracts that were previously identified as leases under IAS 17 and IFRIC 4. The Group will elect to use the exemptions proposed by the standard for lease contracts for assets with low values whose period ends within 12 months, and lease contracts. The Group leases certain office equipment (such as personal computers, printers and copy machines) that is considered low value.
Due to the adoption of IFRS 16, the Group's operating income before financial income and expenses will improve and its interest expense will increase. This is due to change in the accounting for lease expenses that were previously classified as operating leases under IAS 17. The Group identified operating lease contracts for the rental of properties, IT equipment, and use of cloud space. Application of this standard (recognition of asset right-of-use and lease liabilities) will impact the opening statement of financial position as of January 1, 2019, by R$91,290 by recognizing a Right-of-Use Asset and a corresponding lease Liability. The weighted average incremental borrowing rate used to measure the lease liabilities was 9.15% per annum.
F-83
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
3. Significant accounting policies (Continued)
During 2018, the Group carried out a detailed evaluation of IFRS 16, and expects the impacts from adoption of IFRS 16 to be as follows:
|
Statement of
Financial Position as of December 31, 2018 |
Impacts from the
adoption of IFRS 16 |
Statement of
Financial Position as of January 1, 2019 |
|||||||
| | | | | | | | | | |
Assets |
||||||||||
Current assets |
708,827 | | 708,827 | |||||||
Intangible assets (Right of use) |
849,634 | 91,290 | 940,924 | |||||||
Other non-current assets |
89,215 | | 89,215 | |||||||
| | | | | | | | | | |
Non-current assets |
938,849 | 91,290 | 1,030,139 | |||||||
| | | | | | | | | | |
Total assets |
1,647,676 | 91,290 | 1,738,966 | |||||||
| | | | | | | | | | |
Liabilities |
||||||||||
Leases payable |
| 6,156 | 6,156 | |||||||
Other current liabilities |
220,537 | | 220,537 | |||||||
| | | | | | | | | | |
Current liabilities |
220,537 | 6,156 | 226,693 | |||||||
Leases payable |
| 85,134 | 85,134 | |||||||
Other non-current liabilities |
369,767 | | 369,767 | |||||||
| | | | | | | | | | |
Non-current liabilities |
369,767 | 85,134 | 454,901 | |||||||
Shareholders' equity |
1,057,372 | | 1,057,372 | |||||||
| | | | | | | | | | |
Total liabilities and shareholders' equity |
1,647,676 | 91,290 | 1,738,966 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
4. Business combination
4.1. Acquisition of Itec
On March 21, 2018, Linx Sistema e Consultoria Ltda., the Group's wholly-owned subsidiary acquired 100% of the equity of Informática Ltda. ("Itec" or acquired Group), which operates and develops management and automation software for drugstores. The primary reason for the acquisition was reinforcing our portfolio of solutions. In addition to expanding the addressable market of our retail intelligence offer to the drugstore industry.
The price was R$ 25,500 to be paid as follows:
F-84
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
4. Business combination (Continued)
The purchase consideration was calculated as follows:
Purchase consideration |
||||
Amount paid upon closing |
14,400 | |||
Amount paid on May 18, 2018 |
2,000 | |||
Fair value of contingent consideration (Earn-out) |
8,312 | |||
| | | | |
Total consideration |
24,712 | |||
Analysis of cash flow from the acquisition |
||||
Amount paid in cash |
14,400 | |||
Net cash acquired |
(208 | ) | ||
| | | | |
Cash flow from investing activities |
14,192 |
4.2. Acquisition of Único
On April 3, 2018, Linx Sistema e Consultoria Ltda., the Group's wholly-owned subsidiary acquired 100% of the equity of Único Sistemas e Consultoria S.A. ("Único"), which enabled us to enter a new loyalty management vertical. Único's offerings include multi-channel marketing and loyalty management solutions, which are entirely cloud-based and reinforce our customer engagement and customer relationship management, or CRM, offerings. The primary reason for the acquisition was to strengthen the cross selling strategy by acquiring a company with a portfolio of solutions connected to engagement and CRM offerings which represent a growth opportunity for the Company.
The price was R$ 25,000 to be paid as follows:
F-85
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
4. Business combination (Continued)
The purchase consideration was calculated as follows:
Purchase consideration |
||||
Amount paid upon closing |
15,000 | |||
Amount paid on May 14, 2018 |
1,000 | |||
Fair value of contingent consideration (Earn-out) |
8,101 | |||
| | | | |
Total consideration |
24,101 | |||
Analysis of cash flow from the acquisition |
||||
Amount paid in cash |
15,000 | |||
Net cash acquired |
(37 | ) | ||
| | | | |
Cash flow from investing activities |
14,963 |
4.3. Acquisition of DCG
On June 22, 2018, Linx Sistema e Consultoria Ltda., wholly-owned subsidiary of the Group acquired 100% of the equity of DCG Soluções para Venda Digital S.A. ("DCG"), which operates and develops e-commerce platforms and technological solutions utilizing the Software as a Service (SaaS) model, allowing digital sales and connection with marketplaces for retailers The primary reason for the acquisition was to strengthen the ecommerce and Omni Channel offerings strategy which with OMS and personalization, reengagement and advertising offerings will allow us to grow our online solutions portfolio.
The price was R$ 67,000 to be paid as follows:
F-86
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
4. Business combination (Continued)
R$ 1,500 (One million, five hundred thousand Reais) payable upon the resolution of certain contingencies, adjusted at CDI up to actual payment, due date in 2024.
The purchase consideration was calculated as follows.
Purchase consideration
Amount paid in cash |
46,000 | |||
Fair value of contingent consideration (Earn-out) |
19,468 | |||
| | | | |
Total consideration |
65,468 | |||
Analysis of cash flow from the acquisition |
|
|||
Amount paid in cash |
46,000 | |||
Net cash acquired |
(23 | ) | ||
| | | | |
Cash flow from investing activities |
45,977 |
Pursuant to IFRS 3 Business Combinations, business acquisitions are accounted for under the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated by total fair values of transferred assets, liabilities assumed on acquisition date from the former controlling shareholders of the acquiree and the interest issued in exchange for control of the acquiree.
F-87
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
4. Business combination (Continued)
The fair value of identifiable assets acquired in business combinations was measured and recognized at the date of completion of the transaction:
Fair values recognized on acquisition: |
Itec | Único |
DCG
|
|||||||
| | | | | | | | | | |
Cash and cash equivalents |
208 | 37 | 23 | |||||||
Investments |
| | 1,654 | |||||||
Accounts receivable |
423 | 281 | 986 | |||||||
Other current assets |
1 | 40 | 279 | |||||||
| | | | | | | | | | |
Current assets |
632 | 358 | 2,942 | |||||||
Software |
5,494 |
1,530 |
10,842 |
|||||||
Client portfolio |
1,160 | 300 | 1,378 | |||||||
Other non-current assets |
| | 66 | |||||||
Property, plant and equipment |
101 | 255 | 527 | |||||||
Intangible assets |
| | 1,673 | |||||||
| | | | | | | | | | |
Non-current assets |
6,755 | 2,085 | 14,486 | |||||||
Suppliers |
44 |
17 |
682 |
|||||||
Loans and financing |
| 226 | 289 | |||||||
Social charges |
157 | 121 | 1,082 | |||||||
Tax liabilities |
61 | 234 | 465 | |||||||
Other liabilities payable |
120 | | 9 | |||||||
| | | | | | | | | | |
Current liabilities |
382 | 598 | 2,527 | |||||||
Loans and financing |
|
|
582 |
|||||||
Other Liabilities payable |
| 200 | 38 | |||||||
| | | | | | | | | | |
Non-current liabilities |
| 200 | 620 | |||||||
Fair value of assets acquired |
7,387 |
2,443 |
17,428 |
|||||||
Fair value of liabilities assumed |
382 | 798 | 3,147 | |||||||
| | | | | | | | | | |
Total identifiable net assets |
7,005 | 1,645 | 14,281 | |||||||
Fair value of consideration transferred |
24,712 |
24,101 |
65,468 |
|||||||
| | | | | | | | | | |
Goodwill |
17,707 | 22,456 | 51,187 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The fair value of trade accounts receivable of the acquirees is R$ 1,690. The gross amount of trade accounts receivable is R$ 3,152.
Goodwill totaling R$91,349 comprises future economic benefits stemming from synergies resulting from the acquisitions. Goodwill is expected to generate future tax benefits.
Management estimated that net revenue for the period from January 1 to December 31, 2018 would be R$ 26,060 and net loss for the period, R$ (2,021) (unaudited amounts). For the periods of
F-88
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
4. Business combination (Continued)
the respective acquisitions up to December 31, 2018, net revenue totals R$ 16,042 with negative income of R$ (749) for the period.
At the conclusion date of the preparation of these consolidated financial statements, the Group is in the process of reviewing and adjusting the determination of fair value of identifiable assets acquired and liabilities assumed from the acquirees. This analysis is expected to be completed shortly, as soon as management has all relevant information of the facts, not exceeding a maximum period of 12 months from the acquisition date.
4.6 Acquisitions made in 2017
On July 11, 2017, between Linx Sistemas e Consultoria LTDA, wholly-owned subsidiary of the Group acquired 100% of the equity of Synthesis Holding LLC and Synthesis Information Technology S.R.L ("Synthesis Group" or acquirees), which operates with point of sale software for large retailers in Spanish speaking countries in Latin America. The primary reason for this acquisition was to launch our international expansion, which aims to significantly increase its addressable market and to be prepared to the internationalization of its Brazilian clients. Synthesis has a strong presence in Mexico and Argentina, among other countries.
The price was U$$ 25,800, approximately R$ 81,667, to be paid as follows:
F-89
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
4. Business combination (Continued)
The purchase consideration was calculated as follows:
Purchase consideration |
||||
Amount paid in cash |
41,324 | |||
Contingent consideration (Earn-out) |
40,343 | |||
| | | | |
Total compensation |
81,667 | |||
Analysis of cash flow from the acquisition |
|
|||
Amount paid in cash |
41,324 | |||
Net cash acquired |
(3,827 | ) | ||
| | | | |
Cash flow from investing activities |
37,497 |
On October 18, 2017, Linx Sistema e Consultoria LTDA, wholly-owned subsidiary of the Group acquired 100% of the equity of Sback Tecnologia da Informação Ltda. ("Sback" or acquiree), which operates a cloud platform focused on retention, reengagement and recapture technologies through Big Data and intelligence for engagement. The primary reason for this acquisition is acquire the technologies for retention, reengagement and recapture through Big Data and Intelligence for engagement to strengthen Linx's portfolio of solutions that increase the customers' profitability, opening new markets and reaching new customer profiles.
The price was R$ 56,558 to be paid as follows:
F-90
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
4. Business combination (Continued)
Purchase consideration |
||||
Amount paid in cash |
36,500 | |||
Fair value of contingent consideration (Earn-out) |
18,807 | |||
| | | | |
Total consideration |
55,307 | |||
Analysis of cash flow from the acquisition |
|
|||
Amount paid in cash |
36,500 | |||
Net cash acquired |
| |||
| | | | |
Cash flow from investing activities |
36,500 |
On December 20, 2017, Linx Sistema e Consultoria LTDA, wholly-owned subsidiary of the Group acquired 100% of the equity of Percycle Serviços Ltda. ("Percycle"), which operates an online media platform, uniting storeowners, brands and consumers. The primary reason for this acquisition was to add a local online media platform which unites merchants, brands and consumers and allows a company to advertise within the top ecommerce sites in different formats and segmentations, expanding Linx's portfolio of solutions that improve the consumer shopping experience, as well as opening the advertising market, and reinforce Linx's offers for e-commerce and the industry.
The price was R$ 22,730 to be paid as follows:
F-91
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
4. Business combination (Continued)
Purchase consideration |
||||
Amount paid in cash |
10,750 | |||
Contingent consideration (Earn-out) |
11,980 | |||
| | | | |
Total consideration |
22,730 | |||
Analysis of cash flow from the acquisition |
|
|||
Amount paid in cash |
10,750 | |||
Net cash acquired |
(20 | ) | ||
| | | | |
Cash flow from investing activities |
10,730 |
Identifiable assets acquired and goodwill
The fair value of identifiable assets acquired in business combinations was measured and recognized at the date of completion of the transaction:
Fair values recognized on acquisition: |
Synthesis | Shopback |
Percycle
|
|||||||
| | | | | | | | | | |
Cash and cash equivalents |
3,827 | | 20 | |||||||
Accounts receivable |
5,104 | 1,128 | 3,339 | |||||||
Other current assets |
1,811 | 34 | 2 | |||||||
| | | | | | | | | | |
Current assets |
10,742 | 1,162 | 3,361 | |||||||
Software |
8,230 |
11,357 |
4,546 |
|||||||
Client portfolio |
16,335 | 6,331 | 2,273 | |||||||
Indemnification assets |
10,751 | | | |||||||
Other non-current assets |
1,276 | 5 | 130 | |||||||
| | | | | | | | | | |
Non-current assets |
36,592 | 17,693 | 6,949 | |||||||
Suppliers |
1,574 |
72 |
2,390 |
|||||||
Tax liabilities |
1,446 | 1,102 | 222 | |||||||
Provisions for contingencies |
12,937 | | | |||||||
Deferred tax liabilities |
8,352 | | | |||||||
Other Liabilities payable |
4,711 | 65 | 263 | |||||||
| | | | | | | | | | |
Current liabilities |
29,020 | 1,239 | 2,875 | |||||||
Other Liabilities payable |
|
|
616 |
|||||||
| | | | | | | | | | |
Non-current liabilities |
| | 616 | |||||||
Fair value of assets acquired |
47,334 |
18,855 |
10,310 |
|||||||
Fair value of liabilities assumed |
29,020 | 1,239 | 3,491 | |||||||
| | | | | | | | | | |
Total identifiable net assets |
18,314 | 17,616 | 6,819 | |||||||
Fair value of consideration transferred |
81,667 |
55,307 |
22,730 |
|||||||
| | | | | | | | | | |
Goodwill |
63,353 | 37,691 | 15,911 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
F-92
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
4. Business combination (Continued)
Assets acquired and liabilities assumed in 2017
The fair value of trade accounts receivable of the acquirees is R$ 9,571. The gross amount of trade accounts receivable is R$ 9,649.
Goodwill totaling R$116,955 comprises future economic benefits stemming from synergies resulting from the acquisition. Goodwill is expected to generate future tax benefits (except for Synthesis).
Management estimated that net revenue for the period from January 1 to December 31, 2017 would be R$ 65,395 and net income for the period, R$ 17,975 (unaudited amounts). For the periods of the respective acquisitions up to December 31, 2017, net revenue totals R$ 22,601 with positive income of R$ 6,989 for the period.
4.7 Acquisitions made in 2016
4.7.1 Acquisition of Intercamp
On November 7, 2016, Linx Systemas acquired 100% of the equity of Intercamp Sistemas e Comércio de Informática S.A. ("INTERCAMP"), which engaged in developing and marketing management software for gas stations and convenience stores. The primary reason for this acquisition was to reinforce the gas stations and convenience stores vertical.
The price was R$ 42,000 to be paid as follows:
F-93
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
4. Business combination (Continued)
Purchase consideration |
||||
Amount paid in cash |
29,000 | |||
Fair value of contingent consideration (Earn-out) |
10,370 | |||
| | | | |
Total consideration |
39,370 | |||
Analysis of cash flow from the acquisition |
|
|||
Amount paid in cash |
29,000 | |||
Net cash acquired |
(803 | ) | ||
| | | | |
Cash flow from investing activities |
28,197 |
Identifiable assets acquired and goodwill
The fair value of identifiable assets acquired was measured and recognized as follows:
Fair values recognized on acquisition: |
Intercamp
|
|||
| | | | |
Current assets |
2,371 | |||
| | | | |
Cash and cash equivalents |
803 | |||
Accounts receivable |
495 | |||
Other current assets |
1,073 | |||
Non-current assets |
12,953 |
|||
| | | | |
Software |
865 | |||
Client portfolio |
9,205 | |||
Property, plant and equipment |
770 | |||
Intangible assets |
2,113 | |||
Current liabilities |
2,869 |
|||
| | | | |
Suppliers |
333 | |||
Tax liabilities |
73 | |||
Payroll and related taxes |
218 | |||
Other Liabilities payable |
2,245 | |||
Non-current liabilities |
1,594 |
|||
| | | | |
Other Liabilities payable |
1,594 | |||
Fair value of assets acquired |
15,324 |
|||
Fair value of liabilities assumed |
4,463 | |||
| | | | |
Total identifiable net assets |
10,861 | |||
Fair value of consideration transferred |
39,370 |
|||
| | | | |
Goodwill on operation |
28,509 | |||
| | | | |
| | | | |
| | | | |
F-94
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
4. Business combination (Continued)
Assets acquired and liabilities assumed in 2016
The fair value of trade accounts receivable of the acquiree is R$ 495.
Goodwill totaling R$ 28,509 comprises future economic benefits stemming from synergies resulting from the acquisition. The goodwill is expected to generate future tax benefits.
Management estimated that net revenue for the period from January 1 to December 31, 2016 would be R$ 4,038 and net loss for the period, R$ (266) (unaudited amounts). For the period of the respective acquisition up to December 31, 2016, net revenue totals R$ 2,700 with positive income of R$ 244 for the period.
5. Cash and cash equivalents
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Cash and banks |
45,422 | 37,854 | 2,499 | |||||||
Short-term interest earning bank deposits |
4,428 | 5,064 | 4,728 | |||||||
| | | | | | | | | | |
|
49,850 | 42,918 | 7,227 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Highly liquid short-term interest earning bank deposits are promptly convertible into a known amount of cash and subject to minimal risk of change of value.
Short-term interest earning bank deposits refer to Fixed Income Funds accruing interest at 101.41% as of December 31, 2018 (99.57 as of December 31, 2017 and 101.95 as of December 31, 2016) of the benchmark Interbank Deposit Certificate (CDI) rate with initial maturities less than 90 days.
6. Financial assets
|
Date of |
Average yield in
relation to CDI (%) |
December 31
|
||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Type |
Name | investment | Maturity | 2018 | 2017 | 2016 | 2018 | 2017 |
2016
|
||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Fixed income fund |
Renda Fixa Crédito Privado | 02/15/2013 | Indefinite | 104.08 | % | 103.90 | % | 101.95 | % | 413,374 | 487,816 | 639,185 | |||||||||||||
LF |
Book-entry financial bill | 10/13/2016 | 10/15/2018 | 103.00 | % | 103.00 | % | 103.00 | % | | 20,990 | 19,036 | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
|
413,374 | 508,806 | 658,221 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Current |
413,374 | 487,816 | 639,185 | ||||||||||||||||||||||
Non-current |
| 20,990 | 19,036 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
|
413,374 | 508,806 | 658,221 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
F-95
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
6. Financial assets (Continued)
The balance of the Fixed Income Fund comprises:
|
Date of | Amount of the | ||||||||||||||||||
Type |
Code | investment | Issue | Maturity | Quantity | Index | investment |
2018 Net value
|
||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Fixed income |
LF (1) | 10/21/2016 - 03/19/2018 | 10/21/2016 - 03/19/2018 | 04/22/2019 - 06/09/2020 | 81 | CDI D 101.75 - 104.5% | 21,700 | 25,033 | ||||||||||||
Fixed income |
LFS (2) | 02/15/2013 | 01/16/2013 | 01/15/2019 | 28 | CDI D 111% | 8,453 | 16,166 | ||||||||||||
Fixed income |
Eligible LFS (2) | 08/01/2018 | 08/01/2018 | 08/01/2025 | 17 | CDI D 108.75% | 5,100 | 5,273 | ||||||||||||
Fixed income |
LFT (3) | 10/03/2016 - 12/21/2018 | 07/01/2000 - 01/05/2018 | 09/01/2021 - 03/01/2024 | 7,066 | LFT / SELIC | 65,133 | 69,779 | ||||||||||||
Fixed income |
LTN (4) | 12/31/2018 | 12/31/2018 | 07/01/2020 | 50,503 | PRE 6.40% p.a. | 45,303 | 45,303 | ||||||||||||
Investment fund |
Other funds (5) | | | | 5,940,011 | | 235,767 | 235,767 | ||||||||||||
Fixed income |
LAMDI (6) | 11/27/2018 - 12/03/2018 | 11/27/2018 - 12/03/2018 | 11/29/2019 - 12/03/2019 | 16,000 | CDI 103.0 - 103.75% | 16,000 | 16,088 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | |
|
413,409 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Fund expenses |
(36 | ) | ||||||||||||||||||
Treasury balance |
1 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
|
413,374 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
|
Date of | Amount of the | ||||||||||||||||||
Type |
Code | investment | Issue | Maturity | Quantity | Index | investment |
2017 Net value
|
||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Fixed income |
DEBLA (1) | 02/25/2016 | 02/25/2016 | 02/22/2018 | 22,188 | CDI D 102% | 7,588 | 9,367 | ||||||||||||
Fixed income |
LF (2) | 10/21/2016 - 12/12/2017 | 10/21/2016 - 12/12/2017 | 10/22/2018 - 06/09/2020 | 236 | CDI D 104.25% | 70,800 | 79,531 | ||||||||||||
Fixed income |
LFS (2) | 02/15/2013 | 01/16/2013 | 01/15/2019 | 28 | CDI D 111% | 8,453 | 15,177 | ||||||||||||
Fixed income |
LFT (3) | 03/27/2015 - 09/18/2017 | 07/01/2000 - 01/11/2013 | 09/01/2018 - 09/01/2021 | 10,005 | LFT | 80,631 | 92,872 | ||||||||||||
Fixed income |
PRE (5) | 12/29/2017 | 12/29/2017 | 05/15/2035 | 47,295 | PRE 6.90 p.a. | 149,555 | 149,555 | ||||||||||||
Investment fund |
Other funds (6) | | | | 660,673 | | 141,358 | 141,358 | ||||||||||||
Fixed income |
LF (2) | | 10/13/2016 | 10/15/2018 | 1 | CDI 103% | 20,990 | 20,990 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | |
|
508,850 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
Fund expenses |
(44 | ) | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
|
508,806 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | |
F-96
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
6. Financial assets (Continued)
|
Date of |
Nominal
amount of the |
|||||||||||||||||||||
Type |
Code | investment | Issue | Maturity | Quantity | Index | investment | 2016 Net value | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Fixed income |
LF (1) | 11/29/2016 | 11/29/2016 | 06/09/2017 | 4,715 | CDI D 101% | 4,715 | 4,771 | |||||||||||||||
Fixed income |
LFS (2) | 02/25/2016 | 02/25/2016 | 02/22/2018 | 22,188 | CDI D 101.5% | 7,588 | 8,503 | |||||||||||||||
Fixed income |
LFS Elegível (2) | 12/11/2014 - 10/26/2015 | 12/11/2014 - 10/26/2015 | 12/11/2017 - 10/26/2017 | 326 | CDI and CDI D 108% | 98,026 | 103,276 | |||||||||||||||
Fixed income |
LFT (3) | 02/15/2013 | 01/16/2013 | 01/15/2019 | 28 | CDI D 111% | 8,453 | 13,734 | |||||||||||||||
Fixed income |
LTN (4) | 02/15/2013 - 12/01/2015 | 03/30/2011 - 05/16/2012 | 03/30/2017 - 05/15/2018 | 20 | CDI and CDI D 112% | 11,289 | 11,245 | |||||||||||||||
Fixed income |
Other Funds (5) | 03/27/2015 - 09/30/2016 | 07/01/2000 - 01/11/2013 | 09/01/2018 - 01/09/2021 | 17,714 | LFT | 142,361 | 149,202 | |||||||||||||||
Fixed income |
LAMDI (6) | 12/30/2016 | 12/30/2016 | 08/15/2018 | 53,256 | PRE 13.65 p.a. | 160,155 | 160,155 | |||||||||||||||
Investment fund |
LF (1) | | | | 969,809 | | 188,359 | 188,359 | |||||||||||||||
Fixed income |
LFS (2) | | 10/13/2014 | 10/15/2018 | 1 | CDI 103% | 19,120 | 19,036 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
|
658,281 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Fund expenses |
(64 | ) | |||||||||||||||||||||
Treasury balance |
4 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
|
658,221 | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Management's policy is to use these funds for specific payments, such as for the acquisition of businesses and for payment of interest on equity, and not to use these funds to cover operating cash flow needs.
The exposure of the Group to risk and the sensitivity analysis are disclosed in Note 23.8.
F-97
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
7. Trade accounts receivable
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Days: |
||||||||||
1 - 30 |
9,591 | 14,181 | 7,405 | |||||||
31 - 60 |
3,468 | 4,684 | 4,360 | |||||||
61 - 90 |
3,063 | 3,145 | 2,389 | |||||||
91 - 180 |
4,483 | 4,481 | 3,612 | |||||||
>181 |
5,952 | 3,656 | 3,955 | |||||||
| | | | | | | | | | |
|
26,557 | 30,147 | 21,721 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
For 2017 and 2016, the Group estimated an allowance for doubtful accounts of trade accounts receivable past due over 180 days based on the historical loss and trade notes receivable in bankruptcy. As of January 1, 2018, the Group has recognized a provision for expected credit losses in trade accounts receivable that comprise of outstanding accounts receivable base. The estimated percentage loss for each aging band is shown below.
Maturity |
Loss %
|
|||
| | | | |
Falling due (years): |
||||
>1 |
0.4 | % | ||
up to 1 |
0.4 | % | ||
Days: |
||||
1 - 30 |
2.8 | % | ||
31 - 60 |
8.0 | % | ||
61 - 90 |
16.3 | % | ||
91 - 120 |
22.3 | % | ||
121 - 150 |
27.8 | % | ||
151 - 180 |
35.5 | % |
F-98
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
7. Trade accounts receivable (Continued)
The changes in the allowance for expected credit losses is as follows:
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Opening balance |
(1,183 | ) | (2,615 | ) | (2,996 | ) | ||||
Initial adoption of IFRS 9 as of January 1, 2018 |
(1,539 | ) | | | ||||||
Addition of provision |
(5,734 | ) | (3,759 | ) | (3,637 | ) | ||||
Use/reversal |
4,241 | 5,191 | 4,018 | |||||||
| | | | | | | | | | |
Closing balance |
(4,215 | ) | (1,183 | ) | (2,615 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
8. Recoverable taxes
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Brazilian State VAT (ICMS) |
4,286 | 3,231 | 1,659 | |||||||
Withholding taxes and contributions |
29,272 | 28,412 | 27,371 | |||||||
Brazilian Federal Revenue taxes (PIS and COFINS) |
456 | 566 | 568 | |||||||
Other |
1,080 | 845 | 89 | |||||||
| | | | | | | | | | |
|
35,094 | 33,054 | 29,687 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
9. Related parties
Compensation of key management personnel of the Group (for 8, 6 and 4 persons in 2018, 2017 and 2016, respectively) for the periods ended December 31, 2018, 2017 and 2016 is as follows:
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Short-term employee benefits |
11,571 | 9,611 | 5,985 | |||||||
Share-based payment transactions |
3,148 | 1,428 | 1,865 | |||||||
| | | | | | | | | | |
|
14,719 | 11,039 | 7,850 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
F-99
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
10. Other receivables
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Prepaid expenses Services |
21,696 | 9,315 | 4,908 | |||||||
Indemnification assets from business combinations (*) |
13,560 | 10,042 | 2,835 | |||||||
Advances to suppliers |
7,102 | 3,718 | 2,254 | |||||||
Advances to employees (**) |
1,842 | 872 | 1,162 | |||||||
Other |
6,420 | 5,657 | 11,946 | |||||||
| | | | | | | | | | |
|
50,620 | 29,604 | 23,105 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Current assets |
43,407 | 28,119 | 12,230 | |||||||
Non-current assets |
7,213 | 1,485 | 10,875 |
11. Property, plant and equipment, net
|
December 31, 2016
|
|||||||||
| | | | | | | | | | |
|
Cost |
Accumulated
depreciation |
Net amount
|
|||||||
| | | | | | | | | | |
Computers and electronics |
31,949 | (23,698 | ) | 8,251 | ||||||
Vehicles |
10,480 | (6,302 | ) | 4,178 | ||||||
Furniture and fixtures |
7,892 | (3,435 | ) | 4,457 | ||||||
Facilities, machinery and equipment |
25,651 | (8,354 | ) | 17,297 | ||||||
Leasehold improvements |
19,859 | (6,731 | ) | 13,128 | ||||||
Real estate |
3,348 | (407 | ) | 2,941 | ||||||
Other components |
1,006 | | 1,006 | |||||||
| | | | | | | | | | |
Total |
100,185 | (48,927 | ) | 51,258 | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
F-100
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
11. Property, plant and equipment, net (Continued)
Changes in property and equipment balances
|
Cost
|
||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
|
December 31,
2015 |
Additions |
Addition
acquisition of a buisness |
Disposals | Transfers |
December 31,
2016 |
|||||||||||||
| | | | | | | | | | | | | | | | | | | |
Computers and electronics |
28,439 | 3,431 | 99 | (20 | ) | | 31,949 | ||||||||||||
Vehicles |
9,758 | 854 | 27 | (159 | ) | | 10,480 | ||||||||||||
Furniture and fixtures |
6,578 | 886 | 468 | (46 | ) | 6 | 7,892 | ||||||||||||
Facilities, machinery and equipment |
21,344 | 4,195 | 176 | (58 | ) | (6 | ) | 25,651 | |||||||||||
Leasehold improvements |
16,954 | 2,908 | | (3 | ) | | 19,859 | ||||||||||||
Real estate |
3,349 | | | (1 | ) | | 3,348 | ||||||||||||
Other components |
1,006 | | | | | 1,006 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total |
87,428 | 12,274 | 770 | (287 | ) | | 100,185 | ||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
|
Accumulated depreciation
|
|||||||||
| | | | | | | | | | |
|
December 31,
2015 |
Additions |
December 31,
2016 |
|||||||
| | | | | | | | | | |
Computers and electronics |
(20,831 | ) | (2,867 | ) | (23,698 | ) | ||||
Vehicles |
(4,557 | ) | (1,745 | ) | (6,302 | ) | ||||
Furniture and fixtures |
(2,816 | ) | (619 | ) | (3,435 | ) | ||||
Facilities, machinery and equipment |
(6,217 | ) | (2,137 | ) | (8,354 | ) | ||||
Leasehold improvements |
(5,028 | ) | (1,703 | ) | (6,731 | ) | ||||
Real estate |
(288 | ) | (119 | ) | (407 | ) | ||||
| | | | | | | | | | |
Total |
(39,737 | ) | (9,190 | ) | (48,927 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
December 31, 2017
|
|||||||||
| | | | | | | | | | |
|
Cost |
Accumulated
depreciation |
Net amount
|
|||||||
| | | | | | | | | | |
Computers and electronics |
36,157 | (26,804 | ) | 9,353 | ||||||
Vehicles |
11,147 | (7,854 | ) | 3,293 | ||||||
Furniture and fixtures |
12,463 | (4,224 | ) | 8,239 | ||||||
Facilities, machinery and equipment |
31,029 | (11,006 | ) | 20,023 | ||||||
Leasehold improvements |
30,431 | (12,826 | ) | 17,605 | ||||||
Real estate |
3,348 | (535 | ) | 2,813 | ||||||
Other components |
1,006 | | 1,006 | |||||||
| | | | | | | | | | |
Total |
125,581 | (63,249 | ) | 62,332 | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
F-101
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
11. Property, plant and equipment, net (Continued)
Changes in property and equipment balances
|
Cost
|
||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
|
December 31,
2016 |
Additions |
Addition
acquisition of a business |
Disposals | Transfers |
December 31,
2017 |
|||||||||||||
| | | | | | | | | | | | | | | | | | | |
Computers and electronics |
31,949 | 2,298 | 121 | (30 | ) | 1,819 | 36,157 | ||||||||||||
Vehicles |
10,480 | 984 | 78 | (395 | ) | | 11,147 | ||||||||||||
Furniture and fixtures |
7,892 | 980 | 89 | (16 | ) | 3,518 | 12,463 | ||||||||||||
Facilities, machinery and equipment |
25,651 | 1,809 | 362 | 2 | 3,205 | 31,029 | |||||||||||||
Property, plant and equipment in progress |
| 18,120 | | (300 | ) | (17,820 | ) | | |||||||||||
Leasehold improvements |
19,859 | 1,429 | | (135 | ) | 9,278 | 30,431 | ||||||||||||
Real estate |
3,348 | | | | | 3,348 | |||||||||||||
Other components |
1,006 | | | | | 1,006 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total |
100,185 | 25,620 | 650 | (874 | ) | | 125,581 | ||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
|
Accumulated depreciation
|
|||||||||
| | | | | | | | | | |
|
December 31,
2016 |
Additions |
December 31,
2017 |
|||||||
| | | | | | | | | | |
Computers and electronics |
(23,698 | ) | (3,106 | ) | (26,804 | ) | ||||
Vehicles |
(6,302 | ) | (1,552 | ) | (7,854 | ) | ||||
Furniture and fixtures |
(3,435 | ) | (789 | ) | (4,224 | ) | ||||
Facilities, machinery and equipment |
(8,354 | ) | (2,652 | ) | (11,006 | ) | ||||
Leasehold improvements |
(6,731 | ) | (6,095 | ) | (12,826 | ) | ||||
Real estate |
(407 | ) | (128 | ) | (535 | ) | ||||
| | | | | | | | | | |
Total |
(48,927 | ) | (14,322 | ) | (63,249 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
December 31, 2018
|
|||||||||
| | | | | | | | | | |
|
Cost |
Accumulated
depreciation |
Net amount
|
|||||||
| | | | | | | | | | |
Computers and electronics |
43,544 | (30,599 | ) | 12,945 | ||||||
Vehicles |
14,668 | (9,574 | ) | 5,094 | ||||||
Furniture and fixtures |
14,587 | (5,554 | ) | 9,033 | ||||||
Facilities, machinery and equipment |
36,246 | (14,212 | ) | 22,034 | ||||||
Leasehold improvements |
37,041 | (15,558 | ) | 21,483 | ||||||
Real estate |
3,348 | (669 | ) | 2,679 | ||||||
Other components |
1,005 | | 1,005 | |||||||
| | | | | | | | | | |
Total |
150,439 | (76,166 | ) | 74,273 | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
F-102
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
11. Property, plant and equipment, net (Continued)
Changes in property and equipment balances are as follows 2018
|
Cost
|
|||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
|
December 31,
2017 |
Additions (*) |
Addition
acquisition of a buisness (**) |
IAS 29 (***) | Disposals | Transfers |
December 31,
2018 |
|||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Computers and electronics |
36,157 | 6,916 | 321 | | (490 | ) | 640 | 43,544 | ||||||||||||||
Vehicles |
11,147 | 4,251 | 192 | 16 | (938 | ) | | 14,668 | ||||||||||||||
Furniture and fixtures |
12,463 | 873 | 203 | 21 | (392 | ) | 1,419 | 14,587 | ||||||||||||||
Facilities, machinery and equipment |
31,029 | 3,703 | 111 | 271 | (268 | ) | 1,400 | 36,246 | ||||||||||||||
Property, plant and equipment in progress |
| 6,135 | | | | (6,135 | ) | | ||||||||||||||
Leasehold improvements |
30,431 | 3,195 | 56 | 283 | (1 | ) | 3,077 | 37,041 | ||||||||||||||
Real estate |
3,348 | | | | | | 3,348 | |||||||||||||||
Other components |
1,006 | 400 | | | | (401 | ) | 1,005 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total |
125,581 | 25,473 | 883 | 591 | (2,089 | ) | | 150,439 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
|
Accumulated depreciation
|
|||||||||
| | | | | | | | | | |
|
December 31,
2017 |
Additions
(****) |
December 31,
2018 |
|||||||
| | | | | | | | | | |
Computers and electronics |
(26,804 | ) | (3,795 | ) | (30,599 | ) | ||||
Vehicles |
(7,854 | ) | (1,720 | ) | (9,574 | ) | ||||
Furniture and fixtures |
(4,224 | ) | (1,330 | ) | (5,554 | ) | ||||
Facilities, machinery and equipment |
(11,006 | ) | (3,206 | ) | (14,212 | ) | ||||
Leasehold improvements |
(12,826 | ) | (2,732 | ) | (15,558 | ) | ||||
Real estate |
(535 | ) | (134 | ) | (669 | ) | ||||
| | | | | | | | | | |
Total |
(63,249 | ) | (12,917 | ) | (76,166 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Annual depreciation rates are stated as follows:
Computers and electronics |
20 | % | ||
Vehicles |
20 | % | ||
Furniture and fixtures |
10 | % | ||
Facilities, machinery and equipment |
10 | % | ||
Leasehold improvements |
10 | % | ||
Real estate |
4 | % |
Depreciation expense is recognized under "Operating, general and administrative expenses" in the statement of profit or loss.
F-103
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
12. Intangible assets, net
|
December 31, 2016
|
|||||||||
| | | | | | | | | | |
|
Cost |
Accumulated
amortization |
Net amount
|
|||||||
| | | | | | | | | | |
Software (1) |
34,473 | (16,896 | ) | 17,577 | ||||||
Software development (2) |
1,848 | | 1,848 | |||||||
Software developed (3) |
104,439 | (70,126 | ) | 34,313 | ||||||
Software development capitalized interest |
3,192 | (1,212 | ) | 1,980 | ||||||
Brands acquired |
46,187 | (2,154 | ) | 44,033 | ||||||
Acquired Technology |
92,481 | (66,727 | ) | 25,754 | ||||||
Client portfolio acquisitions |
106,411 | (36,566 | ) | 69,845 | ||||||
Goodwill |
405,289 | | 405,289 | |||||||
Other |
3 | | 3 | |||||||
| | | | | | | | | | |
Total |
794,323 | (193,681 | ) | 600,642 | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Changes in intangible assets balances
|
Cost
|
|||||||||||||||
| | | | | | | | | | | | | | | | |
|
December 31,
2015 |
Addition (*) |
Additions
Acquisition of a Business |
Transfers |
December 31,
2016 |
|||||||||||
| | | | | | | | | | | | | | | | |
Software (1) |
25,885 | 6,475 | 2,113 | | 34,473 | |||||||||||
Software development (2) |
893 | 6,910 | | (5,955 | ) | 1,848 | ||||||||||
Software developed (3) |
78,223 | 20,761 | | 5,455 | 104,439 | |||||||||||
Software development capitalized interest |
1,969 | 1,223 | | | 3,192 | |||||||||||
Brands acquired |
46,187 | | | | 46,187 | |||||||||||
Acquired Technology |
91,212 | 120 | 865 | 284 | 92,481 | |||||||||||
Client portfolio acquisitions |
99,978 | | 9,205 | (2,772 | ) | 106,411 | ||||||||||
Goodwill |
373,771 | 21 | 28,509 | 2,988 | 405,289 | |||||||||||
Other |
3 | | | | 3 | |||||||||||
| | | | | | | | | | | | | | | | |
Total |
718,121 | 35,510 | 40,692 | | 794,323 | |||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
F-104
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
12. Intangible assets, net (Continued)
|
Accumulated amortization
|
|||||||||
| | | | | | | | | | |
|
December 31,
2015 |
Additions |
December 31,
2016 |
|||||||
| | | | | | | | | | |
Software (1) |
(12,016 | ) | (4,880 | ) | (16,896 | ) | ||||
Software developed (3) |
(51,139 | ) | (18,987 | ) | (70,126 | ) | ||||
Software development capitalized interest |
(462 | ) | (750 | ) | (1,212 | ) | ||||
Brands acquired |
(1,193 | ) | (961 | ) | (2,154 | ) | ||||
Acquired Technology |
(55,246 | ) | (11,481 | ) | (66,727 | ) | ||||
Client portfolio acquisitions |
(26,504 | ) | (10,062 | ) | (36,566 | ) | ||||
| | | | | | | | | | |
Total |
(146,560 | ) | (47,121 | ) | (193,681 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
December 31, 2017
|
|||||||||
| | | | | | | | | | |
|
Cost |
Accumulated
amortization |
Net amount
|
|||||||
| | | | | | | | | | |
Software (1) |
41,624 | (22,756 | ) | 18,868 | ||||||
Software development (2) |
2,756 | | 2,756 | |||||||
Software developed (3) |
134,346 | (94,637 | ) | 39,709 | ||||||
Software development capitalized interest |
6,126 | (2,743 | ) | 3,383 | ||||||
Brands acquired |
46,187 | (3,115 | ) | 43,072 | ||||||
Acquired Technology |
116,614 | (77,471 | ) | 39,143 | ||||||
Client portfolio acquisitions |
131,350 | (48,619 | ) | 82,731 | ||||||
Goodwill |
522,244 | | 522,244 | |||||||
Other |
3 | | 3 | |||||||
| | | | | | | | | | |
Total |
1,001,250 | (249,341 | ) | 751,909 | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
F-105
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
12. Intangible assets, net (Continued)
Changes in intangible assets balances
|
Cost
|
||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
|
December 31,
2016 |
Addition (*) |
Additions
Acquisition of a Business |
Disposals | Transfers |
December 31,
2017 |
|||||||||||||
| | | | | | | | | | | | | | | | | | | |
Software (1) |
34,473 | 7,244 | | (93 | ) | | 41,624 | ||||||||||||
Software development (2) |
1,848 | 3,208 | | | (2,300 | ) | 2,756 | ||||||||||||
Software developed (3) |
104,439 | 27,607 | | | 2,300 | 134,346 | |||||||||||||
Software development capitalized interest |
3,192 | 2,934 | | | | 6,126 | |||||||||||||
Brands acquired |
46,187 | | | | | 46,187 | |||||||||||||
Acquired Technology |
92,481 | | 24,133 | | | 116,614 | |||||||||||||
Client portfolio acquisitions |
106,411 | | 24,939 | | | 131,350 | |||||||||||||
Goodwill |
405,289 | | 116,955 | | | 522,244 | |||||||||||||
Other |
3 | | | | | 3 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total |
794,323 | 40,993 | 166,027 | (93 | ) | | 1,001,250 | ||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
|
Accumulated amortization
|
|||||||||
| | | | | | | | | | |
|
December 31,
2016 |
Additions |
December 31,
2017 |
|||||||
| | | | | | | | | | |
Software (1) |
(16,896 | ) | (5,860 | ) | (22,756 | ) | ||||
Software developed (3) |
(70,126 | ) | (24,511 | ) | (94,637 | ) | ||||
Software development capitalized interest |
(1,212 | ) | (1,531 | ) | (2,743 | ) | ||||
Brands acquired |
(2,154 | ) | (961 | ) | (3,115 | ) | ||||
Acquired Technology |
(66,727 | ) | (10,744 | ) | (77,471 | ) | ||||
Client portfolio acquisitions |
(36,566 | ) | (12,053 | ) | (48,619 | ) | ||||
| | | | | | | | | | |
Total |
(193,681 | ) | (55,660 | ) | (249,341 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
F-106
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
12. Intangible assets, net (Continued)
|
December 31, 2018
|
|||||||||
| | | | | | | | | | |
|
Cost |
Accumulated
amortization |
Net amount
|
|||||||
| | | | | | | | | | |
Software (1) |
62,193 | (30,671 | ) | 31,522 | ||||||
Software development (2) |
15,634 | | 15,634 | |||||||
Software developed (3) |
156,885 | (121,708 | ) | 35,177 | ||||||
Software development capitalized interest |
8,786 | (4,728 | ) | 4,058 | ||||||
Brands acquired |
46,187 | (4,076 | ) | 42,111 | ||||||
Acquired Technology |
130,679 | (90,273 | ) | 40,406 | ||||||
Client portfolio acquisitions |
136,787 | (63,697 | ) | 73,090 | ||||||
Goodwill |
607,633 | | 607,633 | |||||||
Other |
3 | | 3 | |||||||
| | | | | | | | | | |
Total |
1,164,787 | (315,153 | ) | 849,634 | ||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Changes in intangible assets balances
|
Cost
|
|||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
|
December 31,
2017 |
Addition (*) | IAS 29 (** *) |
Additions
acquisition of a Business (Note 4) |
Disposals/
adjustments (***) |
Transfers (****) |
December 31,
2018 |
|||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Software (1) |
41,624 | 18,235 | 351 | 1,673 | (190 | ) | 500 | 62,193 | ||||||||||||||
Software development (2) |
2,756 | 12,878 | | | | | 15,634 | |||||||||||||||
Software developed (3) |
134,346 | 23,039 | | | | (500 | ) | 156,885 | ||||||||||||||
Software development capitalized interest |
6,126 | 2,660 | | | | | 8,786 | |||||||||||||||
Brands acquired |
46,187 | | | | | | 46,187 | |||||||||||||||
Acquired Technology |
116,614 | | | 17,866 | 5 | (3,806 | ) | 130,679 | ||||||||||||||
Client portfolio acquisitions |
131,350 | | | 2,838 | 20 | 2,579 | 136,787 | |||||||||||||||
Goodwill |
522,244 | 218 | | 91,349 | (7,405 | ) | 1,227 | 607,633 | ||||||||||||||
Other |
3 | | | | | | 3 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total |
1,001,250 | 57,030 | 351 | 113,726 | (7,570 | ) | | 1,164,787 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
F-107
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
12. Intangible assets, net (Continued)
|
Accumulated amortization
|
|||||||||
| | | | | | | | | | |
|
December 31, 2017 | Additions |
December 31, 2018
|
|||||||
| | | | | | | | | | |
Software (1) |
(22,756 | ) | (7,915 | ) | (30,671 | ) | ||||
Software developed (3) |
(94,637 | ) | (27,071 | ) | (121,708 | ) | ||||
Software development capitalized interest |
(2,743 | ) | (1,985 | ) | (4,728 | ) | ||||
Brands acquired |
(3,115 | ) | (961 | ) | (4,076 | ) | ||||
Acquired Technology |
(77,471 | ) | (12,802 | ) | (90,273 | ) | ||||
Client portfolio acquisitions |
(48,619 | ) | (15,078 | ) | (63,697 | ) | ||||
| | | | | | | | | | |
Total |
(249,341 | ) | (65,812 | ) | (315,153 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Annual average amortization rates:
Software development |
33 | % | ||
Software developed |
33 | % | ||
Software development capitalized interest |
33 | % | ||
Technology acquisitions |
10 - 20 | % | ||
Client portfolio acquisitions |
20 - 50 | % | ||
Software |
10 - 20 | % | ||
Other |
10 - 20 | % |
Amortization is charged to the costs of services rendered for software, software development, software development capitalized interest and acquired technology and to administrative and general expenses for the other intangible assets.
12.1. Goodwill impairment testing
The Group tests goodwill for impairment on an annual basis, as of December 31, or whenever indicators of impairment exist, by comparing the recoverable amount to the carrying value. The recoverable amount is determined considering the Group's market capitalization and estimating the value in use, based on discounting future cash flows Management has concluded that the Group only has one CGU.
F-108
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
12. Intangible assets, net (Continued)
The value in use calculation involves the use of assumptions, judgments and estimates on cash flows, such as growth rates of revenues, costs and expenses, investment estimates and future working capital and discount rates. Assumptions about cash flow growth projections are based on management's estimates, market studies and macroeconomic projections. Future cash flows were discounted at a rate based on the Group's weighted average cost of capital (WACC).
The value in use was based on the approved financial budge covering five-year period, and, thereafter, considering a perpetual growth rate.
The perpetual growth rate used to extrapolate the projections was 5.5%, being the long-term inflation target of 4.5% set by the Central Bank of Brazil, plus 1% real growth. The estimated future cash flows were discounted at a pre-tax discount rate of 13.85% in 2018 (12.89% and 15.03% in 2017 and 2016, respectively).
Key assumptions were based on the historical performance of the Group, macroeconomic assumptions, and on financial market projections documented and approved by management.
Based on the annual impairment test of the cash generating unit no impairment losses were identified, since the recoverable amount is higher than the net carrying amount at the test date.
Main assumptions used to calculate value in use
Value in use calculation is most sensitive to the following assumptions:
Revenue Growth : this is based on the observation of the historical behavior of each revenue line as well as trends based on market analysis. Revenue projections refer to non-recurring lines (implementation and consultancy services), and recurring lines (contractual related to the collection of subscription fees, with an annual price adjustments for inflation), where the Group has seen annual growth of approximately 10% over the last 5 years.
The Group's costs were projected considering the consistency of cost of services as a percentage of revenues, which varies between 29% and 28%.
Capex volume : cash outflows on capital expenditure were projected in line with historical levels to be sufficient to support the growth of operations.
Discount rates : the calculation of the discount rate is derived from the Group's:
Weighted Average Cost of Capital (WACC): which takes into account both the cost of the Group's debt and shareholders' equity. The cost of shareholders' equity is derived from the expected return on investment by the Group's investors.
12.2. Capitalized software development costs
The Group develops new systems and applications to expand the functionality of its current software products. Development costs are capitalized in intangible assets include the project costs incurred during the development phase until the product is substantially complete and ready for its intended use. The capitalized costs are determined based on the number of hours incurred by employees on each project. Each project is amortized from the moment the asset is available for
F-109
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
12. Intangible assets, net (Continued)
use for an average period of three years, which according to management's estimate, reflects the expected period of financial return of the projects. Amortization is charged to cost of services rendered in the statement of profit or loss.
13. Loans and financing
|
Effective |
December 31
|
|||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Type |
Charges* | rate | Maturity | Covenants | 2018 | 2017 |
2016
|
||||||||||||
| | | | | | | | | | | | | | | | | | | |
Loan BNDES bank |
TJLP + 1.5% p.a. | 9.274 | % | 03/15/2018 | 15.2 (a) | | 2,852 | 14,106 | |||||||||||
Loan BNDES bank |
TLP + IPCA + 3.10% p.a. + Spread 1.37% p.a. | 7.89 | % | 12/31/2027 | 15.2 (b) | 146,602 | | | |||||||||||
Loan BNDES bank |
TJLP + 1.67% p.a. | 9.446 | % | 02/15/2021 | 15.2 (c) | 57,526 | 83,330 | 104,994 | |||||||||||
Loan BNDES bank |
TJLP + 1.96% p.a. | 9.751 | % | 03/15/2022 | 15.2 (d) | 44,560 | 9,882 | 9,715 | |||||||||||
Loan BNDES bank |
TJLP + 1.00% p.a. | 8.768 | % | 09/16/2019 | 528 | 1,224 | 1,952 | ||||||||||||
Loan Itaú bank |
TJLP + 7.20% p.a. | 8.447 | % | 04/16/2021 | 761 | | | ||||||||||||
Other |
4 | | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
|
249,981 | 97,288 | 130,767 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Current liabilities |
40,720 | 31,783 | 34,499 | ||||||||||||||||
Non-current liabilities |
209,261 | 65,505 | 96,268 |
Prevailing
loan contracts do not have assets pledged in guarantee.
The maturity profile of the Group's non-current liabilities is as follows:
|
December 31
|
|||||||||
| | | | | | | | | | |
Period |
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
2018 |
| | 31,446 | |||||||
2019 |
| 29,282 | 28,984 | |||||||
2020 |
40,012 | 28,760 | 28,453 | |||||||
2021 |
39,387 | 6,846 | 6,776 | |||||||
2022 |
24,615 | 617 | 609 | |||||||
2023 |
21,043 | | | |||||||
2024 |
21,043 | | | |||||||
2025 |
21,043 | | | |||||||
2026 |
21,043 | | | |||||||
2027 |
21,075 | | | |||||||
| | | | | | | | | | |
|
209,261 | 65,505 | 96,268 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
F-110
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
13. Loans and financing (Continued)
Changes in loans and financing are shown below:
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
At January 1 |
97,288 | 130,767 | 128,338 | |||||||
Funds from acquisition of subsidiaries (Note 4) |
1,097 | | 2,296 | |||||||
Additions of loans and financing |
191,837 | | 10,000 | |||||||
Financial charges |
9,638 | 9,960 | 10,808 | |||||||
Financial charges paid |
(9,028 | ) | (9,480 | ) | (9,491 | ) | ||||
Payments of loans and financing |
(40,851 | ) | (33,959 | ) | (11,184 | ) | ||||
| | | | | | | | | | |
At December 31 |
249,981 | 97,288 | 130,767 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
13.1. Covenants
In order to determine the indices, the following definitions and criteria should be adopted:
Should the Group fail to comply with the financial covenants to, it must set up, within 120 days from the default date, security interest, accepted by the BNDES, for an amount corresponding to at least 130% of the financing amount or resulting debt, unless the abovementioned levels have been met by then.
Subsidiary and intermediator Linx Sistemas e Consultoria Ltda. is obliged to deposit service fee income in a "centralizing account" created for this purpose.
We detected no event of non-compliance with covenants at December 31, 2018, 2017 and 2016.
F-111
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
13. Loans and financing (Continued)
In order to determine the indices, the following definitions and criteria should be adopted:
In the hypothesis that levels established in the item VII of the Clause Nine (Obligations If the financial covenants are breached), the Group must present, within 120 days counted as of notification date, in written, from BNDES, real guarantees accepted by BNDES at an amount corresponding to at least 130% of financing value or deriving debt, except if within that period, above mentioned levels were re-established.
We detected no event of non-compliance with covenants at December 31, 2018.
In order to determine the indices, the following definitions and criteria should be adopted:
If the financial covenants are breached, the Group must present, within 180 days counted as of default date, real guarantees accepted by BNDES at an amount corresponding to at least 130% of financing value or deriving debt, or present a bank guarantee to be provided by the financial institution at BNDES criteria, and it is in financial economic situation assuring the degree of notorious solvency, the total amount of the debt, except if within that period, above mentioned levels were re-established.
F-112
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
13. Loans and financing (Continued)
We detected no event of non-compliance with covenants at December 31, 2018, 2017 and 2016.
In order to determine the indices, the following definitions and criteria should be adopted:
If the financial covenants are breached, the Group must present, within 180 days counted as of default date, real guarantees accepted by BNDES at an amount corresponding to at least 130% of financing value or deriving debt, or present a bank guarantee to be provided by the financial institution at BNDES criteria, and it is in financial economic situation assuring the degree of notorious solvency, the total amount of the debt, except if within that period, above mentioned levels were re-established.
We detected no event of non-compliance with covenants at December 31, 2018, 2017 and 2016.
14. Labor obligations
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Provision for 13th salary and payroll charges |
26,542 | 22,466 | 20,561 | |||||||
Social security payable |
6,673 | 5,234 | 4,602 | |||||||
Provision for profit sharing |
3,876 | 4,191 | 2,081 | |||||||
Severance fund contributions payable |
2,137 | 1,907 | 1,818 | |||||||
Salaries payable |
1,344 | 1,836 | 1,252 | |||||||
Other |
3,229 | 1,849 | 890 | |||||||
| | | | | | | | | | |
|
43,801 | 37,483 | 31,204 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
F-113
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
15. Payables related to business acquisitions
Payables related to business acquisitions refer to amounts due to the previous owners for the acquisition of shares or quotas representing the capital of these companies. Debts are indexed to inflation indices under contractual clauses and mature as follows:
The amount classified in non-current liabilities mature as follows:
|
December 31
|
|||||||||
| | | | | | | | | | |
Period |
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
2018 |
| | 38,806 | |||||||
2019 |
| 32,276 | 14,983 | |||||||
2020 |
35,373 | 26,530 | 2,253 | |||||||
2021 |
14,225 | 4,754 | 1,044 | |||||||
2022 |
5,065 | 11,120 | | |||||||
2023 |
725 | | | |||||||
| | | | | | | | | | |
|
55,388 | 74,680 | 57,086 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Of total amount payable as of December 31, 2018, R$ 111,545 is related to contingent consideration (R$ 122,590 as of December 31, 2017 and R$ 70,817 as of December 31, 2016). The Group expects to fully settle amounts related to contingent considerations, and there were no significant changes in expectations of payout in relation to prior years. The fair value of these obligations also considered a market interest rate (Selic). The fair value of contingent consideration is classified as a level 3 fair value measurement (Note 23).
F-114
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
15. Payables related to business acquisitions (Continued)
The changes in the payables related to business acquisitions are shown as follow:
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
At January 1 |
130,767 | 80,594 | 95,571 | |||||||
Addition due to acquisition |
38,881 | 71,222 | 13,000 | |||||||
Payment of principal and interest |
(45,878 | ) | (19,454 | ) | (30,544 | ) | ||||
Accrued interest |
3,057 | 5,685 | 2,697 | |||||||
Contingencies resolved and paid (*) |
(5,343 | ) | (2,427 | ) | (130 | ) | ||||
Earn-Out reversed (**) |
(8,997 | ) | (4,853 | ) | | |||||
| | | | | | | | | | |
At December 31 |
112,487 | 130,767 | 80,594 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
16. Deferred revenue
17. Income tax and social contribution
17.1. Income tax and social contribution expense
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Current tax |
||||||||||
Current tax on income for the year |
(9,959 | ) | (9,217 | ) | (10,595 | ) | ||||
Deferred tax |
|
|
|
|||||||
Deferred tax on income for the year |
(11,130 | ) | (14,699 | ) | (13,803 | ) | ||||
| | | | | | | | | | |
Income tax and social contribution expense |
(21,089 | ) | (23,916 | ) | (24,398 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
F-115
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
17. Income tax and social contribution (Continued)
The reconciliation between the tax expense as calculated by the combined nominal rates and the income tax and social contribution expense charged to income is presented below:
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Income (loss) before income tax and social contribution |
92,144 | 108,761 | 92,898 | |||||||
| | | | | | | | | | |
Statutory rate income tax and social contribution |
34% | 34% | 34% | |||||||
Income tax and social contribution at the rate of 34% |
(31,329 | ) | (36,979 | ) | (31,585 | ) | ||||
Permanent differences |
||||||||||
Law 11196/05 (Research and Development incentive) |
1,574 | 8,382 | | |||||||
Payment of interest on equity |
5,100 | 5,780 | | |||||||
Unrecognized tax credit |
329 | | | |||||||
Income tax and social contribution determined by the deemed income |
3,139 | 3,498 | 7,387 | |||||||
Effects of tax rates of foreign subsidiaries |
1,542 | | (200 | ) | ||||||
Other net differences |
(1,444 | ) | (4,597 | ) | (4,597 | ) | ||||
| | | | | | | | | | |
Income tax expense |
(21,089 | ) | (23,916 | ) | (24,398 | ) | ||||
| | | | | | | | | | |
Effective rate |
23% | 22% | 26% | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
17.2. Deferred taxes
Deferred income tax and social contribution are recorded so as to reflect future tax effects on temporary differences existing between assets and liabilities tax base and the corresponding carrying amount.
Temporary deferred income tax and social contribution are as follows:
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Tax goodwill |
(80,028 | ) | (58,885 | ) | (48,779 | ) | ||||
Intangible assets |
(23,558 | ) | (30,302 | ) | (15,697 | ) | ||||
Deferred IFRS 9 |
146 | | | |||||||
Deferred revenue |
16,858 | | | |||||||
Tax loss and negative basis |
3,952 | 3,944 | 5,104 | |||||||
Allowance for doubtful accounts |
620 | 160 | 257 | |||||||
Provision for post-employment benefits |
2,404 | 2,193 | 1,297 | |||||||
Provision for contingencies |
809 | 200 | 176 | |||||||
Payables for the acquisition of businesses |
2,019 | 918 | 74 | |||||||
Provision for commission payments |
| 161 | 161 | |||||||
Stock option plan |
2,235 | 1,277 | 192 | |||||||
Other provisions |
1,908 | 10 | 46 | |||||||
| | | | | | | | | | |
Deferred taxes, net |
(72,635 | ) | (80,324 | ) | (57,169 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
F-116
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
18. Shareholders' equity
18.1. Capital
The Company is authorized to increase capital by up to R$1,000,000, irrespective of amendments to its articles of incorporation and bylaws, as deliberated by the Board of Directors.
Capital solely comprises common shares and each of them corresponds to a vote in Shareholders' Meeting decisions.
The Board of Directors is the competent body to decide on issuances and will determine share issuance conditions, subscription, payment form and deadline, price per share, placement form (public or private) and its distribution in Brazil and/or abroad.
At the discretion of the Board of Directors, a share issue may be made, without right of preference or with a reduction of the time frame addressed by article 171, §4 of Law 6404, dated December 15, 1976, as amended ("Corporation Law") of shares and debentures that are convertible into shares or a subscription bonus, the flotation of which is made through a sale on the stock exchange or by public subscription, or even through an exchange for shares in a takeover bid, in the terms established in law, within the limits of the authorized capital.
On February 29, 2016 a capital increase of the Company was approved, due to the partial exercising, by the beneficiaries, of the purchase option related to the initial grant of the stock option plan approved in the Special Shareholders' Meeting held on December 4, 2012, of R$ 5,779, thus increasing it from R$ 352,501 to R$ 358,280, through the issuance of 697,773 new common shares by the Company.
On June 14, 2016 the Board of Directors approved the stock split of each of the 47,069,132 common shares at a ratio of 2 new shares for each common share held on that date. Thus, due to the approval of such stock split, the Company issued 94,138,264 new common shares, representing a 200% increase in the shareholder base, and the Company's capital is now represented by 141,207,396 common shares, without any change in amount of capital or in the rights granted by these shares to its shareholders, including dividends and any capital remuneration that may be paid by the Company. Earnings per share is now disclosed in the new proportion retrospectively in these financial statements.
On September 26, 2016, a capital increase of R$ 118,560 was approved, within the limit of authorized capital, and the Company's share capital increased from R$358,280 to R$476,840, with the issuance of 24,000,000 new Common Shares, which were distributed through a primary public offering held in Brazil, on the non-organized over-the-counter market.
On October 3, 2016, a capital increase of R$ 3,968 was approved, within the limit of authorized capital, and the Company's capital increased from R$476,840 to R$480,808, with the issuance of 402,555 new Common Shares, which were distributed through a primary public offering held in Brazil, on the non-organized over-the-counter market.
On February 24, 2017, the Company's capital increase was approved, within the limit of the authorized capital, by R$2,167, from R$480,808 to R$482,974, through the issue of 210,210 new Common Shares, of public offering of primary distribution held in Brazil through public distribution in the non-organized over-the-counter market.
F-117
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
18. Shareholders' equity (Continued)
On August 31, 2017, the Company's capital increase was approved, within limit of authorized capital, by R$ 3,057, from R$482,974 to R$486,032, through issue of 290,181 new common registered, book-entry shares, with no par value.
On February 28, 2018, the Company's capital increase was approved, within limit of authorized capital, by R$ 1,442, from R$ 486,032 (total as of December 31, 2017) to R$487,474, through issue of 101,868 new common registered, book-entry shares, with no par value.
On August 31, 2018, the Company's capital increase was approved, within limit of authorized capital, by R$993, from R$487,474 to R$488,467, through issue of 71,172 new common registered, book-entry shares, with no par value.
Capital is represented by authorized, subscribed and fully paid-up shares with no par value and is divided as follows:
|
Founding
shareholders |
Treasury
shares |
Free float (*) |
Consolidated
|
|||||||||
| | | | | | | | | | | | | |
December 31, 2016 |
34,794,882 | | 130,815,069 | 165,609,951 | |||||||||
December 31, 2017 |
29,902,389 | 1,991,171 | 134,216,782 | 166,110,342 | |||||||||
December 31, 2018 |
28,037,764 | 7,502,115 | 130,743,503 | 166,283,382 |
The changes in the number of subscribed and fully paid-up shares are as follows:
December 31, 2015 |
140,509,623 | |||
| | | | |
Capital increase |
25,100,328 | |||
December 31, 2016 |
165,609,951 | |||
| | | | |
Capital increase |
500,391 | |||
December 31, 2017 |
166,110,342 | |||
| | | | |
Capital increase |
173,040 | |||
| | | | |
December 31, 2018 |
166,283,382 | |||
| | | | |
| | | | |
| | | | |
18.2. Capital reserves
Regarding the issuance of shares on September 26, 2016, it resulted in a share premium of R$ 325,440 and transaction costs incurred in the obtainment of resources by means of the issuance of membership certificates of R$ 12,317 recorded in a reduction account, net of deferred income tax and social contribution.
F-118
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
18. Shareholders' equity (Continued)
The capital reserve is set up as follows:
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Share premium (a) |
539,571 | 539,571 | 539,571 | |||||||
Stock option plan (Note 25) |
16,104 | 11,548 | 9,741 | |||||||
Treasury shares purchased (b) |
(148,373 | ) | (33,887 | ) | | |||||
Expenditures with issuance of shares (c) |
(37,423 | ) | (37,423 | ) | (37,009 | ) | ||||
| | | | | | | | | | |
|
369,879 | 479,809 | 512,303 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
18.3. Legal reserve
It is formed of 5% of net income for the fiscal year, in conformity with article 193 of Law no. 6,404/76, up to the limit of 20% of the capital.
For the periods ended December 31, 2018, 2017 and 2016, pursuant to paragraph 1 of article 193 of Law 6404/76, the Company did not set up a legal reserve, as the capital reserve amount exceeded the percentage of 30% of capital.
F-119
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
18. Shareholders' equity (Continued)
18.4. Dividends
The Company's Bylaws establish a minimum dividend of 25% calculated on the annual net income, adjusted as provided by Article 202 of Law 6404/1976.
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Net income for the year |
71,055 | 84,845 | 68,501 | |||||||
() Formation of legal reserve (Article 193 of Law 6.404) |
|
|
|
|||||||
| | | | | | | | | | |
Net income after the allocation of the legal reserve |
71,055 | 84,845 | 68,501 | |||||||
Minimum mandatory dividends |
17,764 |
21,211 |
17,125 |
|||||||
Additional dividends proposed by Management |
22,236 | 18,789 | 18,875 | |||||||
| | | | | | | | | | |
Dividends proposed by Management |
40,000 | 40,000 | 36,000 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Dividends and interest on equity per share (R$) |
0.2519 | 0.2437 | 0.2173 | |||||||
Payment method |
|
|
|
|||||||
Interest on equity |
15,000 | 17,000 | | |||||||
Dividends |
25,000 | 23,000 | 36,000 | |||||||
| | | | | | | | | | |
|
40,000 | 40,000 | 36,000 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Changes in dividends |
||||||||||
Opening balance Dividends payable for the prior year |
23,000 | 20,000 | 8,000 | |||||||
Dividends paid in the prior year |
(23,000 | ) | (20,000 | ) | (8,000 | ) | ||||
Minimum mandatory dividends for the year |
17,764 | 21,211 | 17,125 | |||||||
Additional dividends proposed by the Management |
22,236 | 18,789 | 18,875 | |||||||
Dividend and interest on equity paid for the year |
(15,000 | ) | (17,000 | ) | (16,000 | ) | ||||
| | | | | | | | | | |
Closing balance Dividends payable for the year |
25,000 | 23,000 | 20,000 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Presentation of dividends |
||||||||||
Liabilities Minimum mandatory dividends for the year |
2,764 | 4,211 | 1,125 | |||||||
Shareholders' equity Additional dividends proposed by the Management |
22,236 | 18,789 | 18,875 | |||||||
| | | | | | | | | | |
|
25,000 | 23,000 | 20,000 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The Board of Directors' meeting held on February 18, 2016 approved, in the terms of article 9 of Law No. 9249/95 the payment of dividends in the gross amount of R$ 8,000, which were included in the minimum dividend established by article 36 of the Company's bylaws and paid on May 10, 2016.
The Board of Directors' meeting held on April 07, 2017 approved, in the terms of article 9 of Law 9249/95 the payment of dividends in 2016 in the gross amount of R$ 20,000, which were included in the minimum dividend established by article 36 of the Company's bylaws and paid on April 27, 2017.
F-120
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
18. Shareholders' equity (Continued)
In meeting of the Board of Directors held on August 29, 2017, pursuant to article 1,072 of Law No. 10406, shareholders decided to approve the profit distribution as Interest on Equity ("IOE"), referring to the second quarter of financial year 2017, covering the period from April 1, 2017 to June 30, 2017, in the gross amount of R$ 10,000, as computed in the Company's statement of financial position at June 30, 2017.
In meeting of the Board of Directors held on December 11, 2017, pursuant to article 1,072 of Law No. 10406, shareholders decided to approve the profit distribution as Interest on Equity ("IOE"), referring to the second half of financial year 2017, covering the period from July 1, 2017, projected to December 31, 2017, in the gross amount of R$ 7,000.
The Board of Directors' meeting held on April 16, 2018 approved, in the terms of article 9 of Law 9249/95 the payment of dividends in 2017 in the gross amount of R$ 23,000, which were included in the minimum dividend established by article 36 of the Company's bylaws and paid on April 30, 2018.
In meeting of the Board of Directors held on August 06, 2018, pursuant to article 1,072 of Law 10406, shareholders decided to approve the profit distribution as Interest on equity ("JCP"), referring to the period from January 1, 2018 to July 31, 2018, in the gross amount of R$ 11,000.
In meeting of the Board of Directors held on December 07, 2018, pursuant to article 1,072 of Law 10406, shareholders decided to approve the profit distribution as Interest on equity ("JCP") in the gross amount of R$ 4,000.
18.5. Profit retention reserve
The capital budget proposal as of December 31, 2018, 2017 and 2016 which was prepared by the Company's Executive Board allocates the balance of the profit retention reserve to the investments presented below:
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Investments: |
||||||||||
Infrastructure |
4,395 | 6,346 | 4,599 | |||||||
Innovative research and development |
7,031 | 10,154 | 7,359 | |||||||
Acquisitions |
19,629 | 28,345 | 20,543 | |||||||
| | | | | | | | | | |
Total investments |
31,055 | 44,845 | 32,501 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Sources of resources: |
||||||||||
Profit reserve |
31,055 | 44,845 | 32,501 | |||||||
| | | | | | | | | | |
Total sources |
31,055 | 44,845 | 32,501 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
F-121
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
19. Provision for contingencies
The Group is defendant to judicial and administrative proceedings in various courts and governmental agencies, arising from the normal course of operations, involving tax, labor, civil and other issues.
At December 31, 2018, management, based on advice by its legal advisors, recognized a provision amounting to R$10,960 (R$ 2,776 and R$ 518 at December 31, 2017 and 2016, respectively).
There are other lawsuits assessed by legal advisors as being a possible risk of R$ 10,986 as of December 31, 2018 (R$2,773 and R$ 2,099 as of December 31, 2017 and 2016, respectively), for which no provision has been recognized.
The possible contingencies of acquired businesses are guaranteed by the former owners according to terms of the acquisition agreement via indemnification assets. The Group has sufficient amounts held to meet these commitments, classified under other receivables in the statement of financial position, based on due diligence assessments carried out during the acquisition process.
|
Labor | Civil | Tax |
Addition
acquisition (*) |
Total
|
|||||||||||
| | | | | | | | | | | | | | | | |
Changes |
||||||||||||||||
Balance at December 31, 2015 |
284 | 291 | | | 575 | |||||||||||
| | | | | | | | | | | | | | | | |
Additions |
542 | 39 | | | 581 | |||||||||||
Write-offs |
(595 | ) | (91 | ) | | | (686 | ) | ||||||||
Restatement |
23 | 25 | | | 48 | |||||||||||
Exchange-rate change |
| | | | | |||||||||||
| | | | | | | | | | | | | | | | |
Balance at December 31, 2016 |
254 | 264 | | | 518 | |||||||||||
| | | | | | | | | | | | | | | | |
Additions |
1,228 | 46 | 1,093 | | 2,367 | |||||||||||
Write-offs |
(121 | ) | (9 | ) | | | (130 | ) | ||||||||
Restatement |
(22 | ) | 43 | | | 21 | ||||||||||
Exchange-rate change |
| | | | | |||||||||||
Balance at December 31, 2017 |
1,339 | 344 | 1,093 | | 2,776 | |||||||||||
| | | | | | | | | | | | | | | | |
Additions |
1,946 | 1,145 | | 8,580 | 11,671 | |||||||||||
Write-offs |
(2,296 | ) | (549 | ) | (601 | ) | | (3,446 | ) | |||||||
Restatement |
60 | 82 | | | 142 | |||||||||||
Exchange-rate change |
309 | | (492 | ) | | (183 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Balance at December 31, 2018 |
1,358 | 1,022 | | 8,580 | 10,960 | |||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
F-122
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
20. Net operating revenues
Below, we show the reconciliation between gross revenue and net operating revenues for the period:
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Gross operating revenues |
||||||||||
Subscription revenues |
680,800 | 589,520 | 508,944 | |||||||
Consulting service revenues |
103,350 | 66,617 | 59,045 | |||||||
| | | | | | | | | | |
|
784,150 | 656,137 | 567,989 | |||||||
Sales deductions |
|
|
|
|||||||
PIS |
(4,642 | ) | (3,932 | ) | (3,602 | ) | ||||
COFINS |
(21,425 | ) | (18,148 | ) | (16,622 | ) | ||||
ISS |
(17,619 | ) | (15,981 | ) | (13,190 | ) | ||||
INSS (Social security) |
(29,393 | ) | (25,009 | ) | (20,131 | ) | ||||
Other |
(4,563 | ) | (3,751 | ) | (3,425 | ) | ||||
Cancellations and rebates |
(20,949 | ) | (17,726 | ) | (16,436 | ) | ||||
| | | | | | | | | | |
|
(98,591 | ) | (84,547 | ) | (73,406 | ) | ||||
| | | | | | | | | | |
|
685,559 | 571,590 | 494,583 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The Group does not have clients that individually represent more than 10% of operating revenues for any of the years ended December 31, 2018, 2017 and 2016.
Table below presents geographical information as required by IFRS 8 Operating segments.
|
Geographical information
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Net operating revenues |
||||||||||
Brazil |
646,837 | 553,550 | 494,583 | |||||||
International |
38,722 | 18,040 | | |||||||
Non-current assets |
||||||||||
Brazil |
1,619,075 | 1,542,294 | 1,483,372 | |||||||
International |
28,601 | 21,730 | |
F-123
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
21. Costs, expenses and other expense / income
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Nature |
||||||||||
Rentals |
(16,090 | ) | (12,242 | ) | (9,475 | ) | ||||
Commissions |
(35,699 | ) | (26,801 | ) | (19,666 | ) | ||||
Depreciation and amortization |
(78,729 | ) | (69,983 | ) | (56,316 | ) | ||||
Maintenance and preservation |
(6,553 | ) | (11,339 | ) | (6,314 | ) | ||||
Personnel |
(305,495 | ) | (272,017 | ) | (245,792 | ) | ||||
Advertising and publicity |
(12,623 | ) | (6,350 | ) | (4,838 | ) | ||||
Outsourced services |
(62,479 | ) | (33,609 | ) | (26,232 | ) | ||||
Travel and accommodation |
(13,824 | ) | (11,991 | ) | (11,838 | ) | ||||
Telecommunications expenses |
(37,291 | ) | (29,934 | ) | (23,357 | ) | ||||
IT expenses |
(3,453 | ) | (3,489 | ) | (2,721 | ) | ||||
Other income |
8,401 | 4,311 | 1,216 | |||||||
Other |
(31,661 | ) | (23,778 | ) | (21,074 | ) | ||||
| | | | | | | | | | |
|
(595,496 | ) | (497,222 | ) | (426,407 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Function |
||||||||||
Cost of services rendered |
(245,622 | ) | (211,595 | ) | (183,462 | ) | ||||
Administrative and general expenses |
(168,595 | ) | (148,148 | ) | (116,252 | ) | ||||
Selling expenses |
(111,008 | ) | (72,393 | ) | (62,453 | ) | ||||
Research and maintenance of software developed |
(73,527 | ) | (64,280 | ) | (59,894 | ) | ||||
Other operating income (expenses) |
3,256 | (806 | ) | (4,346 | ) | |||||
| | | | | | | | | | |
|
(595,496 | ) | (497,222 | ) | (426,407 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
F-124
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
22. Financial income (expenses)
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Financial income |
||||||||||
Asset interest |
1,959 | 357 | 2,183 | |||||||
Interest on financial assets |
24,703 | 52,999 | 45,391 | |||||||
Discounts obtained |
902 | 39 | 114 | |||||||
Foreign-exchange gain |
20,047 | 2,981 | 16 | |||||||
Effect from adoption of IAS 29 |
742 | | | |||||||
Other revenues |
(1,485 | ) | 2,045 | 1,763 | ||||||
| | | | | | | | | | |
|
46,868 | 58,421 | 49,467 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Financial expenses |
||||||||||
Liability interest |
(593 | ) | (470 | ) | (270 | ) | ||||
Interest on loans and financing |
(7,830 | ) | (7,611 | ) | (15,108 | ) | ||||
Discount granted |
(10,743 | ) | (9,141 | ) | (6,737 | ) | ||||
Foreign exchange loss |
(17,388 | ) | (3,607 | ) | (49 | ) | ||||
Effect from adoption of IAS 29 |
(1,682 | ) | | | ||||||
Tax on financial operations |
(695 | ) | (560 | ) | (827 | ) | ||||
Other expenses |
(5,856 | ) | (2,639 | ) | (1,753 | ) | ||||
| | | | | | | | | | |
|
(44,787 | ) | (24,028 | ) | (24,744 | ) | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
2,081 | 34,393 | 24,723 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
23. Financial risk management
The Group are exposed to the following risks from the use of financial instruments:
Credit risk is the possibility of financial loss to the Group if a client or a counterpart to a financial instrument fails to fulfill its contractual obligations arising mainly from trade accounts receivable and investments of its subsidiaries.
The exposure of the Group to credit risk is influenced, mainly, by the individual characteristics of each client. The Group established a credit policy whereby every new client has its credit capacity individually analyzed prior to the standard payment terms and conditions.
The Group has a very diversified client portfolio with low concentration level, and the largest customer accounts for only 2.3% in 2018 (2.6% in 2017 and 2016) of gross subscription revenue.
F-125
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
23. Financial risk management (Continued)
The Group sets an allowance for doubtful accounts that represents its estimate of losses incurred in relation to trade accounts receivable (See Note 7). The main component of this allowance is specific and related to significant individual risks.
On December 31, 2018, 2017 and 2016, the Group's maximum exposure to credit risk on cash and cash equivalents, financial assets and trade accounts receivable was:
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Cash and cash equivalents (Note 5) |
49,850 | 42,918 | 7,227 | |||||||
Financial assets (Note 6) |
413,374 | 508,806 | 658,221 | |||||||
| | | | | | | | | | |
|
463,224 | 551,724 | 665,448 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Trade accounts receivable, net (Note 7) |
170,382 | 131,129 | 109,064 | |||||||
| | | | | | | | | | |
|
170,382 | 131,129 | 109,064 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Liquidity risk is the risk of the Group encountering difficulties in performing the obligations associated with its financial liabilities that are settled with cash payments or with other financial assets. The approach of the Group in liquidity management is to guarantee, as much as possible, that it will always have sufficient liquidity to perform its obligations upon maturity, under normal and stress conditions, without causing unacceptable losses or with a risk of sullying the reputation of the Group.
F-126
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
23. Financial risk management (Continued)
The table below shows the maturity profile of the Group's financial liabilities:
|
December 31, 2018
|
||||||||||||
| | | | | | | | | | | | | |
Operation |
Up to
1 year |
Up to
2 years |
3 - 5 years |
Total
|
|||||||||
| | | | | | | | | | | | | |
Suppliers |
13,623 | | | 13,623 | |||||||||
Loans and financing (Note 13) |
40,720 | 79,399 | 129,862 | 249,981 | |||||||||
Payables for the acquisition of businesses Earn Out (Note 15) |
35,610 | 48,932 | 6,407 | 90,949 | |||||||||
Payables for the acquisition of businesses retained installments (Note 15) |
20,579 | 6,805 | 3,290 | 30,674 | |||||||||
Payables for the acquisition of businesses Other (Note 15) |
909 | 33 | | 942 | |||||||||
Other liabilities |
7,979 | 2,328 | | 10,307 | |||||||||
| | | | | | | | | | | | | |
|
119,420 | 137,497 | 139,559 | 396,476 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
December 31, 2017
|
||||||||||||
| | | | | | | | | | | | | |
Operation |
Up to
1 year |
Up to
2 years |
3 - 5 years |
Total
|
|||||||||
| | | | | | | | | | | | | |
Suppliers |
8,518 | | | 8,518 | |||||||||
Loans and financing (Note 13) |
31,783 | 29,282 | 36,223 | 97,288 | |||||||||
Payables for the acquisition of businesses Earn Out (Note 15) |
25,365 | 10,680 | 3,667 | 39,712 | |||||||||
Payables for the acquisition of businesses retained installments (Note 15) |
26,547 | 13,126 | 22,208 | 61,881 | |||||||||
Payables for the acquisition of businesses Other (Note 15) |
1,360 | | | 1,360 | |||||||||
| | | | | | | | | | | | | |
|
93,573 | 53,088 | 62,098 | 208,759 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
F-127
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
23. Financial risk management (Continued)
|
December 31, 2016
|
|||||||||||||||
| | | | | | | | | | | | | | | | |
Operation |
Up to 1 year | Up to 2 years | 3 - 5 years | >5 years |
Total
|
|||||||||||
| | | | | | | | | | | | | | | | |
Suppliers |
6,254 | | | | 6,254 | |||||||||||
Loans and financing (Note 13) |
34,499 | 36,536 | 69,809 | 424 | 141,268 | |||||||||||
Payables for the acquisition of businesses Earn Out (Note 15) |
13,364 | 28,133 | 7,381 | | 48,878 | |||||||||||
Payables for the acquisition of businesses retained installments (Note 15) |
7,365 | 13,240 | 14,330 | | 34,935 | |||||||||||
Payables for the acquisition of businesses Other (Note 15) |
2,779 | | | | 2,779 | |||||||||||
Other liabilities |
4,110 | 638 | 758 | | 5,506 | |||||||||||
| | | | | | | | | | | | | | | | |
|
68,371 | 78,547 | 92,278 | 424 | 239,620 | |||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
As amounts included in this table are non-discounted cash flows, they will not be reconciled to the amounts disclosed in the statement of financial position for payables for the acquisition of businesses.
Typically, the Group ensures that it has sufficient cash to cover expected operating expenses, including to comply with its financial obligations; this excludes the potential impact of extreme situations that cannot be reasonably foreseen, such as natural disasters.
Interest rate and inflation risk : Interest rate risk derives from the portion of debt indexed to TJLP, TLP, IPCA, IGPM and CDI rates, and from interest earning bank deposits and financial assets indexed to the CDI rate, that may adversely affect financial income or expenses in case an unfavorable movement occurs in interest and inflation rates. This risk exposure as shown in the sensitivity analysis provided below.
Operating risk is the risk of direct or indirect losses arising from different causes related to the processes, personnel, technology and infrastructure of the Group, and external factors, except credit, market and liquidity risks, as those arising from legal and regulatory requirements and from generally accepted corporate behavior standards. The objective of the Group is to manage the operating risk and the service quality risk in order to avoid sustaining financial losses and harming the reputation of the Group.
The policy of the Executive Board is to maintain a solid capital base to maintain the confidence of investors, creditors and market and the future development of the business. The Executive Board monitors returns on capital, which the Group defines as income (loss) from
F-128
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
23. Financial risk management (Continued)
operating activities divided by total shareholders' equity. Executive Board also monitors the level of dividends to its shareholders.
There is a comparison below, by class of book and fair value of the Group's financial instruments:
|
December 31
|
|||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
|
Carrying
amount |
Fair
value |
Carrying
amount |
Fair
value |
Carrying
amount |
Fair
value |
||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
|
Level | 2018 | 2018 | 2017 | 2017 | 2016 |
2016
|
|||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Financial assets |
||||||||||||||||||||||
Cash and cash equivalents (Note 5) |
2 | 49,850 | 49,850 | 42,918 | 42,918 | 7,227 | 7,227 | |||||||||||||||
Financial assets (Note 6) |
2 | 413,374 | 413,374 | 508,806 | 508,806 | 658,221 | 658,221 | |||||||||||||||
Trade accounts receivable (Note 7) |
2 | 170,382 | 170,382 | 131,129 | 131,129 | 109,064 | 109,064 | |||||||||||||||
Other receivables |
2 | 50,620 | 50,620 | 29,604 | 29,604 | 22,306 | 22,306 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total |
684,226 | 684,226 | 712,457 | 712,457 | 796,818 | 796,818 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Financial liabilities |
2 | |||||||||||||||||||||
Suppliers |
2 | 13,623 | 13,623 | 8,518 | 8,518 | 6,254 | 6,254 | |||||||||||||||
Loans and financing (Note 13) |
2 | 249,981 | 249,981 | 97,288 | 97,288 | 130,767 | 130,767 | |||||||||||||||
Accounts payable for the acquisition of businesses (Note 15) |
3 | 112,487 | 112,487 | 130,767 | 130,767 | 80,594 | 80,594 | |||||||||||||||
Other liabilities |
2 | 10,307 | 10,307 | 8,594 | 8,594 | 6,041 | 6,041 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Total |
386,398 | 386,398 | 245,167 | 245,167 | 223,656 | 223,656 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Amounts of these instruments recognized in the statement of financial position do not significantly differ from their fair values.
F-129
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
23. Financial risk management (Continued)
Financial instruments per category:
|
December 31
|
|||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Level |
Fair value
through profit or loss |
Amortized
cost |
Loans and
receivables |
Fair value
through profit or loss |
Amortized
cost |
Loans and
receivables |
Fair value
through profit or loss |
Amortized
cost |
|||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial assets |
||||||||||||||||||||||||||||
Cash and cash equivalents (Note 5) |
2 | | 49,850 | 42,918 | | | 7,227 | | | |||||||||||||||||||
Financial assets (Note 6) |
2 | 413,374 | | | 508,806 | | | 658,221 | | |||||||||||||||||||
Trade accounts receivable (Note 7) |
2 | | 170,382 | 131,129 | | | 109,064 | | | |||||||||||||||||||
Other receivables |
2 | | 50,620 | 29,604 | | | 22,306 | | | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
413,374 | 270,852 | 203,651 | 508,806 | | 138,597 | 658,221 | | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Financial liabilities |
||||||||||||||||||||||||||||
Trade accounts payable |
2 | | 13,623 | | | 8,518 | | | 6,254 | |||||||||||||||||||
Loans and financing (Note 13) |
2 | | 249,981 | | | 97,288 | | | 130,767 | |||||||||||||||||||
Payables for the acquisition of businesses (Note 15) |
3 | | 112,487 | | 30,961 | 99,806 | | 46,692 | 33,902 | |||||||||||||||||||
Other liabilities |
2 | | 10,307 | | | 8,594 | | | 6,041 | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| 386,398 | | 30,961 | 214,206 | | 46,692 | 176,964 | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Different levels were defined as follows:
Description of significant unobservable inputs to valuation:
The significant unobservable inputs used in the fair value measurements categorized within Level 3 of the fair value hierarchy, together with a quantitative sensitivity analysis as at December 31, 2018, 2017 and 2016 are shown below:
Valuation technique | Significant unobservable inputs | |
---|---|---|
Pricing of consensus | The Company considers 100% of the contingent consideration based on the payment expectative. |
F-130
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
23. Financial risk management (Continued)
Level 3 financial liabilities reconciliation:
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Balance at beginning of year |
122,590 | 70,817 | 82,655 | |||||||
Addition due to acquisition (Note 15) |
38,881 | 71,222 | 13,000 | |||||||
Payment contingent consideration |
(38,643 | ) | (17,854 | ) | (27,405 | ) | ||||
Accrued interest (Note 15) |
3,057 | 5,685 | 2,697 | |||||||
Contingencies resolved and paid (Note 15) |
(5,343 | ) | (2,427 | ) | (130 | ) | ||||
Earn-Out reversed (Note 15) |
(8,997 | ) | (4,853 | ) | | |||||
| | | | | | | | | | |
Balance at the end of the year |
111,545 | 122,590 | 70,817 | |||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The Company uses appropriate valuation techniques with the aid of sufficient data available to measure fair value, maximizing the use of relevant observable data and minimizing the use of unobservable data.
Main risks related to the Group's transactions are linked to TJLP, TLP, CDI, IPCA, IGPM, IPC and SELIC change for BNDES financing and payables for the acquisition of businesses, and to CDI for interest earning bank deposits.
The investments with CDI are recorded at market value, according to quotations announced by the respective financial institutions and the others mainly refer to bank deposit certificates. Therefore, the recorded value of these securities does not differ from the market value.
In order to check the sensitivity of the indexer of financial investments to which the Group was exposed to at December 31, 2018, 2017 and 2016, we defined three scenarios for the risk of decrease in CDI. The December 2018 index, which was 6.40% (6.89% in December 2017 and 13.63% in December 2016) and they were defined as probable scenarios; based thereon, 25% and 50%.
December 31
|
|||||||||||||||
| | | | | | | | | | | | | | | |
Operation |
Balance at 2018 | Risk |
Scenario I
(probable) |
Scenario II |
Scenario III
|
||||||||||
| | | | | | | | | | | | | | | |
Financial assets |
413,374 | 6.40 | % | 4.80 | % | 3.20 | % | ||||||||
| | | | | | | | | | | | | | | |
Finance income |
CDI decr. | 26,456 | 19,842 | 13,228 |
December 31
|
|||||||||||||||
| | | | | | | | | | | | | | | |
Operation |
Balance at 2017 | Risk |
Scenario I
(probable) |
Scenario II |
Scenario III
|
||||||||||
| | | | | | | | | | | | | | | |
Financial assets |
508,806 | 6.89 | % | 5.17 | % | 3.45 | % | ||||||||
| | | | | | | | | | | | | | | |
Finance income |
CDI decr. | 35,057 | 26,305 | 17,554 | |||||||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
F-131
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
23. Financial risk management (Continued)
December 31
|
|||||||||||||||
| | | | | | | | | | | | | | | |
Operation |
Balance at 2016 | Risk |
Scenario I
(probable) |
Scenario II |
Scenario III
|
||||||||||
| | | | | | | | | | | | | | | |
Financial assets |
658.221 | 13.63 | % | 10.22 | % | 6.82 | % | ||||||||
| | | | | | | | | | | | | | | |
Finance income |
CDI decr. | 89,716 | 67,270 | 44,891 | |||||||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
In order to analyze sensitivity of debt indexes, to which the Group is exposed at December 31, 2018, 2017 and 2016, three different scenarios were defined for the risk of increase in such indexes. This was based on TJLP, TLP, IPCA, IPC, IGPM, CDI and SELIC amounts in effect at December 31, 2018, 2017 and 2016, available at CETIP, IBGE, Central Bank of Brazil, FGV, among others. Accordingly, probable scenarios were defined for 2018, 2017 and 2016, based on which, 25% and 50% differences were calculated.
For each scenario the Group calculated the gross financial expense, not taking into account the taxes levied and the flow of maturities for each contract scheduled for 2018, 2017 and 2016. The base dates used for financing were December 31, 2018, 2017 and 2016, projecting indices for one year and verifying their sensitivity in each scenario.
December 31, 2018
|
|||||||||||||||
| | | | | | | | | | | | | | | |
Operation |
Balance | Risk |
Scenario I
(probable) |
Scenario II |
Scenario III
|
||||||||||
| | | | | | | | | | | | | | | |
Financings BNDES |
249,981 | 17,449 | 21,823 | 26,173 | |||||||||||
| | | | | | | | | | | | | | | |
Rate subject to change |
TJLP incr. | 6.98 | % | 8.73 | % | 10.47 | % | ||||||||
Payables for the acquisition of businesses |
7,690 |
581 |
726 |
871 |
|||||||||||
| | | | | | | | | | | | | | | |
Rate subject to change |
IGPM incr. | 7.55 | % | 9.44 | % | 11.33 | % | ||||||||
Payables for the acquisition of businesses |
3,608 |
232 |
290 |
347 |
|||||||||||
| | | | | | | | | | | | | | | |
Rate subject to change |
CDI incr. | 6.42 | % | 8.03 | % | 9.63 | % | ||||||||
Payables for the acquisition of businesses |
22,774 |
854 |
1,068 |
1,282 |
|||||||||||
| | | | | | | | | | | | | | | |
Rate subject to change |
IPCA incr. | 3.75 | % | 4.69 | % | 5.63 | % | ||||||||
Payables for the acquisition of businesses |
41,951 |
1,624 |
2,030 |
2,437 |
|||||||||||
| | | | | | | | | | | | | | | |
Rate subject to change |
R$ decr. | 3.87 | % | 4.84 | % | 5.81 | % |
F-132
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
23. Financial risk management (Continued)
December 31, 2017
|
|||||||||||||||
| | | | | | | | | | | | | | | |
Operation |
Balance | Risk |
Scenario I
(probable) |
Scenario II |
Scenario III
|
||||||||||
| | | | | | | | | | | | | | | |
Financings BNDES |
97,288 | 7,297 | 9,126 | 10,945 | |||||||||||
| | | | | | | | | | | | | | | |
Rate subject to change |
TJLP incr. | 7.50 | % | 9.38 | % | 11.25 | % | ||||||||
Payables for the acquisition of businesses |
9,874 |
(52 |
) |
(65 |
) |
(79 |
) |
||||||||
| | | | | | | | | | | | | | | |
Rate subject to change |
IGPM incr. | 0.53 | % | 0.66 | % | 0.80 | % | ||||||||
Payables for the acquisition of businesses |
492 |
34 |
43 |
52 |
|||||||||||
| | | | | | | | | | | | | | | |
Rate subject to change |
CDI incr. | 6.91 | % | 8.74 | % | 10.57 | % | ||||||||
Payables for the acquisition of businesses |
78,242 |
2,308 |
2,887 |
3,466 |
|||||||||||
| | | | | | | | | | | | | | | |
Rate subject to change |
IPCA incr. | 2.95 | % | 3.69 | % | 4.43 | |||||||||
Payables for the acquisition of businesses |
42,160 |
1,396 |
1,745 |
2,095 |
|||||||||||
| | | | | | | | | | | | | | | |
Rate subject to change |
R$ decr. | 3.31 | % | 4.14 | % | 4.97 | % |
December 31, 2016
|
|||||||||||||||
| | | | | | | | | | | | | | | |
Operation |
Balance | Risk |
Scenario I
(probable) |
Scenario II |
Scenario III
|
||||||||||
| | | | | | | | | | | | | | | |
Financings BNDES |
130,767 | 9,808 | 12,266 | 14,711 | |||||||||||
| | | | | | | | | | | | | | | |
Rate subject to change |
TJLP incr. | 7.50 | % | 9.38 | % | 11.25 | % | ||||||||
Payables for the acquisition of businesses |
9,824 |
706 |
883 |
1,060 |
|||||||||||
| | | | | | | | | | | | | | | |
Rate subject to change |
IGPM incr. | 7.19 | % | 8.99 | % | 10.79 | % | ||||||||
Payables for the acquisition of businesses |
448 |
61 |
76 |
92 |
|||||||||||
| | | | | | | | | | | | | | | |
Rate subject to change |
CDI incr. | 13.63 | % | 17.04 | % | 20.45 | % | ||||||||
Payables for the acquisition of businesses |
60,988 |
3,836 |
4,794 |
5,757 |
|||||||||||
| | | | | | | | | | | | | | | |
Rate subject to change |
IPCA incr. | 6.29 | % | 7.86 | % | 9.44 | % |
F-133
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
24. Earnings per share
Basic earnings per share is calculated by dividing profit attributable to the Company's shareholders by the weighted average number of common shares, as follows:
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Net income for the year |
71,055 | 84,845 | 68,501 | |||||||
Weighted average of shares |
163,081,069 | 164,598,847 | 147,890,049 | |||||||
Basic earnings per share (in reais) |
0.4357 | 0.5155 | 0.4632 |
Diluted profit per share is calculated by adjusting the weighted average number of common shares, presuming the conversion of all the potential diluted common shares. The Group has a Stock Option Plan that provides for the granting of 4,060,627 (1,431,948 and 1,082,819 as of December 31, 2017 and 2016) stock options with the Plan's total dilutive potential being represented by 946,123 (856,540 and 1,065,987 as of December 31, 2017 and 2016, respectively) stock options, including initial granting.
|
December 31
|
|||||||||
| | | | | | | | | | |
|
2018 | 2017 |
2016
|
|||||||
| | | | | | | | | | |
Net income for the year |
71,055 | 84,845 | 68,501 | |||||||
Weighted average number of shares(*) |
164,150,504 | 165,997,441 | 150,002,937 | |||||||
Diluted earning per share (in reais) |
0.4329 | 0.5111 | 0.4567 |
25. Share-based payment
In the Special Shareholders' Meeting held on December 4, 2012, the Stock Option Plan of Linx S.A. was approved. Such plan establishes the general conditions for grant of shares issued by the Group, under the terms of article 168, paragraph 3, Law 6404/76.
The plan is intended to attract and retain management and staff members of the Group and its direct and indirect subsidiaries, by giving them the opportunity of becoming Group shareholders, subject to certain conditions, in order to: (i) reward them due to its positions and length of service with the Group; (ii) providing incentive for the achievement of the Group's social goals; (iii) aligning the Group's shareholders' interests to those of the Group's management; and (iv) encourage performance and favor retention of key persons in the Group, to the extent in which their interest in the institution's capital will permit them to benefit from results for which they have contributed and that are reflected in share price appreciation.
The plan is managed by the Board of Directors, which establishes granting programs and is in charge of determining: (i) the creation and application of general rules relating to the grant of
F-134
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
25. Share-based payment (Continued)
options under the Plan and the solution of questions of interpretation of the Plan; (ii) performance targets for the Group's top executives in order to establish objective criteria for election of beneficiaries; (iii) election of Plan Beneficiaries and authorization to grant stock options in their favor, establishing all conditions for options to be granted, as well as change of such conditions when it is necessary to adequate options to the terms of the law, standard or subsequent regulation; and (iv) issuance of new Group's shares within authorized capital limit, or disposal of treasury shares to comply with exercise of stock options granted pursuant to the terms of the Plan.
In order to meet the exercise of stock options granted on the terms of the Plan, the Group may, at Board of Directors' discretion: (a) issue new shares within the authorized capital limit; or (b) sell treasury shares.
On February 28, 2013, the Board of Directors approved of its first grant of stock options to employees to purchase 1,842,951 shares at an exercise price of R$ 6.24, subject to adjustments deriving from stock split, grouping and bonus, and also adjusted for possible dividend and/or interest on equity payment.
On February 28, 2014, the Board of Directors approved a grant of stock options to employees to purchase 406,059 shares at an exercise price of R$ 11.28, subject to adjustments deriving from stock split, grouping and bonus, and also adjusted for possible dividend and/or interest on equity payment.
On February 27, 2015, the Board of Directors approved a grant of stock options to employees to purchase 432,855 shares at an exercise price of R$ 15.01, subject to adjustments deriving from stock split, and also adjusted for possible dividend and/or interest on equity payment.
On February 29, 2016, the Board of Directors approved a grant of stock options to employees to purchase 566,592 shares at an exercise price of R$ 15.50, subject to adjustments deriving from stock split, grouping and bonus, and also adjusted for possible dividend and/or interest on equity payment.
On March 31, 2017, the Board of Directors approved a grant of stock options to employees to purchase 391,618 shares at an exercise price of R$ 16.57, subject to adjustments deriving from stock split, grouping and bonus, and also adjusted for possible dividend and/or interest on equity payment.
On March 31, 2018, the Board of Directors approved a grant of stock options to employees to purchase 420,552 shares at an exercise price of R$ 19.16, subject to adjustments deriving from stock split, grouping and bonus, and also adjusted for possible dividend and/or interest on equity payment.
On March 31, 2017, the Board of Directors approved a grant of restricted shares totaling 945,048 at a fair value of R$ 15.70 (market price at date of grant), subject to adjustments deriving from stock split, grouping and bonus, and also adjusted for possible dividend and/or interest on equity payment.
On March 31, 2018, the Board of Directors approved a grant of restricted shares totaling 398,489 shares at a fair value of R$19.16 (market price at date of grant), subject to adjustments
F-135
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
25. Share-based payment (Continued)
deriving from stock split, grouping and bonus, and also adjusted for possible dividend and/or interest on equity payment.
On March 23, 2017, the Board of Directors approved the opening of the Group's share buyback program at its sole discretion and under the terms of the Buyback Program to acquire up to 2,000,000 (two million) registered, book-entry, common shares, with no par value, issued by the Group, corresponding to up to 1.206% of the total shares issued by the Group and up to 1.206% of the Outstanding shares. The purpose of the Buyback Program is to meet the exercise of restricted stock programs and possibly stock option programs. Shares may also be held in treasury, sold or canceled, without reduction of the Group's capital, in compliance with the provisions of item 1 of article 30 of the Brazilian Corporation Law, and the standards set forth in CVM Ruling 567/15. Maximum term described under the terms of the 18-month (eighteen-month) Share Buyback Program, beginning March 23, 2017 and ending September 23, 2018.
On January 22, 2019, the Board of Directors approved a grant of restricted shares totaling 1,011,846 shares at a fair value of R$28.31 (market price at the date of grant), subject to adjustments deriving from stock split, grouping and bonus, and also adjusted for possible dividend and/or interest on equity payment.
The fair value of each option granted is estimated at the grant date, based on the Black-Scholes stock pricing model, which considered the following variables and results:
Stock Option
|
|||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Grant |
Fair value assumptions
|
|||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Expected | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Number |
Date |
Quantity of
options granted |
Number of
shares outstanding |
Strike
price reais |
Grant date
fair value |
Dividends
% |
Volatility
% (*) |
Risk-free
interest rate, % |
Vesting
period (**) |
Exercise
period |
|||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
1 st |
02/28/2013 | 1,842,951 | | 6.24 | 4.24 | 3.30 | % | 25.24 | % | 10.27 | % | 4 years | 4 years after vesting period | ||||||||||||||
2 nd |
02/28/2014 | 406,059 | 20,673 | 11.28 | 3.94 | 0.80 | % | 25.11 | % | 10.12 | % | 4 years | 4 years after vesting period | ||||||||||||||
3 rd |
02/27/2015 | 432,855 | 62,076 | 15.01 | 3.95 | 1.28 | % | 24.00 | % | 7.05 | % | 4 years | 4 years after vesting period | ||||||||||||||
4 th |
02/29/2016 | 566,592 | 155,235 | 15.50 | 4.67 | 0.85 | % | 25.01 | % | 7.25 | % | 4 years | 4 years after vesting period | ||||||||||||||
5 th |
03/31/2017 | 391,618 | 287,587 | 16.57 | 3.83 | 1.34 | % | 24.25 | % | 9.71 | % | 4 years | 4 years after vesting period | ||||||||||||||
6th |
03/31/2018 | 420,552 | 420,552 | 19.16 | 2.99 | 1.39 | % | 23.69 | % | 7.43 | % | 4 years | 4 years after vesting period |
F-136
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
25. Share-based payment (Continued)
Restricted shares
|
|||||||||||||
| | | | | | | | | | | | | |
Grant
|
|||||||||||||
| | | | | | | | | | | | | |
Number |
Date |
Quantity of
options |
Number of
shares outstanding |
Fair
value reais |
|||||||||
| | | | | | | | | | | | | |
1st |
03/31/2017 | 945,048 | 756,917 | 15.70 | |||||||||
2nd |
03/31/2018 | 398,489 | 276,951 | 19.16 |
Changes in stock option plans are as follows:
|
Stock option
|
||||||
| | | | | | | |
|
Number of
outstanding shares |
Weighted
average exercise price (in Reais) |
|||||
| | | | | | | |
December 31, 2015 (1) |
1,633,407 | 11.06 | |||||
Granted |
566,592 | 12.72 | |||||
Exercised (5) |
(1,100,328 | ) | 8.85 | ||||
Canceled |
(33,684 | ) | 17.71 | ||||
| | | | | | | |
December 31, 2016 (2) |
1,065,987 | 12.15 | |||||
Granted |
391,618 | 16.99 | |||||
Exercised (6) |
(501,516 | ) | 10.44 | ||||
Canceled |
(99,549 | ) | 17.20 | ||||
| | | | | | | |
December 31, 2017 (3) |
856,540 | 14.59 | |||||
Granted |
420,552 | 21.61 | |||||
Exercised (7) |
(173,040 | ) | 14.07 | ||||
Canceled |
(157,929 | ) | 17.21 | ||||
| | | | | | | |
December 31, 2018 (4) |
946,123 | 16.41 |
The weighted average remaining contractual life for the share options outstanding as of December 31, 2018 and 2017 was 6.41 and 6.34 years, respectively
F-137
Linx S.A.
Notes to the consolidated financial statements (Continued)
(In thousands of Brazilian reais, unless otherwise stated)
25. Share-based payment (Continued)
The Changes in restricted shares are as follows:
|
Restricted shares
|
||||||
| | | | | | | |
|
Number of
outstanding shares |
Weighted
average price (in Reais) |
|||||
| | | | | | | |
December 31, 2015 |
| | |||||
Granted |
10,446 | 15.49 | |||||
| | | | | | | |
December 31, 2016 |
10,446 | 15.49 | |||||
Granted |
884,602 | 17.02 | |||||
Vested |
(10,446 | ) | 15.59 | ||||
Canceled |
(12,962 | ) | 17.19 | ||||
| | | | | | | |
December 31, 2017 |
871,640 | 17.02 | |||||
Granted |
448,489 | 21.59 | |||||
Vested |
(60,176 | ) | 17.62 | ||||
Canceled |
(226,085 | ) | 17.49 | ||||
| | | | | | | |
December 31, 2018 |
1,033,868 | 18.55 |
The expense related to share-based compensation in the year ended December 31, 2018 is R$ 4,556 (R$ 1,807 as of December 31, 2017 and R$ 3,233 as of December 31, 2016) recorded in the statement of profit or loss as payroll expenses. This effect did not impact the Group's cash.
The accumulated balance in shareholders' equity presented in the capital reserve under "stock option plan" in the year ended December 31, 2018, is R$ 16,104 (R$ 11,548 as of December 31, 2017 and R$ 9,741 as of December 31, 2016).
F-138
American Depositary Shares
Linx S.A.
PROSPECTUS
Global Coordinators
Goldman Sachs & Co. LLC
Morgan Stanley
Jefferies
BofA Merrill Lynch
Itaú BBA
, 2019
Through and including , 2019 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 6. Indemnification of Directors and Officers
Under Brazilian Law, any provision, whether contained in the bylaws of a company or in any agreement, exempting any officer or director against any liability which by law or otherwise would attach to them in respect of negligence, misfeasance, breach of duty or trust, is void. A company may, however, indemnify an officer or director against any liability incurred by them in defending any proceedings, whether criminal or civil, in which a judgment is given in their favor.
The Registrant has obtained insurance coverage to protect its directors and officers against civil liabilities incurred by them while exercising their corporate functions during the coverage period. Under the terms of this insurance policy, the insurer will cover up to R$70 million in damages as determined by judicial or arbitral decisions as well as private settlements approved by the insurer. The insurance policy currently in effect expires on June 30, 2019 and excludes coverage for damages resulting from willful misconduct, fraud or severe negligence.
Item 7. Recent Sales of Unregistered Securities
On September 26, 2016, the Registrant issued 24,000,000 common shares to qualified institutional buyers in the United States in reliance on Rule 144A and to non-U.S. persons outside the United States in reliance on Regulation S. The offering price per common share was R$18.50, net proceeds totaled R$435.1 million and underwriter discounts and commissions totaled approximately R$13.3 million. The common shares were sold in Brazil by the Brazilian underwriters Banco Morgan Stanley S.A., Banco BTG Pactual S.A., Banco Itaú BBA S.A. and Banco de Investimentos Credit Suisse (Brasil) S.A., and placed in the United States and elsewhere by Morgan Stanley & Co. LLC, BTG Pactual US Capital LLC, Itau BBA USA Securities, Inc. and Credit Suisse Securities (USA) LLC.
From January 1, 2016 to the effective date of this registration statement, the Registrant granted stock options and restricted shares under its stock option and restricted share plans to purchase up to an aggregate of common shares to its directors, officers and other employees, at a weighted-average exercise price of R$ per common share. Through the effective date of this registration statement, common shares were issued upon the exercise of options granted to certain employees, directors and officers corresponding to a payment to Registrant of R$ .
II-1
II-2
The undersigned hereby undertakes:
II-3
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of São Paulo, Brazil, on this 29 th day of May, 2019.
|
Linx S.A. | |||||
|
By: |
/s/ ALBERTO MENACHE
|
||||
|
Name: | Alberto Menache | ||||
|
Title: | Chief Executive Officer | ||||
|
By: |
/s/ PEDRO HOLMES MONTEIRO MOREIRA
|
||||
|
Name: | Pedro Holmes Monteiro Moreira | ||||
|
Title: | Vice President of Finance |
II-4
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Alberto Menache and Pedro Holmes Monteiro Moreira and each of them, individually, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead in any and all capacities, in connection with this registration statement, including to sign in the name and on behalf of the undersigned, this registration statement and any and all amendments thereto, including post-effective amendments and registrations filed pursuant to Rule 462 under the U.S. Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto such attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
Name | Title |
Date
|
||
| | | | |
|
|
|
|
|
/s/ ALBERTO MENACHE
Alberto Menache |
Chief Executive Officer
(principal executive officer) |
May 29, 2019 | ||
/s/ PEDRO HOLMES MONTEIRO MOREIRA Pedro Holmes Monteiro Moreira |
|
Vice-President of Finance and Investor Relations Officer (principal financial officer and principal accounting officer) |
|
May 29, 2019 |
/s/ JEAN CARLO KLAUMANN Jean Carlo Klaumann |
|
Vice-President of Operations (principal operating officer) |
|
May 29, 2019 |
/s/ NÉRCIO JOSÉ MONTEIRO FERNANDES Nércio José Monteiro Fernandes |
|
Chairman of the board of directors |
|
May 29, 2019 |
/s/ ALON DAYAN Alon Dayan |
|
Director |
|
May 29, 2019 |
/s/ JOÃO COX João Cox |
|
Director |
|
May 29, 2019 |
Roger de Barbosa Ingold |
|
Director |
|
|
/s/ RICHARD ARTHUR Assistant Secretary Cogency Global Inc. |
|
Authorized representative in the United States |
|
May 29, 2019 |
II-5
LINX S.A. BYLAWS
CHAPTER I
DENOMINATION, PURPOSE, HEAD OFFICE, AND DURATION
Article 1 : Linx S.A. (the Company ) is a publicly held company (sociedade anônima de capital aberto), governed by these Bylaws and by the applicable laws and regulations.
Paragraph One : With the Companys listing on the special listing segment named Novo Mercado of B3 Brasil, Bolsa, Balcão (the B3 ), the Company, its shareholders, including controlling shareholders, Management members and members of the Fiscal Council, if on duty, are subject to the provisions of the Novo Mercado Rules of B3 (the Novo Mercado Listing Rules ).
Paragraph Two : The provisions of Novo Mercado Listing Rules shall prevail over the provisions of these bylaws, in case of injury to the rights of recipients of public offerings provided herein.
Article 2 : The Companys head office and jurisdiction are located in the City of São Paulo, State of São Paulo at Avenida Doutora Ruth Cardoso, nº 7221, Cj. 701, BI. A, sala 1, Edifício Birmann 21, CEP: 05425-902, and the Company may, by resolution of the Board of Executive Officers, open branches, agencies, offices and other establishments, as well as appoint agents and representatives, in any part of the country or abroad.
Article 3 : The corporate purpose of the Company is:
(i) Services related to infrastructure and hardware, data management, monitoring and storage in cloud environment (cloud computing) consulting, advisory services and development of computerized systems (software), exploring third party or proprietary rights of use of computer systems, services of data processing, outsourcing of information technology services and support to accounting and general administrative services, especially those designed for accounting of corporate incentives, such as airline mileage and gifts, hosting and development of websites, developing of activities related to credit cards, gifts, purchase clubs, mileage card and similar, through the capture, transmission, data processing and settlement of transactions resulting from the use of credit and/or debit cards, of Direct Consumer Credit CDC, purchase, withdraw and other means of payment; accrediting entities or individuals, suppliers of goods and/or service providers for acceptance of credit cards and/or debit card, Direct Consumer Credit CDC, purchase, withdraw and other means of payment, trade, import and export of equipment, including computers, new and used, peripheral equipment, parts, systems and programs for electronic equipment, equipment leasing, development of personal or commercial computer language courses, marketing of books and magazines, selling general supplies for computers, technical assistance related to its business, consulting services and training courses for personal development; development of complementary activities or related to corporate activities, logistic services, such as, handling and storage of finished products, orders and physical distribution; receipt, checking and handling products (packaging, labeling, ironing, putting on hangers, kits or packs), plus shipping and freight management; logistics advice in general, including review of processes and layout definition, studies and projects of logistics network, geographical location of distribution centers and
factories; analysis of equipment implementation and technical feasibility, drawing, design and installation of equipment for handling and storage, training, technical assistance and equipment maintenance; lease (excluding operational leasing) and storage of equipment; lease (excluding operational leasing) and sublease of space for storage of merchandises; participation in other companies (sociedades simples ou empresárias), predominantly involved in non-financial activities, as partner or shareholder; the exercise of franchise activity and rendering of services related to loss prevention, logistics, research, monitoring, consulting, advisory or other services, whether for retail segment, wholesale, distribution, logistics, industry or services, as well as the development, maintenance, assessment, licensing, sub-licensing and systems technical support (software) for the mentioned services;
(ii) Management of network maintenance services not involving generation, transmission and reception of communication signals, provision of access to world wide web internet, provision of technical assistance services, including leasing of assets and properties, colocation, hosting (with and without lease of assests) and data centers (including or not the provision of data processing);
(iii) Telecommunications services in general, such as transmission of data, images and sounds by any means, including circuits and network services, telephony, for any systems including internet, import and export services for the telecommunication;
(iv) General administrative services to companies in which it participates;
(v) Participation in other companies, whether national or foreign companies, as a partner, shareholder or quotaholder; and
(vi) Representation of other companies, whether national or foreign companies.
Article 4 : The Company shall operate for an indefinite period of time.
CHAPTER II
SHARE CAPITAL AND SHARES
Article 5 : The Company share capital is R$ 488,829,005.42 (Four hundred and eighty-eight million, eight hundred and twenty-nine thousand, five reais and forty-two cents) divided into 166,308,960 (One hundred and sixty-six million, three hundred and eight thousand, nine hundred and sixty) common shares, registered, book-entry, with no par value.
Paragraph One : The Company is authorized to increase the share capital up to a limit of R$ 1,000,000,000.00 (one billion Brazilian Reais), irrespective of any amendment to these Bylaws, upon resolution of the Board of Directors.
Paragraph Two : The Board of Directors shall set the conditions for the issuing, subscription, form and payment term, the issue price and the form of placement of the shares (public or private) and their distribution in Brazil and/or abroad.
Paragraph Three : The Company may, within the limit of the authorized capital and pursuant to one or more plans approved by the Shareholders Meeting, grant options for purchase of shares to its managers, employees and to any individual that provides services to the Company, or to Companies under its control, as well as to managers and employees of other companies that are controlled by the Company, with no preemptive rights for the existing shareholders.
Article 6 : The Board of Directors, at its discretion, may authorize the Company to issue, without any preemptive rights or reducing the term set forth in the Paragraph Four, Section 171 of Law 6,404, of December 15, 1976, as amended (the Brazilian Corporations Law ), shares, debentures convertible into shares or subscription warrants, which placement is made by sale in stock exchange or by public subscription, or by exchange public offering for acquisition of control, under the legal terms, within the limits of the authorized capital.
Article 7 : The Company shares are book-entry shares and shall be maintained in deposit accounts, in the name of their holders, at a financial institution authorized by the Brazilian Securities Commission ( CVM ).
Sole Paragraph : Subject to the limits set out by the CVM, the cost of the transfer and registration, as well as the cost for the service regarding the book-entry shares may be charged directly from the shareholder by the depository institution, as defined in the share registration maintenance agreement.
Article 8 : The Companys share capital shall be comprised exclusively of common shares and each common share shall grant the right to one vote in the resolutions of the Shareholders Meetings.
Article 9 : A subscriber that fails to pay-in the subscribed shares, in accordance with the terms of the respective subscription bulletin or in accordance with the calls made, shall be in default, by operation of law, under Section 106 and 107 of the Brazilian Corporations Law, subject to the payment of a fine equivalent to 10% (ten percent) of the total subscription price duly adjusted by inflation, plus default interest of 12% (twelve percent) per year and a monetary adjustment of the variation of General Market Price Index ( IGP-M ), as disclosed by the Fundacão Getulio Vargas ( FGV ).
Article 10 : The Company shall not issue preferred shares and founders shares (partes beneficiárias).
CHAPTER III
SHAREHOLDERS MEETINGS
Article 11 : The Shareholders Meeting, called and installed in accordance with the applicable legal provisions and these Bylaws, has the power to decide on all matters of interest to the Company and take all the resolutions deemed appropriate to the defense and development of the meeting.
Paragraph One : The Shareholders Meeting shall preferably be chaired by the Chairman of the Board of Directors or by the Deputy Chairman of the Board of Directors, in their vacancy or temporary impediment, it shall be chaired by any Board Member present and, in the absent of any Board Member, it shall be chaired by any Manager or individual, shareholder or not, appointed in writing by the Chairman of the Board of Directors.
Paragraph Two : The Chairman of the Shareholders Meeting shall appoint up to two (2) Secretaries to compose the chair and act as secretary of the meeting.
Paragraph Three : Resolutions on the amendment or deletion of Article 45 hereof shall be taken by an absolute majority of votes present.
Article 12 : Qualification as shareholder shall be proved upon presentation of the proper documents, as provided by law.
Sole Paragraph : Shareholders may be represented by proxy in Shareholders Meetings, and such proxy shall be grant in accordance with the current law.
Article 13 : Except as provided by law or as otherwise provided in shareholders agreement filed at the companys head offices, the resolutions of the General Meeting shall be taken by majority of votes, blank votes not being considered.
Paragraph One : The exercise of voting rights in cases of condominium, shareholders agreement, usufruct and pledged shares or shares assigned on a fiduciary basis, is subject to specific legal requirements and evidences provided by law.
Paragraph Two : Shareholder with suspended social rights may not participate in the meeting.
Paragraph Three : The shareholder may not vote on resolutions relating to appraisal reports of assets contributed by such shareholder to the share capital and to the approval of its accounts as member of the Companys management, nor on any other resolution that may benefit such shareholder in a particular manner or that may represent a conflict of interest with the Company.
Article 14 : The Shareholders Meeting shall be held:
(a) Annually within the 4 (four) months following the end of the fiscal year, in order to (i) review the accounts of the management, examine, discuss and vote the financial statements; (ii) resolve on the allocation of the net profit of the fiscal year and distribution of dividends; and (iii) elect the members of the Board of Directors and the Fiscal Council, as necessary; and
(b) Extraordinarily, whenever the interests of the shareholders or the provisions hereof so require.
Article 15 : Call notice of the Annual and/or Extraordinary Shareholders Meeting shall be made upon announces and publications of the documents provided by law, under the terms and within the periods provided thereby.
Article 16 : Notwithstanding the matters provided by law, the matter listed on Section 122, 132 and 136 of the Brazilian Corporations Law and the following matters shall be approved exclusively by the Shareholders Meeting:
(i) election and removal of members of the Companys Board of Directors;
(ii) determination of the global annual compensation of the members of the Board of Directors, members the Board of Executive Officers, and members of the Audit Committee and member of the Personnel Committee, as well as members of the Fiscal Council, in on duty, after considering the opinion of the Personnel Committee;
(iii) approval of amendments to the Bylaws;
(iv) approval of dissolution, liquidation, merger, spin-of, or amalgamation of the Company or any of its controlled companies or affiliates, or of any company into the Company or its affiliates, except for incorporation of a wholly owned subsidiary of a controlled company by this latter or a controlled company with 80%(eighty percent) or more of the capital owned by the Company or a Company subsidiary by another subsidiary;
(v) distribution of stock dividends and decision on any stock split or reverse stock split;
(vi) approval of stock option to purchase or subscribe for shares to its management members and employees, as well as management members and employees of other companies that are directly or indirectly controlled by the Company;
(vii) decision, in accordance with the managements proposal, on the allocation of net income and dividend distribution;
(viii) appointment of the liquidator and the Fiscal Council that shall be on duty during the liquidation period;
(ix) approval of the selection of a specialized firm responsible for preparation of an appraisal report of the Companys shares, in case of cancellation of the companys registration as publicly held company, delisting from the Novo Mercado or for the purposes set forth in Article 42 hereof, among the three firms appointed by the Board of Directors;
(x) decision on any matter submitted by the Board of Directors; and
(xi) approval of any investment in activities other than the Companys main business, which are those comprised in its corporate purpose under Article 3 hereof.
Paragraph One : The resolutions and decisions of the Shareholders Meeting will be recorded in minutes drawn up in the relevant corporate book, signed by the chair members and shareholders attending the meeting. Certified or true copies of the minutes shall provided, for the legal purposes.
CHAPTER IV
MANAGEMENT BODIES
SECTION I
GENERAL PROVISIONS
Article 17 : The Company shall be managed by a Board of Directors and by a Board of Executive Officers, as pursuant to the Brazilian Corporations Law and these By-laws.
Paragraph One : The members of the Board of Directors and the Board of Executive Officers shall be invested into their position upon singing of the investiture term drawn up in the Companys corporate books, they shall not be required to post bond to exercise their position, and shall be subject to the other legal requirements.
Paragraph Two : The members of the Board of Directors and the Board of Executive Officers shall adhere to the Material Act or Fact Disclosure Policy and to the Securities Trading Policy.
Paragraph Three : Management members shall remain in office until the investiture of their successors, unless otherwise resolved by the Shareholders Meeting or by the Board of Directors, as the case may be.
Paragraph Four : The Shareholders Meeting shall determine the total annual compensation for distribution among the Management members and the Board of Directors shall distribute such amount individually, after considering the opinion of the Personnel Committee, pursuant to the terms hereof.
Paragraph Five : Except as provided in these Bylaws, management bodies or technical committees validly meets, on first call, with the presence of a majority of its members and decide by an absolute majority of vote of those members attending the meeting.
Paragraph Six : Prior notice to the meeting as a condition of its validity may be exempted if all members are present. Members of management bodies are considered present it they express their vote by delegation in favor of another member of the relevant board, by prior written vote or written vote transmitted by fax, electronic mail or any other means of communication.
SECTION II
BOARD OF DIRECTORS
Article 18 : The Board of Directors shall be composed of, at least, five (5) members, and up to eleven (11) members, all of them elected and removed from office by the Shareholders Meeting, with unified term of office of two (2) years, reelection being permitted.
Paragraph One : Of the members of the Board of Directors, at least two (2) or twenty percent (20%), whichever is greater, shall be Independent Members as defined in the Novo Mercado Listing Rules, being expressly stated as Independent Members in the minutes of the Shareholders Meeting electing them.
Paragraph Two : When, due to the observation of the percentage referred to in Paragraph above, a fractional number of Board members results, the fractional number shall be rounded up to the nearest integer.
Paragraph Three : The member of the Board of Directors shall have a solid reputation, and it may not be elected, unless waived by the Shareholders Meeting, a member who (i) hold position in companies that may be considered competitors of the Company, or (ii) has or represents conflicting interests with the Company. In case of a future impediment factor, as set forth in this Paragraph, the member of the Board of Directors may no longer exercise his/her voting rights.
Paragraph Four : The member of the Board of Directors may not have access to information or attend meetings of the Board of Directors concerning matters on which he/she has or represents a conflict of interests with the Company.
Paragraph Five : In case any shareholder desires to appoint one or more representatives to the Board of Directors that are not yet members according to latest formation of the Board of Directors, such shareholder shall send the Company a written notification five (5) days prior to the date of the Shareholders Meeting that shall elect members of the Board of Directors, stating the name, qualifications and full professional resume of the candidates.
Article 19 : The Board of Directors shall have one (1) Chairman and one (1) Deputy Chairman, both elected by majority of votes of those members attending the Shareholders Meeting, provided that the positions of Chairman of the Board of Directors and Chief Executive Officer the Company may not be held by the same person.
Paragraph One : The Deputy Chairman shall act as Chairman in his/her absence or temporary incapacity, regardless of any formality. In the event of absence or temporary incapacity of the Chairman and Deputy Chairman, the duties of the Chairman shall be exercised by another member of the Board of Directors to be appointed by the Chairman or the Deputy Chairman.
Paragraph Two : The Chairman of the Board of Directors shall call and chair the meetings of the Board of Directors. In case of absence or temporary impediments of the Chairman, the Deputy Chairman shall call and chair the meetings of the Board of Directors, regardless of any formality. In case of absence or temporary impediment of the Chairman and the Deputy Chairman, the meetings of the Board of Directors shall be called and chaired by the member of the Board of Directors appointed by the Chairman and the Deputy Chairman.
Paragraph Three : In the resolutions of the Board of Directors, the Chairman of the body shall be entitle to casting vote in case of a tie vote. In the event of absence or temporary incapacity of the Chairman, the Deputy Chairman shall be entitle to casting vote, irrespective of any formality. In the event of absence or temporary incapacity of the Chairman and the Deputy Chairman, any member of the Board of Directors appointed by the Chairman or the Deputy Chairman shall be entitle to casting vote.
Article 20 : The Board of Directors shall meet ordinarily, four (4) times per year and, extraordinarily, whenever called by the Chairman or any other member of the Board of Directors. Board meetings may be held by conference call, video conference or by any other means of communication that allows the identification of the member and simultaneous communication with all other persons attending the meeting.
Paragraph One : The calls for the meetings shall be made by written notice delivered to each member of the Board of Directors, at least five (5) business days in advance, in the case of regular meetings, and two (2) business days, in the case of extraordinary meetings, and such notice shall contain the agenda, date, time and place of the meeting.
Paragraph Two : In case there is no quorum for the meeting to be held, the members of the Board of Directors attending the meeting may postpone the meeting and the Chairman of the Board of Directors or any other member of the Board of Directors may call the meeting again, upon prior written notice sent to the members of the Board of Directors. In case the majority of members of the Board of Directors are still not present, the meeting may be installed with the attendance of the majority less one member of the Board of Directors.
Paragraph Three : Regardless of any formality, it shall be considered regular meetings of Board of Directors attended by all of its members.
Paragraph Four : The Chairman of the Board of Directors shall chair the meetings of the Board of Directors.
Article 21 : In case of vacancy or temporary incapacity or absence of any member of the Board of Directors and its relevant alternate, the provision of the shareholders agreement and the following provisions shall be applicable:
Paragraph One : In case of vacancy of any member of the Board of Directors and its relevant alternate, the remaining members of the Board of Directors shall appoint a substitute that shall serve until the first Shareholders Meeting and such member, if confirmed by such Shareholders Meeting, shall complete the term of office of the substituted member.
Paragraph Two : In case of temporary incapacity or absence of any member of the Board of Directors and its relevant alternate, the impaired or absent member of the Board of Directors shall appoint, among the other members of the Board of Directors,
a representative, and such substitution shall continue during the impairment period, which, if superior to ninety (90) days, shall be deemed a vacancy.
Paragraph Three : In case of vacancy of the Chairman of the Board of Directors, the Deputy Chairman may substitute him/her regardless of any formality. In case of temporary incapacity or absence of the Chairman and the Deputy Chairman, the Chairman or the Deputy Chairman shall appoint a member Board of Directors to substitute them.
Paragraph Four : In cases of temporary incapacity or absence provided for in this Article 21, the representative shall act, including for the effects of voting in meetings of the Board of Directors, for its own account and on behalf of the represented member of the Board of Directors.
Article 22 : The Board of Directors may create, besides the Personnel Committee and the Audit Committee, other executive or advisory committees, permanent or not, to assess and provide opinion on any matters, as determined by the Board of Directors, with a view to advice the Board of Directors in its duties. The members of such committees, shareholders or not, shall have specific experience in the areas of competence of the relevant committees, they shall be elected and may have compensation established by the Board of Directors, which compensation shall only be payable to external members.
Article 23 : The Board of Directors, in addition to the duties established by Law, shall:
(i) set the general direction of the Company business;
(ii) elect and remove the Executive Officers of the Company;
(iii) assign to each Executive Officer its relevant duties, including appointing the Investor Relations Officer, subject to the provisions hereof;
(iv) approve the convening of the Shareholders Meeting, when deemed appropriate or in the case of Section 132 of the Brazilian Corporations Law;
(v) supervise the management actions of Executive Officers, examining, at any time, the books and documents of the Company and requesting information on agreements executed or to be executed and any other acts;
(vi) appoint and remove the Companys independent auditors, the Audit Committee members and members of the Personnel Committee, fill vacancies in such bodies due to death, resignation or removal and approve the internal regulations of each body, as applicable;
(vii) call the independent auditors, the Audit Committee members and members of the Personnel Committee to provide clarifications deemed necessary on any matter;
(viii) assess the Management Report and the accounts of the Board of Executive Officers and approved its submission to the Shareholders Meeting;
(ix) approve annual and multi-annual consolidated budgets of the Company, its controlled companies and affiliates, any strategic plans, expansion projects and investment programs of the Company, as well as monitor their implementation;
(x) submit to the Shareholders Meeting proposals of amendments to the Bylaws;
(xi) submit to the Shareholders Meeting proposal of dissolution, merger, spin-of or amalgamation of the Company or its controlled companies or affiliates, and amalgamation by the Company or its controlled companies or affiliates, of other companies;
(xii) manifest on incorporation of a wholly owned subsidiary of a controlled company by this latter or a subsidiary with 80%(eighty percent) or more of the capital owned by the Company or by the controlled company by other subsidiary;
(xiii) authorize the issuance of shares of the Company, within the limits authorized in Article 5 of these Bylaws, establishing the issuance conditions, including price and payment-in term, and it may also exclude preemptive rights or reduce the period for its exercise in any issuance of shares, subscription warrants and convertible debentures, which placement is made by selling on the stock exchange or by public subscription or public offering for acquisition of control, as provided by Law;
(xiv) resolve on the acquisition by the Company of its own shares for holding in treasury and/or subsequent cancellation or sale;
(xv) decide on the issuance of subscription warrants, as provided in Article 6 hereof;
(xvi) grant options to purchase or subscribe shares to its management members and employees, as well as management members and employees of other companies that are directly or indirectly controlled by the Company, without preemptive rights to shareholders pursuant to plans approved by the Shareholders Meeting after considering the opinion of the Personnel Committee;
(xvii) establish the amount of profit sharing of the Executive Officers of the Company, subject to the restrictions under in Section 152 of the Brazilian Corporations Law and may decide not to assign them any sharing, after considering the opinion of the Personnel Committee;
(xviii) submit to the Shareholders Meeting proposal of allocation of the net income;
(xix) distribute among the Executive Officers, on an individual basis, portion of global annual compensation of Executive Officers fixed by the Shareholders Meeting, after considering the opinion of the Personnel Committee;
(xx) authorize, after considering the opinion of the Personnel Committee, the execution, amendment or termination of any agreement between the Company and any Executive Officer who contemplates the payment of amounts, unless such execution, amendment or termination is made in accordance with the compensation policy, duly approved by the Personnel Committee, including the payment of amounts as indemnification, as a result of (i) voluntary or involuntary removal of Executive Officers from office, (ii) change of control, or (iii) any other similar event;
(xxi) authorize, after considering the opinion of the Personnel Committee, the execution, amendment or termination of agreements of any nature, including loan agreements with any consultants or employees (except employment agreements), third parties related to them, including companies directly or indirectly controlled by such employees, or any third party related to them;
(xxii) approve the issuance of simple debentures, not convertible into shares and without collateral;
(xxiii) resolve, by delegation of the Shareholders Meetings in the event Company decides to issue debentures, on the time period and conditions of maturity, amortization or redemption, time period and conditions for payment of interest, profit sharing and redemption premium, if any, and the form of subscription or placement, as well as on the debentures types;
(xxiv) prepare the Companys internal policy regarding disclosure of information to the market;
(xxv) approve the Companys vote on any corporate resolution relating to controlled or affiliated companies of the Company;
(xxvi) approve the Companys vote on any corporate resolution concerning subsidiaries or affiliated companies, except for opening, closing or change of address of the branches of the subsidiaries and / or extensions of floorsin the current address of the subsidiaries and the Company headquarters;
(xxvii) authorize the acquisition, by any means, by the Company, its controlled companies and affiliates, assets of another company, including controlled companies or affiliates;
(xxviii) request information on agreements executed, or to be executed, and any other acts relating to the Company;
(xxix) define the list of three firms specialized in economic valuation of companies, to prepare the appraisal report of the Company shares in case of public offering for the cancellation of the registration of the company or delisting from the Novo Mercado;
(xxx) approve the engagement of the institution providing service regarding book-entry shares;
(xxxi) provide, in compliance with these Bylaws and the applicable law, for its work agenda and adopt or issue rules for its operation;
(xxxii) decide on the payment or crediting of interest on shareholders equity in accordance with the applicable Law;
(xxxiii) approve or grant powers to the Board of Executive Officers to approve the issuance of any credit instruments for fundraising, either bonds, notes, commercial papers or other commonly used in the market, resolving also on their conditions of issue and redemption, and, in as defined, require the prior authorization of the Board of Directors for the validity of the act;
(xxxiv) authorize the acquisition, disposal or encumbrance of any real property of the Company, except as approved in the Companys consolidated annual budgets;
(xxxv) approve any sale of assets of the fixed assets valuing more than five percent (5%) of the amount of the subscribed capital unless approved in the Companys consolidated annual or multi-annual budgets;
(xxxvi) approve the creation of encumbrances and provision of guarantees or endorsements, unless it is a guarantee of purchase of the good itself or when entering into contracts with customers;
(xxxvii) approve investment in expansion and improvement projects greater than five percent (5%) of the value of the subscribed capital unless approved in the Companys consolidated annual or multi-annual budgets;
(xxxviii) contract debts of long or short term valuing more than five percent (5%) of the amount of the subscribed capital;
(xxxix) discuss the assignment or transfer, by any means, to third parties, of intellectual or industrial rights owned by the Company and/or companies directly and/or indirectly controlled by or affiliate of the Company, except for any onerous licensing made by the Company, its controlled companies or affiliates in the ordinary course of business;
(xl) authorize the granting of loans in favor of any third party;
(xli) authorize the raising of financial statements and distribution of dividends or interest on shareholders equity in periods equal to or shorter than six (6) months, to the account of profits earned in these financial statements or to the retained earnings account or profit reserves existing in the last annual or semiannual balance sheet, as provided in these Bylaws and the applicable Law;
(xlii) resolve on any matter submitted by the Board of Executive Officers; and
(xliii) manifest in favor of or against any tender offer having as object the shares of the Company, through its prior and reasoned opinion, released at least fifteen (15) days in advance of publication of the notice of any tender offer, and such opinion shall address at least (i) the convenience and opportunity of the tender offer on the interest of all shareholders and the liquidity of the securities held by them, (ii) the impact of the tender offer on the interests of the Company, (iii) the strategic plans disclosed by the offering entity in relation to the Company, (iv) the alternatives to the acceptance of the tender offer available in the market (v) other issues that the Board of Directors deems appropriate, as well as information required by rules established by the CVM.
Paragraph One : The Company shall not grant loans or guarantees to the members of its Board of Directors or Executive Officers.
Paragraph Two : Board of Directors meetings will be recorded in minutes drawn up in the relevant corporate book, signed by all members attending the meeting.
Article 24 : The Personnel Committee will consist of up to four (4) members elected by the Board of Directors, who shall serve for two (2) fiscal years. The Personnel Committee shall meet whenever necessary and shall perform advisory functions in accordance with its internal regulations and assist the Board of Directors to set the terms of compensation and other benefits and payments to be received in any capacity, from the Company, by members of the Board of Executive Officers and Directors. The Committee shall propose to the Board of Directors policies and guidelines for the compensation of members of the Board of Executive Officers and Directors of the Company, based on performance goals established by the Board of Directors.
Paragraph One : Upon appointment of the members of the Personnel Committee, one of them shall be appointed as its coordinator.
Paragraph Two : The Personnel Committee will report directly to the Board of Directors of the Company.
Paragraph Three : The Board of Directors shall establish, in Internal Rules, the functioning rules for the Personnel Committee.
Paragraph Four : As pursuant to Article 23 (vi) hereof, the Companys Board of Directors shall have the exclusive responsibility to appoint and remove from office members of the Personnel Committee.
Paragraph Five : The Personnel Committee shall:
(i) submit to the Board of Directors proposal for the distribution of the global annual compensation of the members of the Board of Directors and Board of Executive Officers, based on standards practiced in the software market, as well as monitor the payment of the compensation and, in case the compensation does not follow the standards prevailing in the software market, notify the Board of Directors;
(ii) provide opinion on the granting of options to purchase or subscribe shares to Management members and employees of the Company;
(iii) provide opinion on the participation of Management members and employees in the Companys profits;
(iv) provide opinion on the execution, amendment or termination of any agreements between the Company and any Executive Officer who contemplates the payment of amounts due to voluntary or involuntary removal from office of the Executive Officer, change of Control or any other similar event, including payment of amounts as indemnification;
(v) provide opinion on the execution, amendment or termination of any agreements of any kind (except employment agreements), including loan agreements with any of the management members and/or shareholders of the Company, third parties related to them, including companies directly or indirectly controlled by such management members and/or shareholders, or any third party related to them; and
(vi) provide opinion on the execution, amendment or termination of any agreements of any nature, including loan agreements with any consultants or employees (except employment agreements), third parties related to them, including companies directly or indirectly controlled by such employees, or any third party related to them.
Article 25 : The Audit Committee, an advisory body related to the Board of Directors, with operational autonomy and own budget approved by the Board of Directors, shall consist of at least three (3) members, the majority of which shall be independent members of the Companys Board of Directors and the rest shall be external consultants who are not part of the Companys Management, and at least one of the members of the Audit Committee shall have recognized experience in matters of corporate accounting.
Paragraph One : Upon appointment of the members of the Audit Committee, one of them shall be appointed as its coordinator. The duties of the Audit Committee coordinator are defined in its internal regulations approved by the Board of Directors.
Paragraph Two : The Audit Committee will report directly to the Board of Directors of the Company and the same member of the Audit Committee can accumulate both positions mentioned in this Article.
Paragraph Three : The Board of Directors shall establish, in Internal Rules, the functioning rules for the Audit Committee.
Paragraph Four : As pursuant to Article 23 (vi) hereof, the Companys Board of Directors shall have the exclusive responsibility to appoint and remove from office members of the Audit Committee.
Paragraph Five : The Audit Committee shall, among others:
(i) recommend to the Board of Directors the hiring or replacement of the independent audit firm;
(ii) evaluate, prior to the publication, the quarterly, interim and annual financial statements, including any notes, as well as management reports and independent auditors report, as applicable;
(iii) evaluate, besides monitoring the activities, the effectiveness of internal and independent auditors and the Companys internal control area, including as to the compliance with legal and regulatory requirements applicable to the Company, in addition to the internal regulations, as applicable;
(iv) evaluate compliance by the Companys management with recommendations made by the independent or internal auditors;
(v) evaluate and monitor the Companys risk exposures;
(vi) evaluate, monitor and recommend to the Management correction or improvement of Companys internal policies, including the policy of transactions between related parties;
(vii) have the means to receive and process information about non-compliance with legal and regulatory provisions applicable to the Company, in addition to internal regulations and policies, including specific procedures for the protection of the provider and the confidentiality of the information;
(viii) hire, when necessary, independent advisor (lawyers, accountants, consultants and others) in order to assist him in achieving his goals, all in strict obedience of its own budget; and
(ix) meet with the Fiscal Council, if on duty, and with the Board of Directors, at their request, to discuss the policies, practices and procedures within their respective powers.
SECTION II
BOARD OF EXECUTIVE OFFICERS
Article 26 : The Board of Executive Officers shall be composed of, at least, two (2) members and up to ten (10) members, shareholders or not, resident in the country, one of them being the Chief Executive Officer, one a Vice President of Finance, one a Vice President of Operations, one a Vice President of Research and Development, one a Investor Relations Officer and others without specific designation, all of them elected by the Board of Directors for a one (1) year term of officer, reelection being permitted, and they may serve for an unlimited number of consecutive terms of office. The Executive Officers may be, at any time, removed from office by the Board of Directors.
Paragraph One : the duties and responsibilities of the Executive Officers shall be defined in the minutes of the Meeting of the Board of Directors that elect them.
Paragraph Two : The position of Executive Officer may be combined with another position as Executive Officer or Vice President of the Company.
Article 27 : The Board of Executive Officers has all powers to perform any acts necessary for the operation of the Company and performance of the corporate purposes, no matter how special they are, including to waiver any rights, execute settlements and agreements, pursuant to the legal or corporate provisions. The Board of Executive Officers shall be responsible for administer and manage the Companys business, in particular to:
(i) comply with and enforce these Bylaws and resolutions of the Board of Directors and Shareholders Meetings;
(ii) submit annually to the Board of Directors, the Management Report and the accounts of the Board of Executive Officers, together with the report of the independent auditors, as well as the proposed allocation of profits earned in the previous year;
(iii) propose to the Board of Directors, annual and multi-annual budgets of the Company, its controlled companies and affiliates, strategic plans, expansion projects and investment programs of the Company;
(iv) decide on any matter that is not within the exclusive competence of the Shareholders Meeting or the Board of Directors;
(v) decide on (a) enlargements and reductions of flors in the current address of the headquarters of the Subsidiaries and the Company; and (b) opening, closing or change of address of branches of the Subsidiaries;
(vi) establish the amount of profit sharing of Employees of the Company, and decide wheatear or not distribute them such profit sharing; and
(vii) prepare the annual and semi-annual financial statements for further submission to the Audit Committee and the Board of Directors and, if applicable, statements or balance sheets issued for shorter periods.
Article 28 : The active and passive representation of the Company, on court or out-of-court, shall be made:
(i) by the Chief Executive Officer together with one (1) Vice President; or
(ii) two (2) Vice Presidents, jointly;
(iii) one (1) Vice President and one (1) attorney-in-fact for agreements amounting up to R$1,000,000.00 (one million Brazilian Reais); or
(iv) by the Chief Executive Officer together with one (1) attorney-in-fact.
Paragraph One : The power of attorney shall specify the acts and operations that the grantees may perform and the term of duration of the power of attorney, which shall not be more than one (1) year, delegation of powers not being permitted.
Paragraph Two : The attorney-in-fact shall have the power to represent the Company only in acts or transactions specifically listed in power of attorney.
Paragraph Three : The ad judicia power of attorney may be granted by the Chief Executive Officer or by Vice President for Finance for an indefinite term of duration and provide for delegation of powers.
Paragraph Four : All powers of attorney granted on behalf of the Company shall be made by the Chief Executive Officer and one (1) Vice President or by two (2) Vice Presidents, always together.
Paragraph Five : Acts of any executive officer, agent or employee involving business or operations strange to the corporate purpose are expressly forbidden, being void and inoperative with respect to the Company, unless expressly authorized by the Shareholders Meeting.
Article 29 : The members of the Board of Executive Officers and their alternates shall be invested into their position, upon singing of the Investiture Term drawn up in the Companys Board of Executive Officers Meetings Minutes Book.
Sole Paragraph : If the Investiture Term is not signed within thirty (30) days following the appointment, such appointment shall be ineffective, except in case of justification provided by the elected member and accepted by the Board of Executive Officers.
Article 30 : The members of the Board of Executive Officers shall not be required to post bond to exercise their position.
Article 31 : The members of the Board of Executive Officers shall remain in their position until the investiture of the new members elected, and the term of office shall be extended until such moment.
Sole Paragraph : In case of any vacancy in the Board of Executive Officers, the remaining Executive Officers shall call a meeting of the Board of Directors within ten (10) days to elect the substitute, which shall complete the term of office of the substituted member.
SECTION III
FISCAL COUNCIL
Article 32 : The Company shall have a Fiscal Council, in a non-permanent basis, composed of three (3) permanent members and equal number of alternates, and such council shall only be installed upon resolution of the Shareholders Meeting.
Paragraph One : The members of the Fiscal Council, individuals, residing in Brazil, legally qualified, shall be elected by the Shareholders Meeting that resolve on the installation of such council, upon request of shareholders, with term of office until the next Annual Shareholders Meeting.
Paragraph Two : The members of the Fiscal Council shall only be entitle to the compensation established by the Shareholders Meeting, during the period in which the Fiscal Council is installed and the members are on duty.
Paragraph Three : The investiture of the members of the Fiscal Council is subject to the applicable legal requirements.
Paragraph Four : In case of any vacancy in the Fiscal Council, the alternate member shall hold the vacant members position; in case there is no alternate, the Shareholders Meeting shall be convened to elect a member for the vacant position.
Paragraph Five : Any person who maintains relationship with a company that could be considered a competitor of the Company (Competitor) shall not be elected as a member of the Fiscal Council of the Company, being prohibited, among other things, the election of any person that: (i) is an employee, shareholder or member of any management, technical or fiscal body of the Competitor or of any company controlling or under control of the Competitor, (ii) is spouse or relative within the second degree of a member of any management, technical or fiscal body of the Competitor or of any company controlling or under control of the Competitor.
Article 33 : The Fiscal Council, when on duty, shall have the duties provided by law, and such duties shall not be delegated. The Fiscal Council Internal Regulation shall be prepared, discussed and voted by its members in the first meeting called after the installation thereof.
CHAPTER V
FISCAL YEAR, BALANCE SHEET AND PROFITS
Article 34 : The Companys fiscal year begins on January 1st and ends on December 31st of each year. Financial statements of the Company shall be prepared quarterly and at the end of each fiscal year, subject to the legal requirements.
Article 35 : From the results of the fiscal year it shall be deducted before any participation, the accumulated losses and the provision for income tax and social contribution on net income. Based on the remaining profits, the profit sharing to be assigned to management shall be calculated, if so determined by the Shareholders Meeting. The net income of the fiscal year shall be allocated as follows:
(a) from the net profit, five percent (5%) shall be allocated to the legal reserve according to Section 193 of the Brazilian Corporations Law, observed the exception provided for in Paragraph One of Section 193 of the Brazilian Corporations Law;
(b) by proposal of the management bodies, a portion may be allocated to form the Reserve for Contingencies, under Section 195 of the Brazilian Corporations Law;
(c) by proposal of the management bodies, a portion may be retained based on previously approved capital budget, under Section 196 of the Brazilian Corporations Law;
(d) a portion shall be allocated to the payment of the mandatory dividend to shareholders, subject to the provisions of Article 36 hereof; and
(e) in the fiscal year in which the amount of the mandatory dividend, calculated in accordance with Article 36 hereof, exceeds the realized portion of net income, the Shareholders Meeting may, upon proposal of the management bodies, allocate the
surplus to Reserve of Unrealized Profits, subject to the provisions of Section 197 of the Brazilian Corporations Law.
Paragraph One : The Shareholders Meeting shall determine the destination of the remaining balance of the Companys results.
Paragraph Two : The financial statements of the Company shall be audited on an annual basis by independent audit firms, registered with the CVM.
Article 36 : Shareholders shall be entitled to a mandatory dividend, in each fiscal year, of at least twenty five percent (25%) of the net profit of the fiscal year, decreased or increased by the following:
(a) amount allocated to the legal reserve; and
(b) amount intended to form the reserve for contingencies (Article 35 (b) hereof), and reversion of the same reserve made in previous years.
Paragraph One : The payment of the dividend may be limited to the amount of net income of the fiscal year that has been realized, provided that the difference is registered as Reserve of Unrealized Profits.
Paragraph Two : The profits registered as reserve of unrealized profits, when realized and if not absorbed by losses in subsequent years, shall be added to the first dividend declared after realization.
Paragraph Three : The Shareholders Meeting may assign profit sharing to members of the Board of Directors, provided that total amount does not exceed the annual compensation of the management members nor ten percent (10%) of the profits, whichever is the lower, form and legal limits. The Board of Directors shall establish the criteria for the allocation of profit sharing to management members, subject to the limit set by the Shareholders Meeting.
Paragraph Four : The remaining balance of the profits, if any, shall be allocated as determined by the Shareholders Meeting, and any retained profit for the fiscal year by the Company shall be mandatorily accompanied by proposal of capital budget previously approved by the Board of Directors. Should the balance of retained earnings exceed the capital, the Shareholders Meeting shall decide on the application of the excess in the payment or increase of the share capital, or even in the distribution of dividends to shareholders.
Article 37 : The Board of Directors is authorized to declare interim dividends on account of retained earnings or profit reserves, calculated on annual or semi-annual financial statements, which shall be considered anticipation of the mandatory dividend referred to in Article 36 hereof.
Paragraph One : The Board of Directors may also determine the preparation of monthly or quarterly balance sheets and declare interim dividends based on the profits so determined, subject to legal limitations, and such interim dividends shall be considered anticipation of the mandatory dividend referred to in Article 36 hereof.
Paragraph Two : The Board of Directors may pay or credit interest on shareholders equity, ad referendum of the Shareholders Meeting that consider the financial statements for the
fiscal year in which such interest is paid or credited, at all times in anticipation of the mandatory dividend.
Article 38 : The dividends shall be paid, except otherwise resolved by the Shareholders Meeting, within sixty (60) days from the date they were declared and, in any case, within the fiscal year. The dividends not claimed within three (3) years, from the publication of the act authorizing such distributions, shall revert to the Company.
Article 39 : The three-year statute of limitations to initiate any legal action to receive dividends begins to run from the date the dividends were made available to the shareholders.
CHAPTER VI
DISPOSAL OF CONTROL
Article 40 : Direct or indirect disposal of the Companys Control, whether it is done in a single transaction or in a series of transactions, shall be agreed under the condition that the Buyer of a controlling stake undertakes to make a public tender offer to acquire all shares issued by the Company which are held by the other shareholders in the Company, as pursuant to the terms and conditions set forth in the current law, the current regulation and in the Novo Mercado Listing Rules, in order to assure to them equal treatment as the one given to the transferor.
Article 41 : For the purposes of this Chapter, the terms starting with capital letters shall have the following meaning:
(a) Buyer means the one to whom the Selling Controlling Shareholder transfers Control of the Company through Disposal of the Companys Control;
(b) Controlling Shareholder means the shareholder(s) or Group of Shareholders who exercise the Control Power of the Company;
(c) Selling Controlling Shareholder means the Controlling Shareholder carrying out the Disposal of Control of the Company;
(d) Controlling Shares means the block of shares, which ensure, directly or indirectly, to their holders, the individual and/or shared exercise of the Control Power of the Company;
(e) Outstanding Shares means all the shares issued by the Company, except for those held by the Controlling Shareholder, by persons related to it, by members of the Board of Directors and of the Board of Executive Officers and those shares held in treasury;
(f) Disposal of Control means to transfer, to a third party, for consideration, the Control Shares;
(g) Control or Control Power (as well as their related terms, Controlling , Controlled or under common Control ) means the actual and effective power to direct the Companys activities and to establish the guidelines for the operation of its management bodies, directly or indirectly, in fact or in law, regardless the shareholding interest held. Rebuttable presumption of Control will exist where a person or a Group of Shareholders that holds enough shares to ensure an absolute majority of votes accorded to the shareholders present at the Companys previous three (3) shareholders meetings, even if they do not hold the number of shares that actually provide them an absolute majority of the voting shares;
(h) Group of Shareholders means any group of people: (i) bound by voting agreements or contracts of any kind, either directly or through companies controlled, controlling or under common control, or (ii) among which there is a relationship of control, or (iii ) under common control;
(i) Economic Value means the value of the Company and its shares as determined by a specialized firm and based on reputable methodology or on any other CVM criteria.
Article 42 : Any shareholder or person that acquires or becomes the holder of shares of the Company, in a percentage equal to or greater than twenty five percent (25%) of the total shares issued by the Company shall, within sixty (60) days from the date of acquisition or event that resulted in the ownership of shares in a percentage equal to or greater than twenty five percent (25%) of the total shares issued by the Company, make or request the registration, as the case may be, of a public tender offer of all shares issued by the Company, pursuant to the provisions of the applicable regulations of the CVM, Novo Mercado Listing Rules, other regulations of B3 and the terms of this Article.
Paragraph One The public tender offer shall be (i) for all shareholders of the Company indistinctly, (ii) through auction to be conducted on the B3, (iii) launched at the price determined according to Paragraph Two of this Article, and (iv) paid in cash, in Brazilian currency, against the acquisition in the public tender offer of the shares issued by the Company.
Paragraph Two The price for the acquisition of each share of the Company in the public tender offer may not be less than ninety percent (90%) of the highest quotation per unit of the shares issued by the Company on the B3 registered in the period of twenty four (24) months prior to the completion of the tender offer, excluding the three highest values.
Paragraph Three The conduction of the tender offer referred to in the main provision of this Article shall not prevent other shareholder of the Company or, as the case may be, the Company itself, from promoting a tender offer concurrently, in accordance with the applicable regulations.
Paragraph Four The person or shareholder shall comply with any requests or requirements of the CVM, based on the laws applicable to the tender offer, by the final deadlines fixed by the applicable regulations.
Paragraph Five If the person or shareholder does not comply with the obligations under this Article, including as the deadlines stipulated (i) for the registration or the application for registration of the tender offer or (ii) for the fulfillment of any requests or requirements from the CVM, the Board of Directors of the Company shall convene an Extraordinary Shareholders Meeting, at which the shareholder or person shall not be entitled to vote, to resolve on the suspension of the exercise of the rights of the person or shareholder that failed to comply with any obligation under this Article, as provided for in Section 120 of the Brazilian Corporations Law, without prejudice to the person or shareholders liability for losses and damages caused to the other shareholders as a result of the breach of his/her/its obligations under this Article.
Paragraph Six Any person or shareholder acquiring or becoming holder of other shareholding rights, including usufruct or fideicommissum, relating to the shares issued by the Company in a number equal to or exceeding thirty per cent (30%) of all shares issued by the Company, shall also, within no more than sixty (60) days after the date of such acquisition or the event resulting in the vesting of said rights in and to shares in a number
equal to or exceeding thirty per cent (30%) of all shares issued by the Company, register or apply for the register of a tender offer, as the case may be, pursuant to the terms of this Article.
Paragraph Seven The obligations provided for in Section 254-A of Brazilian Corporations Law and Article 42 of these Bylaws, do not release the person or shareholder from complying with his/her/its obligations under this Article, except as provided for in Articles 46 of these Bylaws.
Paragraph Eight The provisions of this Article do not apply if a person becomes holder of shares issued by the Company in a number exceeding thirty per cent (30%) of all shares issued by the Company as result of (i) legal succession, so long as the shareholder disposes of the exceeding shares within sixty (60) days after the relevant event (ii) merger of another company with and into the Company, (iii) merger of all shares of another company with the Company, or (iv) subscription of shares of the Company in one sole primary issuance which has been approved at a Shareholders Meeting of the Company convened by its Board of Directors and whose proposal of capital increase has determined the fixing of the shares issuance price based on the economic value calculated according to an economic and financial valuation report of the Company issued by a company with proven expertise in valuation of publicly-held companies.
Paragraph Nine For the purposes of calculation of the thirty per cent (30%) of all shares issued by the Company described in the main provision of this Article, the involuntary increases in equity interest resulting from cancellation of treasury shares, or reduction of the share capital of the Company with cancellation of shares shall not be calculated.
Paragraph Ten If the CVM regulation applicable to the tender offer provided for in this Article requires the adoption of a calculation criteria for determination of the price for the acquisition of each share of the Company in the tender offer which results in an acquisition price greater than that determined under Paragraph Two of this Article, the acquisition price calculated under the CVM Regulation shall prevail in the implementation of the tender offer under this Article.
CHAPTER VII
LIQUIDATION
Article 43 : The Company shall be liquidated in the events determined by law, and the shareholders meeting shall set out the form of liquidation and appoint the liquidator and the Fiscal Council shall be on duty during the liquidation period.
CHAPTER VIII
ARBITRATION
Article 44 : The Company, its shareholders, Management members and members of the Fiscal Council, effectives and substitutes, if any, undertake to settle, through arbitration conducted before the Market Arbitration Chamber (Câmara de Arbitragem do Mercado), in the terms of its regulations, any and all disputes or controversies that arise among them for their condition of issuer, shareholders, managers, and members of the Fiscal Council, and arising out of or in connection to their condition of issuer, shareholders, managers, and members of the Fiscal Council, especially, resulting of the provisions of the Law 6,385/76, Law No. 6,404, the Companys Bylaws, the rules adopted by the National Monetary Council, the Central Bank of Brazil and the Brazilian Securities Commission, as well as any other rules applicable to the
capital market in general and those contained in the Novo Mercado Listing Rules, the B3 regulations and the Novo Mercado Participation Agreement.
Sole Paragraph : The appointment of the managers and members of the Fiscal Council, effectives and substitutes, is subject to the signing of the Investiture Term, which shall contemplate its subjection to the arbitration clause mentioned in this Article.
CHAPTER IX
GENERAL PROVISIONS
Article 45 : The Company shall comply with shareholders agreements filed at its head office in accordance with Section 118 of the Brazilian Corporations Law, and the Chairman of Shareholders Meetings and meetings of the Board of Directors shall refrain from computing the votes contrary to the relevant terms of shareholders agreements.
Article 46 : The publications required by the Brazilian Corporations Law shall be made in the Official Gazette of the State of São Paulo and in another newspaper of broad circulation.
Article 47 : The provisions of Article 45 hereof shall not apply to existing shareholders who already hold a number of share equal to or greater than ten percent (10%) of the total shares issued by the Company and its successors, so qualified on the date of publication of the commencement notice of primary and secondary public distribution of shares of Linx S.A. (Commencement Notice, Anúncio de Início) relating to the public offering of primary and secondary distribution of shares of the Company (the Offer) by applying exclusively to those investors who purchase shares and become shareholders of the Company after the effective date of the adhesion and listing of the Company on the Novo Mercado.
*****
SHAREHOLDERS AGREEMENT OF LINX S.A.
AMONG
NÉRCIO JOSÉ MONTEIRO FERNANDES,
ALBERTO MENACHE,
ALON DAYAN,
DANIEL MAYO,
AND
DENNIS HERSZKOWICZ,
AS PARTIES
AND
LINX S.A.
AS INTERVENING CONSENTING PARTY
JULY 30, 2014
SHAREHOLDERS AGREEMENT OF LINX S.A
This Shareholders Agreement (the Agreement ) is entered into on July 30, 2014 by and among:
(a) NÉRCIO JOSÉ MONTEIRO FERNANDES , Brazilian citizen, married, holder of [identity card] RG No. 7.760.014 SSP/SP, enrolled with the Individual Taxpayers Register of the Ministry of Finance (CPF/MF) under No. 022.256.918-27, with business address in the City of São Paulo, State of São Paulo, Brazil, at Rua Cenno Sbrighi No. 170, 9 th floor, District of Água Branca, postal code (CEP) 05036-010 ( Nércio );
(b) ALBERTO MENACHE , Brazilian citizen, married, holder of RG No. 24.257.036-7 SSP/SP, enrolled with the CPF/MF under No. 172.636.238-89, with business address in the City of São Paulo, State of São Paulo, Brazil, at Rua Cenno Sbrighi, No. 170, 9 th floor, District of Água Branca, CEP 05036-010 ( Alberto );
(c) ALON DAYAN , Brazilian citizen, married, holder of RG No. 8.894.140-1 SSP/SP, enrolled with the CPF/MF under No. 014.642.468-90, with business address in the City of São Paulo, State of São Paulo, Brazil, at Rua Cenno Sbrighi No. 170, 9 th floor, District of Água Branca, CEP 05036-010 ( Alon );
(d) DANIEL MAYO , Brazilian citizen, married, holder of RG No. 19.201.330-0 SSP/SP, enrolled with the CPF/MF under No. 157.679.338-98, with business address in the City of São Paulo, State of São Paulo, Brazil, at Rua Cenno Sbrighi No. 170, 9 th floor, District of Água Branca, CEP 05036-010 ( Daniel ); e
(e) DENNIS HERSZKOWICZ , Brazilian citizen, married, holder of RG No. 20.310.061, enrolled with the CPF/MF under No. 165.783.068-38, with business address in the City of São Paulo, State of São Paulo, Brazil, at Rua Cenno Sbrighi No. 170, 9 th floor, District of Água Branca, CEP 05036-010 ( Dennis );
(Nércio, Alberto, Alon, Daniel and Dennis are hereinafter collectively referred to as the Shareholders , and each, individually, as a Shareholder ),
And, further, as Intervening Consenting Party:
(f) LINX S.A. , a corporation organized and existing under the laws of Brazil, having its principal place of business at Rua Cenno Sbrighi No. 170, 9 th floor, District of Água Branca, CEP 05036-010, in the City of São Paulo, State of São Paulo, Brazil, enrolled with the National Corporate Taxpayers Register (CNPJ) under No. 06.948.969/0001-75, represented herein by its undersigned legal representatives ( Linx or the Company );
WHEREAS:
(1) on December 3, 2012, the Shareholders, among other agreements signed with third parties, entered into a Company shareholders agreement to govern their relationships as shareholders holding common shares issued by the Company following the consummation of the Companys process of going
public (the 2012 Shareholders Agreement , a copy of which is attached hereto as Exhibit I );
(2) in view of the Companys current corporate structure, the Shareholders wish to have this Agreement govern certain aspects of their relationships as shareholders holding common shares issued by the Company, setting forth mutual rights and obligations with respect to certain matters, as provided for in article 118 of Law No. 6.404, of December 15, 1976 (the Corporation Law , as amended); and
(3) by signing this instrument, the Shareholders expressly wish to terminate, without any formalities, the 2012 Shareholders Agreement and replace it with this Agreement for all legal purposes;
NOW, THEREFORE, they resolved to enter into this Agreement, which shall be governed by the following provisions:
SECTION I
PURPOSE, EQUITY INTEREST, AND BOUND SHARES
1.1. The purpose of this Agreement is to govern certain aspects of the Shareholders relationships in their capacity as holders of common shares issued by the Company, setting forth mutual rights and obligations with respect to certain matters, as provided for in article 118 of the Corporation Law.
1.2. The Companys capital stock, as subscribed for and paid in, amounts to three hundred and forty-six million eight hundred and sixty-three thousand six hundred and eighty-eight Reais and thirty-three cents (R$346,863,688.33), fully subscribed for and paid in, divided into forty-six million five hundred and seventy-six thousand four hundred and ninety-four (46,576,494) registered book-entry common shares, with no par value. The Shareholders collectively hold fourteen million seven hundred and twenty-seven thousand five hundred (14,727,500) common shares issued by the Company, and the number of shares in the Company held by each of the Shareholders is as follows:
Shareholder |
|
No. of Common
|
|
% of the Companys
|
|
% of the Relating
|
|
Nércio |
|
5,504,048 |
|
11.82 |
% |
37.37 |
% |
Alberto |
|
4,558,208 |
|
9.80 |
% |
30.95 |
% |
Alon |
|
4,004,976 |
|
8.60 |
% |
27.19 |
% |
Daniel |
|
388,156 |
|
0.83 |
|
2.64 |
% |
Dennis |
|
272,112 |
|
0.58 |
|
1.85 |
% |
TOTAL |
|
14,727,500 |
|
31.63 |
% |
100 |
% |
1.2.1. For the purposes of this Agreement, Relating Capital Stock means the total shares held by each Shareholder relating to the total shares only collectively held by the Shareholders, taken as a whole (excluding all other shareholders in the Company).
1.3. All shares issued by the Company and owned by the Shareholders are bound by this Agreement, as will any such shares as may be added thereto in the future for any reasons ( Shares ), such as purchase, subscription, conversion of debentures, split or bonus distributions, donation, inheritance, loan, beneficial ownership or right to subscribe for said Shares, and any securities ensuring such right or convertible into Shares, which are deemed to rank pari passu with the Shares for the purposes of this Agreement, shall
compulsorily form an integral part of, and shall automatically and unrestrainedly be covered by and subject to the terms and conditions of this Agreement.
1.3.1. Any other shares issued by the Company as are not owned by the Shareholders are not bound by this Agreement, which shares, however, together with the Shares, are the subject of the Companys shareholders agreement entered into by the Shareholders with Messrs. Aparecido Elias Raposo, Marcos Akira Takata, Flávio Mambreu Menezes, Dario de Sena Gouvêa and Jean Carlo Klaumann on December 3, 2012 with a view to governing their relationship as the Companys controlling block of shareholders (the Controlling Block Shareholders Agreement ).
1.4. Subject to the provisions of this Agreement, none of the Shareholders may, directly or indirectly, through an intermediary or otherwise, hold any Shares as owned thereby, including through any legal entities controlling them or controlled thereby, without the other Shareholders being previously notified in writing and without such persons compulsorily becoming parties to this Agreement.
1.5. Each Shareholder hereby expressly represents that: (i) he is the current lawful holder of his/her respective Shares, in the proportion set out in Section 1.2 above; (ii) the Shares held thereby have been fully subscribed for and paid in; (iii) he has powers to enter into and comply with the provisions of this Agreement; (iv) the conclusion of this Agreement does not breach any commitments, agreements or obligations to which he is a party; and (v) all of his/her respective Shares are fully free and clear of any charges, debts, encumbrances, liens, pledges, collaterals, fiduciary assignment, guarantees, limitations on full and free use, enjoyment or fruition of any right (or any attributes inherent in or related to any right), as a result of any law, contract or claims of any nature, including by any grant of beneficial ownership, options, rents or rights of first refusal ( Encumbrances , including any variations of the term), except as provided in the Controlling Block Shareholders Agreement.
SECTION II
PRIVATE SALE OF COMPANY SHARES
(A) Private Transfer of Shares
2.1. Subject to the provisions of Sections 2.2 through 2.13 below, any private transfer of Shares owned by any of the Shareholders shall require previous notice to be sent to the other Shareholders, who shall have a right of first refusal, in equal conditions to those offered by any third parties, to purchase such Shares.
2.1.1. For the sake of clarification, any transfers made in a stock exchange environment are free, subject to the terms of Section V of this Agreement.
2.2. Any Shareholder willing to assign, transfer, allocate to the capital of another company or promise to sell any or all of his/her Shares privately (i.e., outside a stock exchange), or any of the rights therein (a Selling Shareholder ), to third parties shall give written notice of his/her intent to the other Shareholders ( Sale Proposal ), together with a copy of the proposal offered by the interested third party, which shall be irrevocable and irreversible and shall compulsorily stipulate:
(a) the number of Shares, or his/her respective rights therein, to be sold ( Offered Shares );
(b) the price and payment terms; and
(c) the purchasing third partys irrevocable and irreversible commitment to, at the request of any of the Shareholders, be fully bound by the rules and conditions set forth in this Agreement kept on file at the Companys principal place of business, irrespective of the number and type of Shares subject to the offer.
2.3. Any transfer of Shares owned by the Shareholders to third parties in a private transaction (i.e. out of a stock exchange environment) shall at all times be made in conjunction with the assignment of the same percentage of their credit rights and any other rights and/or obligations to the Company, and no Shares are allowed to be sold without the corresponding transfer of said rights and/or obligations, and vice versa. Therefore, any purchase and/or sale of Shares, as referred to in this Section, shall also cover the purchase and/or sale of the relevant credit rights and any other rights and/or obligations, but the Selling Shareholder will remain jointly liable with the purchasing third party for the obligations incurred and still pending before the Company and/or the other Shareholders.
2.4. The other Shareholders having received the Sale Proposal shall have a period of up to ten (10) days of their receipt of such Sale Proposal to reply, on an irrevocable and irreversible basis, by written notice sent to the Selling Shareholder ( Notice of Reply ), that they will either:
(a) exercise their right of first refusal and purchase all of the Offered Shares for the price and on the terms set forth in the Sale Proposal; or
(b) waive their right of first refusal to purchase the Offered Shares and tacitly agree that the Selling Shareholder may sell the Offered Shares to the interested third party, it being understood that the failure to send the Notice of Reply with the aforementioned period of up to ten (10) days will be deemed a tacit, irrevocable and irreversible waiver by the relevant Shareholder of his right of first refusal.
2.5. Upon exercise of the right of first refusal set forth in item (a) of Section 2.4 above:
(a) the sale of the Offered Shares shall be made in favor of the Shareholder(s) having signified his/their willingness to purchase them within ten (10) days of the Selling Shareholders receipt of the Notice(s) of Reply or within such shorter period as may be set forth in the proposal submitted by the interested third party, upon payment by the purchasing Shareholder(s) of the price stipulated in the Sale Proposal; or
(b) the transfer of the relevant subscription and payment rights in favor of the Shareholder(s) having signified willingness shall be made within the relevant period set forth in the Bylaws or by the Companys shareholders meeting, as the case may be, and notified in writing to the Company through the person of the Chairman of the Executive Board.
2.6. If the right of first refusal set forth in Section 2.4 above is waived or not exercised within the periods set forth in Section II, then, subject to the provisions of the Shareholders Agreement, the Selling Shareholder shall be released to proceed with the private sale:
(a) of the Offered Shares to the willing third party, on the exact terms and conditions of the Sale Proposal, within the thirty (30) days next following: (i) the receipt of the Notice of Reply; or (ii) the expiration of the relevant timetable for sending the Notice of Reply;
(b) the relevant subscription or payment rights, on the exact terms and conditions of the Sale Proposal, within the relevant period set forth in the Bylaws or by the Companys shareholders meeting, as the case may be, and notified in writing to the Company through the person of the Chairman of the Executive Board.
2.7. The provisions of Sections 2.1 through 2.6 above shall not apply to the shareholders Daniel and Dennis. For the sake of clarification, Daniel and Dennis shall not have a right of first refusal to purchase Shares subject to any private transfers by the other Shareholders, nor shall the other Shareholders have a right of first refusal to purchase Shares subject to any private transfers by Daniel and/or Dennis.
2.8. The Shareholders hereby agree that no private assignment or transfer of Shares may be made if any of the terms and conditions of Sections 2.1 through 2.7 above are not met.
(B) Encumbrance of Shares
2.14. Any Shares owned by the Shareholders may be freely encumbered, requiring no previous, express consent from the other Shareholders, provided that all (and no less than all) of the following requirements are met:
(a) As a condition on the placing of any such Encumbrance, any Shareholder willing to encumber his/her Shares shall notify the other Shareholders of his/her intent at least two (2) days prior to the closing date of the transaction, which notice shall contain: (i) a reasonable description of the relevant transaction; and (ii) the name(s) and address(es) of the willing third party(ies) involved in the transaction.
(b) Irrespective of any Encumbrance, on the date of any of the Companys shareholders meetings, the Shareholders shall directly hold one hundred percent (100%) of the political rights corresponding to the Shares in their entirety, and shall exercise said political right by casting their free votes, in strict compliance with the provisions of Section III below.
(c) For the duration of this Agreement, no Shareholder shall have Encumbrances on more than 50% of his/her Relating Capital Stock, under penalty of nullity before the Company, the Shareholders and any third parties.
SECTION III
EXERCISE OF VOTING RIGHTS AT COMPANY SHAREHOLDERS MEETINGS
3.1. The Shareholders shall exercise their voting right at the Companys shareholders meetings (proportionally to their interests in the Companys voting capital) and cause their representatives on the board of directors or any other governing body of the Company to exercise the voting rights exclusively in the Companys best interests, subject to the provisions of this Agreement and the Controlling Block
Shareholders Agreement.
3.2. The Shareholders shall resolve, at prior meetings among themselves, on the matters to be on the agenda for any shareholders meeting or otherwise any meeting of any of the Companys governing bodies. Such prior meetings shall be held at least thirty (30) minutes before they state their will at the relevant shareholders meeting or meeting of any of the Companys governing bodies. The decisions of a majority of the Shareholders at the prior meetings shall be binding upon all Shareholders, who shall exercise their respective voting rights at the Companys shareholders meetings according to the decision of such majority of the Shareholders at the relevant prior meetings.
3.3. For all purposes of the Shareholders Agreements, the Shareholders shall, in any event, state their will in unison and through no more than two representatives, namely, Nércio and Alberto ( Representatives ). Accordingly, all decisions made by the Shareholders under this Agreement shall be stated by the Representatives to any third parties and shareholders and the Company.
SECTION IV
ADMISSION OF SPOUSES AND/OR HEIRS-DESCENDANTS
4.1. It is hereby agreed that in the event of death, disability or legal incapacity of any individual Shareholder, his/her spouse, as well as his/her respective heirs-descendants, successors and trustees ( Successors ) shall fully submit to the terms and conditions of this Agreement concerning the exercise of any rights attaching to the Shares, as well as all other Shareholders Agreements if, on a cumulative basis, (a) a majority of the remaining Shareholders state their willingness to agree to the adherence of Successors to this Agreement and (b) each Successor wishes to have his/her Shares bound by this Agreement.
4.1.1. If a majority of the remaining Shareholders should not agree to the admission of Successors and/or any such Successors should not accept to have their Shares bound hereby, then such Shares will not be bound by this Agreement.
SECTION V
DISCHARGE OF SHARES
5.1. Each Shareholder may freely dispose of his/her Shares on a stock exchange without observing the procedures set forth in Section II of this Agreement, in which case the Shares to be disposed of shall be discharged from this Agreement, subject, in every event, to the applicable laws and regulations.
5.2. Any Shareholder willing to sell Shares on a stock exchange shall send written notice of his/her intent to the other Shareholders at least twenty-four (24) hours prior to the time of opening for trading of the São Paulo Securities, Commodities and Futures Exchange ( Bolsa de Valores, Mercadorias e Futuros de São Paulo , or BM&FBovespa S.A.).
5.2.1. The Shareholders hereby agree to use their best efforts to have the notice set forth in Section 5.2 above delivered as soon as possible to the other Shareholders, subject, in any event, to the aforementioned minimum notice period.
5.2.2. Should the foregoing notice period not be observed, then the Shareholder willing to sell Shares on the stock exchange will be forbidden to sell such Shares on the scheduled date, unless previous consent thereto is given by all other Shareholders, under penalty of nullity before the Company, the Shareholders and any third parties.
5.3. Any Shares transferred to third parties by transactions on a stock exchange will not be bound by this Agreement upon such transfer.
SECTION VI
ENTRIES IN THE SHARE REGISTER
6.1 One counterpart of this Agreement shall be filed with the Companys records, as set forth in Article 118, paragraph one, of the Corporation Law, so that it may become legally binding, and particularly in Article 118, paragraph three, of the Corporation Law, as well as articles 632 et seq. of the Code of Civil Procedure.
6.2. The owners of Shares in the Company, all of which are registered, will be the individuals named in the records of the bookrunner for the Shares responsible for the relevant annotations.
SECTION VII
EFFECTIVENESS OF THE AGREEMENT
7.1. This Agreement comes into effect on the date hereof and shall remain effective hereafter.
7.2. The Shareholders hereby agree that if any of the Shareholders should in any way assign or transfer his/her interest in the Companys capital, then the Shares that used to be held thereby shall cease to be bound by this Agreement.
SECTION VIII
GENERAL PROVISIONS
8.1. This Agreement may only be amended by decision of Shareholders holding at least seventy-five percent (75%) of the Relating Capital Stock and by the execution of a specific instrument.
8.1.1. Any Shareholder who disagrees with the decision to amend this Agreement made by Shareholders holding at least seventy-five percent (75%) of the Relating Capital Stock may have his/her Shares discharged from this Agreement by sending written notice to this effect to the other Shareholders, provided that such Shareholder (a) shall have his/her rights set forth in Section II of this Agreement removed or unfavorably modified or (b), in view of the proposed change, shall be affected by any other material, unfavorable change in his/her contractual rights hereunder or set forth in the applicable laws.
8.2. Starting on the date hereof, no Shareholder may execute any other shareholders agreement or similar instrument concerning the Company or the Shares without the previous written consent of those holding at least seventy-five percent (75%) of the Relating Capital Stock. Each of the Shareholders hereby consents to the other Shareholders executing the Shareholders Agreement.
8.3. The Shareholders may grant powers of attorney to third parties for the same to represent them before the Company at shareholders meetings and any corporate actions, on condition that such third parties shall vote and/or proceed as set forth in this Agreement, which condition shall be set forth in any such powers of attorney.
8.4. Each Shareholder agrees to take any and all such steps as may be needed for a proper and full performance of the obligations assumed under this Agreement.
8.5. If any provisions contained in this Agreement is held null or ineffective, then such fact will not compromise the validity and effectiveness of any other provisions, which shall be fully observed, and the Shareholders agree to use their best efforts to agree on a valid alternative to achieve the same effects as intended by the provision having been held null or ineffective.
8.6. Subject to the provisions of this Agreement specifically in this respect, this Agreement is binding upon the Shareholders and their respective heirs, successors and assigns in any capacity. The Shareholders agree, on behalf of themselves and their successors, to abide by the rules set forth in this Agreement, as well as the rules set forth in the Companys other shareholders agreements.
8.7. All notices and/or communications under and/or related to this Agreement shall be in writing and delivered in person, by mail or by e-mail, with return notice (or proof of delivery, for e-mail) requested in any event, and shall be addressed to the Shareholders as shown below:
(a) If to Nércio:
Name : Nércio José Monteiro Fernandes
Address : Rua Cenno Sbrighi, nº 170, 9º andar, Bairro Água Branca,
CEP 05036-010, São Paulo/SP
Tel .: (+55 11) 2103-2425
e-mail : nercio@linx.com.br
(b) If to Alberto:
Name : Alberto Menache
Address : Rua Cenno Sbrighi, nº 170, 9º andar, Bairro Água Branca,
CEP 05036-010, São Paulo/SP
Tel .: (+55 11) 2103-2421
e-mail : menache@linx.com.br
(c) If to Alon:
Name: Alon Dayan
Address : Rua Cenno Sbrighi, nº 170, 9º andar, Bairro Água Branca,
CEP 05036-010, São Paulo/SP
Tel .: (+55 11) 2103-2493
e-mail : alon.dayan@linx.com.br
(d) If to Daniel:
Name : Daniel Mayo
Address : Rua Cenno Sbrighi, nº 170, 9º andar, Bairro Água Branca,
CEP 05036-010, São Paulo/SP
Tel .: (+55 11) 2103-2456
e-mail : daniel@linx.com.br
(e) If to Dennis:
Name : Dennis Herszkowicz
Address : Rua Cenno Sbrighi, nº 170, 9º andar, Bairro Água Branca,
CEP 05036-010, São Paulo/SP
Tel .: (+55 11) 2103-1501
e-mail : dennis@linx.com.br
(f) If to the Company:
Name : Linx S.A., care of Chief Executive Officer Alberto Menache
Address : Rua Cenno Sbrighi, nº 170, 9º andar, Bairro Água Branca,
CEP 05036-010, São Paulo/SP
Tel .: (+55 11) 2103-2421
e-mail : menache@linx.com.br
8.7.1. Any notices given under this Section shall be deemed delivered: (a) at the time of delivery if delivered in person; (b) at the time of receipt if sent by mail or courier; (c) at the time when proof of delivery is received by the sender, if sent by e-mail.
8.7.2. Any of the parties to this Agreement may change the address to which notices are to be sent by giving written notice thereof to the other parties according to Section 8.7 above.
8.7.3. For the purposes of article 118, § 10, of the Corporation Law, each Shareholder appoints the individuals named in Section 8.7 above as their respective representatives for the purposes of any communications with the Company in terms of providing or receiving information whenever necessary, in accordance with the provisions of this Agreement.
8.8. The Shareholders acknowledge that a mere payment of damages would not be an appropriate compensation for any default of obligations undertaken under this Agreement, which permits specific performance in accordance with the law.
8.9. This Agreement, as signed and initialed on the date hereof, together with the exhibit hereto, is the entire understanding among the Shareholders, by said date, on the transaction carried out hereunder. The Shareholders agree that this Agreement accurately reflects the negotiations previously held and their respective intents and fully supersedes any other documents or memoranda of any nature whatsoever previously exchanged among or signed by the parties, including the 2012 Shareholders Agreement, which is hereby terminated with no further formalities by the Shareholders for all legal purposes. It is hereby
agreed that, for all intents and purposes, only this Agreement shall govern the relationships among Shareholders concerning the provisions hereof.
8.10. The Shareholders shall use their best efforts to try and amicably resolve all disputes arising out of this Agreement. If there should be any dispute, the Shareholder interested in resolving it shall send written notice to the other party with a view to holding amicable, good-faith negotiations in order to resolve the dispute within a period of thirty (30) days of the receipt of such notice.
8.11. Should the Shareholders fail to reach an amicable agreement on the dispute within the period set forth in Section 8.10 above, then the legal representative of one of the interested Shareholders shall give written notice to the legal representatives of the other interested Shareholder calling for them to jointly and amicably seek, within a period of thirty (30) days of such new notice, the best possible solution for the Shareholder involved.
8.12. If, upon expiration of the period set forth in Section 8.11 above, the legal representatives should fail to reach an amicable consensus on the dispute, then all matters, questions and disputes generally related to this Agreement, including, but not limited to, any question concerning its existence, effectiveness and termination, shall be referred to arbitration according to the following provisions:
(i) The arbitration shall be submitted to the Arbitration and Mediation Center of the Brazil-Canada Chamber of Commerce ( CCBC ), in accordance with the CCBCs Arbitration Rules (hereinafter referred to as the Rules ).
(ii) The dispute shall be resolved by an Arbitral Tribunal (the Arbitral Tribunal ) consisting of three (3) arbitrators. Each party shall designate one arbitrator, and the two (2) arbitrators so designated shall, by mutual agreement within a period of ten (10) days of the receipt of notice to be sent by the CCBC, appoint the third arbitrator, who shall act as president of the Arbitral Tribunal. Upon lapse of such period of ten (10) days, if the arbitrators appointed by the parties should fail to reach an agreement on the appointment of the third arbitrators, who shall serve as president, such third arbitrator shall be appointed by the President of the CCBC. Where there are multiple parties, whether as plaintiffs or respondents, such multiple plaintiffs or multiple respondents shall jointly designate one arbitrator.
(iii) The arbitration shall be held in the City of São Paulo, Brazil, where the arbitration award will be issued. The arbitration procedure shall be held in Portuguese and in accordance with Law No. 9.307/96.
(iv) Without prejudice to the effectiveness of this arbitration clause, the parties hereby elect, to the exclusion of any others, the courts in the Judicial District of São Paulo, State of São Paulo, if and when necessary, exclusively for the purposes of: (i) enforcing any obligations that are promptly capable of being enforced by court order; (ii) securing restraining orders or injunctive relief to assure the effectiveness of the arbitration procedure; and (iii) obtaining any specific performance order, it being understood that once such restraining order or specific performance order is obtained, then full and exclusive powers to resolve any and all such matters, whether procedural or on the merits, as may have given rise to the filing for relief or specific performance order shall be restored to the Arbitral Tribunal to be appointed or having already been appointed, and the
relevant legal proceedings shall be suspended until a partial or final decision in the matter is rendered by the Arbitral Tribunal. Any filings provided for in this section shall not operate as a waiver of this arbitration clause or the full jurisdiction of the Arbitral Tribunal.
(v) The Arbitral Tribunal shall render its award within a period of twelve (12) months as of the execution of the Arbitration Agreement. This period may be extended for up to six (6) months by the Arbitral Tribunal, to the extent justification is given.
(vi) The arbitration award shall fix the arbitration fees and decide which of the parties shall bear them in what proportions they shall be shared by the parties. In any event, each party shall pay its own attorneys fees.
(vii) The Shareholders and the arbitrators shall keep any and all information concerning the arbitration in secrecy.
(viii) The Shareholders and the Company agree that any order, decision or determination by the Arbitral Tribunal shall be final and binding upon the parties to the relevant dispute.
(ix) The Company represents that it is bound by this arbitration clause for all legal purposes.
(x) The arbitration shall be subject to the law, and the arbitrators shall compulsorily apply the provisions of this Agreement and the laws of the Federative Republic of Brazil.
8.13. This Agreement shall be governed by and interpreted in accordance with the laws of the Federative Republic of Brazil, which shall also be the governing law for any arbitration hereunder.
IN WITNESS WHEREOF , the parties hereto, together with the Company, have caused this Agreement to be executed in seven (7) counterparts, each to be deemed an original, but all together forming one and the same agreement binding upon the parties, the Company and their respective heirs and successors, as the case may be, in the presence of the two (2) witnesses named below.
São Paulo, July 30, 2014.
Signatures in the following pages
Execution Page 1/6 of the Shareholders Agreement dated July 30, 2014 by and among Nércio, Alberto, Alon, Daniel and Dennis
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/s/ Nércio José Monteiro Fernandes |
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NÉRCIO JOSÉ MONTEIRO FERNANDES |
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Execution Page 2/6 of the Shareholders Agreement dated July 30, 2014 by and among Nércio, Alberto, Alon, Daniel and Dennis
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/s/ Alberto Menache |
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ALBERTO MENACHE |
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Execution Page 3/6 of the Shareholders Agreement dated July 30, 2014 by and among Nércio, Alberto, Alon, Daniel and Dennis
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/s/ Alon Dayan |
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ALON DAYAN |
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Execution Page 4/6 of the Shareholders Agreement dated July 30, 2014 by and among Nércio, Alberto, Alon, Daniel and Dennis
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/s/ Daniel Mayo |
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DANIEL MAYO |
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Execution Page 5/6 of the Shareholders Agreement dated July 30, 2014 by and among Nércio, Alberto, Alon, Daniel and Dennis
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/s/ Dennis Herszkowicz |
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DENNIS HERSZKOWICZ |
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Execution Page 6/6 of the Shareholders Agreement dated July 30, 2014 by and among Nércio, Alberto, Alon, Daniel and Dennis
CONSENTING PARTY:
LINX S.A.
/s/ Alberto Menache |
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/s/ Alon Dayan |
Name Alberto Menache |
|
Name Alon Dayan |
Title |
|
Title |
Witnesses:
/s/ Rosana Coz Fidalg |
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/s/ Alexandre Kelemen |
Name: Rosana Coz Fidalg RG 30.746.503-2 |
|
Name: Alexandre Kelemen |
CPF No.: 312.743.988-19 |
|
CPF No.: 340.736.038-09 |
1 ST AMENDMENT TO THE SHAREHOLDERS AGREEMENT OF LINX S.A., EXECUTED ON
JULY 30, 2014
BETWEEN
NÉRCIO JOSÉ MONTEIRO FERNANDES,
ALBERTO MENACHE,
ALON DAYAN,
DANIEL MAYO,
AND
DENNIS HERSZKOWICZ,
AS PARTIES
AND
LINX S.A.
AS INTERVENING CONSENTING PARTY
SEPTEMBER 17, 2018
1 ST AMENDMENT TO THE SHAREHOLDERS AGREEMENT OF LINX S.A.
This 1 st Amendment to the Shareholders Agreement of Linx S.A. ( 1 st Amendment to the Shareholders Agreement ) is executed on September 17, 2018 among:
(g) NÉRCIO JOSÉ MONTEIRO FERNANDES , Brazilian citizen, married, holder of Identity Card (RG) No. 7.760.014 SSP/SP, enrolled with the Individual Taxpayers Register of the Ministry of Finance (CPF/MF) under No. 022.256.918-27, with business address in the City of São Paulo, State of São Paulo, Brazil, at Rua Cenno Sbrighi No. 170, 9 th floor, District of Água Branca, Postal Code (CEP) 05036-010 ( Nércio );
(h) ALBERTO MENACHE , Brazilian citizen, married, holder of RG No. 24.257.036-7 SSP/SP, enrolled with the CPF/MF under No. 172.636.238-89, with business address in the City of São Paulo, State of São Paulo, Brazil, at Rua Cenno Sbrighi, No. 170, 9 th floor, District of Água Branca, CEP 05036-010 ( Alberto );
(i) ALON DAYAN , Brazilian citizen, married, holder of RG No. 8.894.140-1 SSP/SP, enrolled with the CPF/MF under No. 014.642.468-90, with business address in the City of São Paulo, State of São Paulo, Brazil, at Rua Cenno Sbrighi No. 170, 9 th floor, District of Água Branca, CEP 05036-010 ( Alon ); and
(j) DANIEL MAYO , Brazilian citizen, married, holder of RG No. 19.201.330-0 SSP/SP, enrolled with the CPF/MF under No. 157.679.338-98, with business address in the City of São Paulo, State of São Paulo, Brazil, at Rua Cenno Sbrighi No. 170, 9 th floor, District of Água Branca, CEP 05036-010 ( Daniel );
(Nércio, Alberto, Alon and Daniel are hereinafter jointly referred to as Remaining Shareholders),
In the capacity as Dissenting Shareholder:
(k) DENNIS HERSZKOWICZ , Brazilian citizen, married, holder of RG No. 20.310.061, enrolled with the CPF/MF under No. 165.783.068-38, with business address in the City of São Paulo, State of São Paulo, Brazil, at Rua Cenno Sbrighi No. 170, 9 th floor, District of Água Branca, CEP 05036-010 ( Dennis or Dissenting Shareholder ); and
Furthermore, in the capacity as Intervening Consenting party:
(l) LINX S.A. , a corporation organized and existing under the laws of Brazil, having its principal place of business at Rua Cenno Sbrighi No. 170, 9 th floor, District of Água Branca, CEP 05036-010, in the City of São Paulo, State of São Paulo, Brazil, enrolled with the National Corporate Taxpayers
Register (CNPJ) under No. 06.948.969/0001-75, represented herein by its undersigned legal representatives ( Linx or the Company );
WHEREAS:
(1) on July 30, 2014, the Shareholders entered into a shareholders agreement of the Company to replace the shareholders agreement entered into among them on December 3, 2012, to govern aspects of their relationships as shareholders holding common shares issued by the Company (the 2014 Shareholders Agreement ), a copy of which is attached hereto as Exhibit I ; and
(2) in view of the exercise of the right of Shareholder Dennis Herszkowicz (Dissenting Shareholder) to withdraw from the 2014 Shareholders Agreement, in accordance with the Instrument of Withdrawal from the 2014 Shareholders Agreement of Linx S.A., presented on the date hereof, a copy of which is attached hereto as ( Exhibit II ), and of the current corporate structure of the Company, the Shareholders, upon execution hereof, expressly wish to execute the 1 st Amendment to the Shareholders Agreement of the Company, executed on July 30, 2013, to ratify the exercise of the right to withdrawal presented by Mr. Denis and to amend Section 1 of the 2014 Shareholders Agreement.
NOW, THEREFORE, THE PARTIES RESOLVE to enter into this 1 st Amendment to the Shareholders Agreement, which shall be governed by the following provisions:
SECTION I
EXERCISE OF THE RIGHT TO WITHDRAWAL OF SHAREHOLDER
1.1. The Remaining Shareholders irrevocably and irreversibly agree and ratify, for all legal purposes and effects, the withdrawal of Mr. Dennis from the 2014 Shareholders Agreement, according to the document Instrument of Withdrawal from the 2014 Shareholders Agreement of Linx S.A., signed by the Dissenting Shareholder on the date hereof, by means of which Mr. Dennis granted the Company, its controlled companies and/or subsidiaries, as well as the Shareholders, the broadest, fullest, most complete, general, irrevocable and irreversible release in relation to this Agreement, representing to have nothing else to claim and/or to seek, in or out of court, at any time and on any account or pretext, with respect to any and all rights and obligations under said Agreement, especially, but not limited to, to the exercise of the voting right, approval of the management accounts, financial statements and balance sheets of the Company, ratifying all other resolutions passed by the Company, especially the resolutions of the Board of Directors, for the time during which he remained a party to this agreement and, furthermore, with respect to compliance with his respective obligations set forth by law, in the Companys By-Laws or in any shareholders agreements.
1.2. The Remaining Shareholders grant the Dissenting Shareholder the broadest, fullest, most complete, general, irrevocable and irreversible release with respect to this Agreement, representing to have nothing else to claim and/or to seek, in or out of court, at any time and on any account or pretext, with respect to any and all rights and obligations under said Agreement.
SECTION II
AMENDMENT TO ITEM 1.2 OF SECTION I OF THE 2014 SHAREHOLDERS AGREEMENT
2.1. In view of the exercise of Mr. Dennis to withdraw from the 2014 Shareholders Agreement, item 1.2 of said Agreement is amended and shall now read with the following new wording:
The Companys capital stock, as subscribed for and paid in, amounts to four hundred and eighty-eight million four hundred and sixty-six thousand nine hundred and seventy-nine Reais and sixty-four cents (R$488,466,979.64), fully subscribed for and paid in, divided into one hundred and sixty-six million two hundred and eighty-three thousand three hundred and eighty-two (166,283,382) registered book-entry common shares, with no par value. The Shareholders collectively hold twenty-eight million three hundred and thirty-six thousand seven hundred and ninety-nine (28,336,799) common shares issued by the Company, and the number of shares in the Company held by each of the Shareholders is as follows:
Shareholder |
|
No. of Common
|
|
% of the Companys
|
|
% of the Relating
|
|
Nércio |
|
11,903,430 |
|
7.16 |
% |
42.01 |
% |
Alberto |
|
8,566,413 |
|
5.15 |
% |
30.23 |
% |
Alon |
|
6,933,988 |
|
4.17 |
% |
24.47 |
% |
Daniel |
|
932,968 |
|
0.56 |
% |
3.29 |
% |
TOTAL |
|
28,336,799 |
|
17.04 |
% |
100 |
% |
SECTION III
RATIFICATIONS AND ENTRIES IN THE SHARE REGISTER
3.1. All other clauses and conditions of the 2014 Shareholders Agreement that do not conflict with this amendment, especially, but not limited to, sections 8.11 and 8.12 of said Agreement are ratified.
3.2. One counterpart of this 1 st Amendment to the Shareholders Agreement shall be filed in the Companys records, pursuant to the provisions of paragraph one of Article 118 of the Corporation Law, for it to produce its legal effects and, especially, the effect set forth in paragraph three of Article 118 of the Corporation Law.
3.2.(sic) The owners of the Companys Shares, all of which are registered shares, shall be the individuals mentioned in the records of the bookkeeping agent of the Shares, responsible for the relevant annotations.
IN WITNESS WHEREOF, the parties hereto, together with the Company, have caused this 1 st Amendment to the Shareholders Agreement to be executed in seven (7) counterparts, each to be deemed an original, but all together forming one and the same agreement binding upon the parties, the Company and their respective heirs and successors, as the case may be, in the presence of the two (2) witnesses below.
São Paulo, July 30, 2014.
(Signature page of the 1 st Amendment to the Shareholders Agreement of Linx S.A., executed by and among Nércio, Alberto, Alon, Daniel, Dennis and Linx S.A. on September 17, 2018)
REMAINING SHAREHOLDERS:
/s/ NÉRCIO JOSÉ MONTEIRO FERNANDES |
|
/s/ ALBERTO MENACHE |
|
|
|
/s/ ALON DAYAN |
|
/s/ DANIEL MAYO |
DISSENTING SHAREHOLDER: |
|
|
|
/s/ DENNIS HERSZKOWICZ |
|
|
|
CONSENTING PARTY: |
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LINX S.A.
/s/ Alberto Menache |
|
/s/ Fl ávio Mambreu Menezes |
Name: |
|
Name: |
Title: |
|
Title: |
|
|
|
Witnesses: |
|
|
|
|
|
/s/ Ana Paula Frigo |
|
/s/ Caroline Souza Santos |
Name: Ana Paula Frigo |
|
Name: Caroline Souza Santos |
Identity Card (RG): 28.733.692-X
|
|
Taxpayer Card (CPF): 432.112.208-28 39.575.753-8 |
EXHIBIT I TO THE 1 ST AMENDMENT TO THE SHAREHOLDERS AGREEMENT OF LINX S.A., ENTERED INTO ON JULY 30, 2014
SHAREHOLDERS AGREEMENT OF LINX S.A., ENTERED INTO ON JULY 30, 2014
SHAREHOLDERS AGREEMENT OF LINX S.A.
BETWEEN
NÉRCIO JOSÉ MONTEIRO FERNANDES,
ALBERTO MENACHE,
ALON DAYAN,
DANIEL MAYO,
AND
DENNIS HERSZKOWICZ,
AS PARTIES
LINX S.A.
AS INTERVENING CONSENTING PARTY
JULY 30, 2014
SHAREHOLDERS AGREEMENT OF LINX S.A.
This Shareholders Agreement (the Agreement ) is entered into on July 30, 2014 by and among:
(a) NÉRCIO JOSÉ MONTEIRO FERNANDES , Brazilian citizen, married, holder of [identity card] RG No. 7.760.014 SSP/SP, enrolled with the Individual Taxpayers Register of the Ministry of Finance (CPF/MF) under No. 022.256.918-27, with business address in the City of São Paulo, State of São Paulo, Brazil, at Rua Cenno Sbrighi No. 170, 9 th floor, District of Água Branca, postal code (CEP) 05036-010 ( Nércio );
(b) ALBERTO MENACHE , Brazilian citizen, married, holder of RG No. 24.257.036-7 SSP/SP, enrolled with the CPF/MF under No. 172.636.238-89, with business address in the City of São Paulo, State of São Paulo, Brazil, at Rua Cenno Sbrighi, No. 170, 9 th floor, District of Água Branca, CEP 05036-010 ( Alberto );
(c) ALON DAYAN , Brazilian citizen, married, holder of RG No. 8.894.140-1 SSP/SP, enrolled with the CPF/MF under No. 014.642.468-90, with business address in the City of São Paulo, State of São Paulo, Brazil, at Rua Cenno Sbrighi No. 170, 9 th floor, District of Água Branca, CEP 05036-010 ( Alon );
(d) DANIEL MAYO , Brazilian citizen, married, holder of RG No. 19.201.330-0 SSP/SP, enrolled with the CPF/MF under No. 157.679.338-98, with business address in the City of São Paulo, State of São Paulo, Brazil, at Rua Cenno Sbrighi No. 170, 9 th floor, District of Água Branca, CEP 05036-010 ( Daniel ); e
(e) DENNIS HERSZKOWICZ , Brazilian citizen, married, holder of RG No. 20.310.061, enrolled with the CPF/MF under No. 165.783.068-38, with business address in the City of São Paulo, State of São Paulo, Brazil, at Rua Cenno Sbrighi No. 170, 9 th floor, District of Água Branca, CEP 05036-010 ( Dennis );
(Nércio, Alberto, Alon, Daniel and Dennis are hereinafter collectively referred to as the Shareholders , and each, individually, as a Shareholder ),
And, further, as Intervening Consenting Party:
(f) LINX S.A. , a corporation organized and existing under the laws of Brazil, having its principal place of business at Rua Cenno Sbrighi No. 170, 9 th floor, District of Água Branca, CEP 05036-010, in the City of São Paulo, State of São Paulo, Brazil, enrolled with the National Corporate Taxpayers
Register (CNPJ) under No. 06.948.969/0001-75, represented herein by its undersigned legal representatives ( Linx or the Company );
WHEREAS:
(1) on December 3, 2012, the Shareholders, among other agreements signed with third parties, entered into a Company shareholders agreement to govern their relationships as shareholders holding common shares issued by the Company following the consummation of the Companys process of going public (the 2012 Shareholders Agreement , a copy of which is attached hereto as Exhibit I );
(2) in view of the Companys current corporate structure, the Shareholders wish to have this Agreement govern certain aspects of their relationships as shareholders holding common shares issued by the Company, setting forth mutual rights and obligations with respect to certain matters, as provided for in article 118 of Law No. 6.404, of December 15, 1976 (the Corporation Law , as amended); and
(3) by signing this instrument, the Shareholders expressly wish to terminate, without any formalities, the 2012 Shareholders Agreement and replace it with this Agreement for all legal purposes;
NOW, THEREFORE, they resolved to enter into this Agreement, which shall be governed by the following provisions:
SECTION I
PURPOSE, EQUITY INTEREST, AND BOUND SHARES
1.1. The purpose of this Agreement is to govern certain aspects of the Shareholders relationships in their capacity as holders of common shares issued by the Company, setting forth mutual rights and obligations with respect to certain matters, as provided for in article 118 of the Corporation Law.
1.2. The Companys capital stock, as subscribed for and paid in, amounts to three hundred and forty-six million eight hundred and sixty-three thousand six hundred and eighty-eight Reais and thirty-three cents (R$346,863,688.33), fully subscribed for and paid in, divided into forty-six million five hundred and seventy-six thousand four hundred and ninety-four (46,576,494) registered book-entry common shares, with no par value. The Shareholders collectively hold fourteen million seven hundred and twenty-seven thousand five hundred (14,727,500) common shares issued by the Company, and the number of shares in the Company held by each of the Shareholders is as follows:
Shareholder |
|
No. of Common
|
|
% of the Companys
|
|
% of the Relating
|
|
Nércio |
|
5,504,048 |
|
11.82 |
% |
37.37 |
% |
Alberto |
|
4,558,208 |
|
9.80 |
% |
30.95 |
% |
Alon |
|
4,004,976 |
|
8.60 |
% |
27.19 |
% |
Daniel |
|
388,156 |
|
0.83 |
|
2.64 |
% |
Dennis |
|
272,112 |
|
0.58 |
|
1.85 |
% |
TOTAL |
|
14,727,500 |
|
31.63 |
% |
100 |
% |
1.2.1. For the purposes of this Agreement, Relating Capital Stock means the total shares held by each Shareholder relating to the total shares only collectively held by the Shareholders, taken as a whole (excluding all other shareholders in the Company).
1.3. All shares issued by the Company and owned by the Shareholders are bound by this Agreement, as will any such shares as may be added thereto in the future for any reasons ( Shares ), such as purchase, subscription, conversion of debentures, split or bonus distributions, donation, inheritance, loan, beneficial ownership or right to subscribe for said Shares, and any securities ensuring such right or convertible into Shares, which are deemed to rank pari passu with the Shares for the purposes of this Agreement, shall compulsorily form an integral part of, and shall automatically and unrestrainedly be covered by and subject to the terms and conditions of this Agreement.
1.3.1. Any other shares issued by the Company as are not owned by the Shareholders are not bound by
this Agreement, which shares, however, together with the Shares, are the subject of the Companys shareholders agreement entered into by the Shareholders with Messrs. Aparecido Elias Raposo, Marcos Akira Takata, Flávio Mambreu Menezes, Dario de Sena Gouvêa and Jean Carlo Klaumann on December 3, 2012 with a view to governing their relationship as the Companys controlling block of shareholders (the Controlling Block Shareholders Agreement ).
1.4. Subject to the provisions of this Agreement, none of the Shareholders may, directly or indirectly, through an intermediary or otherwise, hold any Shares as owned thereby, including through any legal entities controlling them or controlled thereby, without the other Shareholders being previously notified in writing and without such persons compulsorily becoming parties to this Agreement.
1.5. Each Shareholder hereby expressly represents that: (i) he is the current lawful holder of his/her respective Shares, in the proportion set out in Section 1.2 above; (ii) the Shares held thereby have been fully subscribed for and paid in; (iii) he has powers to enter into and comply with the provisions of this Agreement; (iv) the conclusion of this Agreement does not breach any commitments, agreements or obligations to which he is a party; and (v) all of his/her respective Shares are fully free and clear of any charges, debts, encumbrances, liens, pledges, collaterals, fiduciary assignment, guarantees, limitations on full and free use, enjoyment or fruition of any right (or any attributes inherent in or related to any right), as a result of any law, contract or claims of any nature, including by any grant of beneficial ownership, options, rents or rights of first refusal ( Encumbrances , including any variations of the term), except as provided in the Controlling Block Shareholders Agreement.
SECTION II
PRIVATE SALE OF COMPANY SHARES
(A) Private Transfer of Shares
2.1. Subject to the provisions of Sections 2.2 through 2.13 below, any private transfer of Shares owned by any of the Shareholders shall require previous notice to be sent to the other Shareholders, who shall have a right of first refusal, in equal conditions to those offered by any third parties, to purchase such Shares.
2.1.1. For the sake of clarification, any transfers made in a stock exchange environment are free, subject to the terms of Section V of this Agreement.
2.2. Any Shareholder willing to assign, transfer, allocate to the capital of another company or promise to sell any or all of his/her Shares privately (i.e., outside a stock exchange), or any of the rights therein (a Selling Shareholder ), to third parties shall give written notice of his/her intent to the other Shareholders ( Sale Proposal ), together with a copy of the proposal offered by the interested third party, which shall be irrevocable and irreversible and shall compulsorily stipulate:
(d) the number of Shares, or his/her respective rights therein, to be sold ( Offered Shares );
(e) the price and payment terms; and
(f) the purchasing third partys irrevocable and irreversible commitment to, at the request of any of the Shareholders, be fully bound by the rules and conditions set forth in this Agreement kept on file at the Companys principal place of business, irrespective of the number and type of Shares subject to the offer.
2.3. Any transfer of Shares owned by the Shareholders to third parties in a private transaction (i.e. out of a stock exchange environment) shall at all times be made in conjunction with the assignment of the same percentage of their credit rights and any other rights and/or obligations to the Company, and no Shares are allowed to be sold without the corresponding transfer of said rights and/or obligations, and vice versa. Therefore, any purchase and/or sale of Shares, as referred to in this Section, shall also cover the purchase and/or sale of the relevant credit rights and any other rights and/or obligations, but the Selling Shareholder will remain jointly liable with the purchasing third party for the obligations incurred and still pending before the Company and/or the other Shareholders.
2.4. The other Shareholders having received the Sale Proposal shall have a period of up to ten (10) days of their receipt of such Sale Proposal to reply, on an irrevocable and irreversible basis, by written
notice sent to the Selling Shareholder ( Notice of Reply ), that they will either:
(c) exercise their right of first refusal and purchase all of the Offered Shares for the price and on the terms set forth in the Sale Proposal; or
(d) waive their right of first refusal to purchase the Offered Shares and tacitly agree that the Selling Shareholder may sell the Offered Shares to the interested third party, it being understood that the failure to send the Notice of Reply with the aforementioned period of up to ten (10) days will be deemed a tacit, irrevocable and irreversible waiver by the relevant Shareholder of his right of first refusal.
2.5. Upon exercise of the right of first refusal set forth in item (a) of Section 2.4 above:
(c) the sale of the Offered Shares shall be made in favor of the Shareholder(s) having signified his/their willingness to purchase them within ten (10) days of the Selling Shareholders receipt of the Notice(s) of Reply or within such shorter period as may be set forth in the proposal submitted by the interested third party, upon payment by the purchasing Shareholder(s) of the price stipulated in the Sale Proposal; or
(d) the transfer of the relevant subscription and payment rights in favor of the Shareholder(s) having signified willingness shall be made within the relevant period set forth in the Bylaws or by the Companys shareholders meeting, as the case may be, and notified in writing to the Company through the person of the Chairman of the Executive Board.
2.6. If the right of first refusal set forth in Section 2.4 above is waived or not exercised within the periods set forth in Section II, then, subject to the provisions of the Shareholders Agreement, the Selling Shareholder shall be released to proceed with the private sale:
(c) of the Offered Shares to the willing third party, on the exact terms and conditions of the Sale Proposal, within the thirty (30) days next following: (i) the receipt of the Notice of Reply; or (ii) the expiration of the relevant timetable for sending the Notice of Reply;
(d) the relevant subscription or payment rights, on the exact terms and conditions of the Sale Proposal, within the relevant period set forth in the Bylaws or by the Companys shareholders meeting, as the case may be, and notified in writing to the Company through the person of the Chairman of the Executive Board.
2.7. The provisions of Sections 2.1 through 2.6 above shall not apply to the shareholders Daniel and Dennis. For the sake of clarification, Daniel and Dennis shall not have a right of first refusal to purchase Shares subject to any private transfers by the other Shareholders, nor shall the other Shareholders have a right of first refusal to purchase Shares subject to any private transfers by Daniel and/or Dennis.
2.8. The Shareholders hereby agree that no private assignment or transfer of Shares may be made if any of the terms and conditions of Sections 2.1 through 2.7 above are not met.
(B) Encumbrance of Shares
2.14. Any Shares owned by the Shareholders may be freely encumbered, requiring no previous, express consent from the other Shareholders, provided that all (and no less than all) of the following requirements are met:
(d) As a condition on the placing of any such Encumbrance, any Shareholder willing to encumber his/her Shares shall notify the other Shareholders of his/her intent at least two (2) days prior to the closing date of the transaction, which notice shall contain: (i) a reasonable description of the relevant transaction; and (ii) the name(s) and address(es) of the willing third party(ies) involved in the transaction.
(e) Irrespective of any Encumbrance, on the date of any of the Companys shareholders meetings, the Shareholders shall directly hold one hundred percent (100%) of the political rights corresponding to the Shares in their entirety, and shall exercise said political right by casting their free votes, in strict compliance with the provisions of Section III below.
(f) For the duration of this Agreement, no Shareholder shall have Encumbrances on more than 50% of his/her Relating Capital Stock, under penalty of nullity before the Company, the Shareholders and any third parties.
SECTION III
EXERCISE OF VOTING RIGHTS AT COMPANY SHAREHOLDERS MEETINGS
3.1. The Shareholders shall exercise their voting right at the Companys shareholders meetings (proportionally to their interests in the Companys voting capital) and cause their representatives on the board of directors or any other governing body of the Company to exercise the voting rights exclusively in the Companys best interests, subject to the provisions of this Agreement and the Controlling Block Shareholders Agreement.
3.2. The Shareholders shall resolve, at prior meetings among themselves, on the matters to be on the agenda for any shareholders meeting or otherwise any meeting of any of the Companys governing bodies. Such prior meetings shall be held at least thirty (30) minutes before they state their will at the relevant shareholders meeting or meeting of any of the Companys governing bodies. The decisions of a majority of the Shareholders at the prior meetings shall be binding upon all Shareholders, who shall exercise their respective voting rights at the Companys shareholders meetings according to the decision of such majority of the Shareholders at the relevant prior meetings.
3.3. For all purposes of the Shareholders Agreements, the Shareholders shall, in any event, state their will in unison and through no more than two representatives, namely, Nércio and Alberto ( Representatives ). Accordingly, all decisions made by the Shareholders under this Agreement shall be stated by the Representatives to any third parties and shareholders and the Company.
SECTION IV
ADMISSION OF SPOUSES AND/OR HEIRS-DESCENDANTS
4.1. It is hereby agreed that in the event of death, disability or legal incapacity of any individual Shareholder, his/her spouse, as well as his/her respective heirs-descendants, successors and trustees ( Successors ) shall fully submit to the terms and conditions of this Agreement concerning the exercise of any rights attaching to the Shares, as well as all other Shareholders Agreements if, on a cumulative basis, (a) a majority of the remaining Shareholders state their willingness to agree to the adherence of Successors to this Agreement and (b) each Successor wishes to have his/her Shares bound by this Agreement.
4.1.1. If a majority of the remaining Shareholders should not agree to the admission of Successors and/or any such Successors should not accept to have their Shares bound hereby, then such Shares will not be bound by this Agreement.
SECTION V
DISCHARGE OF SHARES
5.1. Each Shareholder may freely dispose of his/her Shares on a stock exchange without observing the procedures set forth in Section II of this Agreement, in which case the Shares to be disposed of shall be discharged from this Agreement, subject, in every event, to the applicable laws and regulations.
5.2. Any Shareholder willing to sell Shares on a stock exchange shall send written notice of his/her intent to the other Shareholders at least twenty-four (24) hours prior to the time of opening for trading of the São Paulo Securities, Commodities and Futures Exchange ( Bolsa de Valores, Mercadorias e Futuros de São Paulo , or BM&FBovespa S.A.).
5.2.1. The Shareholders hereby agree to use their best efforts to have the notice set forth in Section 5.2 above delivered as soon as possible to the other Shareholders, subject, in any event, to the aforementioned minimum notice period.
5.2.2. Should the foregoing notice period not be observed, then the Shareholder willing to sell Shares on the stock exchange will be forbidden to sell such Shares on the scheduled date, unless previous consent thereto is given by all other Shareholders, under penalty of nullity before the Company, the Shareholders and any third parties.
5.3. Any Shares transferred to third parties by transactions on a stock exchange will not be bound by this Agreement upon such transfer.
SECTION VI
ENTRIES IN THE SHARE REGISTER
6.1 One counterpart of this Agreement shall be filed with the Companys records, as set forth in Article 118, paragraph one, of the Corporation Law, so that it may become legally binding, and particularly in Article 118, paragraph three, of the Corporation Law, as well as articles 632 et seq. of the Code of Civil Procedure.
6.2. The owners of Shares in the Company, all of which are registered, will be the individuals named in the records of the bookrunner for the Shares responsible for the relevant annotations.
SECTION VII
EFFECTIVENESS OF THE AGREEMENT
7.1. This Agreement comes into effect on the date hereof and shall remain effective hereafter.
7.2. The Shareholders hereby agree that if any of the Shareholders should in any way assign or transfer his/her interest in the Companys capital, then the Shares that used to be held thereby shall cease to be bound by this Agreement.
SECTION VIII
GENERAL PROVISIONS
8.1. This Agreement may only be amended by decision of Shareholders holding at least seventy-five percent (75%) of the Relating Capital Stock and by the execution of a specific instrument.
8.1.1. Any Shareholder who disagrees with the decision to amend this Agreement made by Shareholders holding at least seventy-five percent (75%) of the Relating Capital Stock may have his/her Shares discharged from this Agreement by sending written notice to this effect to the other Shareholders, provided that such Shareholder (a) shall have his/her rights set forth in Section II of this Agreement removed or unfavorably modified or (b), in view of the proposed change, shall be affected by any other material, unfavorable change in his/her contractual rights hereunder or set forth in the applicable laws.
8.2. Starting on the date hereof, no Shareholder may execute any other shareholders agreement or similar instrument concerning the Company or the Shares without the previous written consent of those holding at least seventy-five percent (75%) of the Relating Capital Stock. Each of the Shareholders hereby consents to the other Shareholders executing the Shareholders Agreement.
8.3. The Shareholders may grant powers of attorney to third parties for the same to represent them before the Company at shareholders meetings and any corporate actions, on condition that such third parties shall vote and/or proceed as set forth in this Agreement, which condition shall be set forth in any such powers of attorney.
8.4. Each Shareholder agrees to take any and all such steps as may be needed for a proper and full performance of the obligations assumed under this Agreement.
8.5. If any provisions contained in this Agreement is held null or ineffective, then such fact will not compromise the validity and effectiveness of any other provisions, which shall be fully observed, and the Shareholders agree to use their best efforts to agree on a valid alternative to achieve the same effects as intended by the provision having been held null or ineffective.
8.6. Subject to the provisions of this Agreement specifically in this respect, this Agreement is binding upon the Shareholders and their respective heirs, successors and assigns in any capacity. The Shareholders agree, on behalf of themselves and their successors, to abide by the rules set forth in this Agreement, as well as the rules set forth in the Companys other shareholders agreements.
8.7. All notices and/or communications under and/or related to this Agreement shall be in writing and delivered in person, by mail or by e-mail, with return notice (or proof of delivery, for e-mail) requested in any event, and shall be addressed to the Shareholders as shown below:
(a) If to Nércio:
Name : Nércio José Monteiro Fernandes
Address : Rua Cenno Sbrighi, nº 170, 9º andar, Bairro Água Branca,
CEP 05036-010, São Paulo/SP
Tel .: (+55 11) 2103-2425
e-mail : nercio@linx.com.br
(b) If to Alberto:
Name : Alberto Menache
Address : Rua Cenno Sbrighi, nº 170, 9º andar, Bairro Água Branca,
CEP 05036-010, São Paulo/SP
Tel .: (+55 11) 2103-2421
e-mail : menache@linx.com.br
(c) If to Alon:
Name: Alon Dayan
Address : Rua Cenno Sbrighi, nº 170, 9º andar, Bairro Água Branca,
CEP 05036-010, São Paulo/SP
Tel .: (+55 11) 2103-2493
e-mail : alon.dayan@linx.com.br
(d) If to Daniel:
Name : Daniel Mayo
Address : Rua Cenno Sbrighi, nº 170, 9º andar, Bairro Água Branca,
CEP 05036-010, São Paulo/SP
Tel .: (+55 11) 2103-2456
e-mail : daniel@linx.com.br
(e) If to Dennis:
Name : Dennis Herszkowicz
Address : Rua Cenno Sbrighi, nº 170, 9º andar, Bairro Água Branca,
CEP 05036-010, São Paulo/SP
Tel .: (+55 11) 2103-1501
e-mail : dennis@linx.com.br
(f) If to the Company:
Name : Linx S.A., care of Chief Executive Officer Alberto Menache
Address : Rua Cenno Sbrighi, nº 170, 9º andar, Bairro Água Branca,
CEP 05036-010, São Paulo/SP
Tel .: (+55 11) 2103-2421
e-mail : menache@linx.com.br
8.7.1. Any notices given under this Section shall be deemed delivered: (a) at the time of delivery if delivered in person; (b) at the time of receipt if sent by mail or courier; (c) at the time when proof of delivery is received by the sender, if sent by e-mail.
8.7.2. Any of the parties to this Agreement may change the address to which notices are to be sent by giving written notice thereof to the other parties according to Section 8.7 above.
8.7.3. For the purposes of article 118, § 10, of the Corporation Law, each Shareholder appoints the individuals named in Section 8.7 above as their respective representatives for the purposes of any communications with the Company in terms of providing or receiving information whenever necessary, in accordance with the provisions of this Agreement.
8.8. The Shareholders acknowledge that a mere payment of damages would not be an appropriate compensation for any default of obligations undertaken under this Agreement, which permits specific performance in accordance with the law.
8.9. This Agreement, as signed and initialed on the date hereof, together with the exhibit hereto, is the entire understanding among the Shareholders, by said date, on the transaction carried out hereunder. The Shareholders agree that this Agreement accurately reflects the negotiations previously held and their respective intents and fully supersedes any other documents or memoranda of any nature whatsoever previously exchanged among or signed by the parties, including the 2012 Shareholders Agreement, which is hereby terminated with no further formalities by the Shareholders for all legal purposes. It is hereby agreed that, for all intents and purposes, only this Agreement shall govern the relationships among Shareholders concerning the provisions hereof.
8.10. The Shareholders shall use their best efforts to try and amicably resolve all disputes arising out of this Agreement. If there should be any dispute, the Shareholder interested in resolving it shall send written notice to the other party with a view to holding amicable, good-faith negotiations in order to resolve the dispute within a period of thirty (30) days of the receipt of such notice.
8.11. Should the Shareholders fail to reach an amicable agreement on the dispute within the period set forth in Section 8.10 above, then the legal representative of one of the interested Shareholders shall give written notice to the legal representatives of the other interested Shareholder calling for them to jointly and amicably seek, within a period of thirty (30) days of such new notice, the best possible solution for the Shareholder involved.
8.12. If, upon expiration of the period set forth in Section 8.11 above, the legal representatives should fail to reach an amicable consensus on the dispute, then all matters, questions and disputes generally related to this Agreement, including, but not limited to, any question concerning its existence, effectiveness and termination, shall be referred to arbitration according to the following provisions:
(xi) The arbitration shall be submitted to the Arbitration and Mediation Center of the Brazil-Canada Chamber of Commerce ( CCBC ), in accordance with the CCBCs Arbitration Rules (hereinafter referred to as the Rules ).
(xii) The dispute shall be resolved by an Arbitral Tribunal (the Arbitral Tribunal ) consisting of three (3) arbitrators. Each party shall designate one arbitrator, and the two (2) arbitrators so designated shall, by mutual agreement within a period of ten (10) days of the receipt of notice to be sent by the CCBC, appoint the third arbitrator, who shall act as president of the Arbitral Tribunal. Upon lapse of such period of ten (10) days, if the arbitrators appointed by the parties should fail to reach an agreement on the appointment of the third arbitrators, who shall serve as president, such third arbitrator shall be appointed by the President of the CCBC. Where there are multiple parties, whether as plaintiffs or respondents, such multiple plaintiffs or multiple respondents shall jointly designate one arbitrator.
(xiii) The arbitration shall be held in the City of São Paulo, Brazil, where the arbitration award will be issued. The arbitration procedure shall be held in Portuguese and in accordance with Law No. 9.307/96.
(xiv) Without prejudice to the effectiveness of this arbitration clause, the parties hereby elect, to the exclusion of any others, the courts in the Judicial District of São Paulo, State of São Paulo, if and when necessary, exclusively for the purposes of: (i) enforcing any obligations that are promptly capable of being enforced by court order; (ii) securing restraining orders or injunctive relief to assure the effectiveness of the arbitration procedure; and (iii) obtaining any specific performance order, it being understood that once such restraining order or specific performance order is obtained, then full and exclusive powers to resolve any and all such matters, whether procedural or on the merits, as may have given rise to the filing for relief or specific performance order shall be restored to the Arbitral Tribunal to
be appointed or having already been appointed, and the relevant legal proceedings shall be suspended until a partial or final decision in the matter is rendered by the Arbitral Tribunal. Any filings provided for in this section shall not operate as a waiver of this arbitration clause or the full jurisdiction of the Arbitral Tribunal.
(xv) The Arbitral Tribunal shall render its award within a period of twelve (12) months as of the execution of the Arbitration Agreement. This period may be extended for up to six (6) months by the Arbitral Tribunal, to the extent justification is given.
(xvi) The arbitration award shall fix the arbitration fees and decide which of the parties shall bear them in what proportions they shall be shared by the parties. In any event, each party shall pay its own attorneys fees.
(xvii) The Shareholders and the arbitrators shall keep any and all information concerning the arbitration in secrecy.
(xviii) The Shareholders and the Company agree that any order, decision or determination by the Arbitral Tribunal shall be final and binding upon the parties to the relevant dispute.
(xix) The Company represents that it is bound by this arbitration clause for all legal purposes.
(xx) The arbitration shall be subject to the law, and the arbitrators shall compulsorily apply the provisions of this Agreement and the laws of the Federative Republic of Brazil.
8.13. This Agreement shall be governed by and interpreted in accordance with the laws of the Federative Republic of Brazil, which shall also be the governing law for any arbitration hereunder.
IN WITNESS WHEREOF, the parties hereto, together with the Company, have caused this Agreement to be executed in seven (7) counterparts, each to be deemed an original, but all together forming one and the same agreement binding upon the parties, the Company and their respective heirs and successors, as the case may be, in the presence of the two (2) witnesses named below.
São Paulo, July 30, 2014.
Signatures in the following pages
Execution Page /6 of the Shareholders Agreement dated July 30, 2014 by and among Nércio, Alberto, Alon, Daniel and Dennis
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/s/ Nércio José Monteiro Fernandes |
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NÉRCIO JOSÉ MONTEIRO FERNANDES |
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/s/ Alberto Menache |
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ALBERTO MENACHE |
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/s/ Alon Dayan |
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ALON DAYAN |
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/s/ Daniel Mayo |
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DANIEL MAYO |
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/s/ Dennis Herszkowicz |
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DENNIS HERSZKOWICZ |
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CONSENTING PARTY:
LINX S.A.
/s/ Alberto Menache |
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/s/ Dennis Herszkowicz |
Alberto Menache |
|
Name: Dennis Herszkowicz |
Title: CEO |
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Title: CFO |
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Taxpayer Card (CPF): 165.783.068-38 |
|
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Identity Card (RG): 20.310.061 |
Witnesses:
/s/ Alexandre R.S. Kelemen |
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/s/ Ana Paula Frigo |
Name: Alexandre R.S. Kelemen |
|
Name: Ana Paula Frigo |
Identity Card (RG): 23.055.340-0 |
|
Identity Card (RG): 28.733.692-X |
Taxpayer Card (CPF): 340.736.038-09 |
|
Taxpayer Card (CPF): 281.772.648-00 |
EXHIBIT II TO THE 1 ST AMENDMENT TO THE SHAREHOLDERS AGREEMENT OF LINX S.A., EXECUTED ON JULY 30, 2014
INSTRUMENT OF WITHDRAWAL FROM SHAREHOLDERS AGREEMENT
INSTRUMENT OF WITHDRAWAL FROM SHAREHOLDERS AGREEMENTS OF LINX S.A.
By this Instrument of Withdrawal from the Shareholders Agreement of Linx S.A. (Withdrawal from the 2014 Shareholders Agreement of Linx S.A.), I, DENNIS HERSZKOWICZ , Brazilian citizen, married, holder of RG No. 20.310.061, enrolled with the CPF/MF under No. 165.783.068-38, submit my request for withdrawal from the Shareholders Agreements of LINX S.A. , a corporation organized and existing under the laws of Brazil, enrolled with the National Corporate Taxpayers Register (CNPJ) under No. 06.948.969/0001-75, executed on December 3, 2012 and July 30, 2114 ( Shareholders Agreement of the Controlling Block and 2014 Shareholders Agreement ), acknowledging that I will have nothing else to claim against the other parties to said agreements, at any time and/or on any account, in or out of court, as well as against the Company and its managers and respective successors, either in the capacity as shareholders, managers of the companies or on any other account, granting the broadest, fullest, complete, general, irrevocable and irreversible release, in my name and in the name of my respective successors, with respect to any rights and obligations based on said Agreements, especially, but not limited to, to the exercise of the voting right, approval of the management accounts, financial statements and balance sheets of the Company, ratifying all other resolutions passed by the Company, especially the resolutions of the Board of Directors, for the time during which I remained a party to this agreement and, furthermore, with respect to compliance with the respective obligations set forth by law, in the Companys By-Laws or in shareholders agreements relating to the period during which I was a signatory to those Agreements.
São Paulo, September 17, 2018.
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/s/ DENNIS HERSZKOWICZ |
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LINX S.A. STOCK OPTION PLAN
This Stock Option Plan of LINX S.A. (Company), approved by the Companys Special Shareholders Meeting held on May 23, 2019 (Plan), sets forth the general conditions of the long term incentive by granting purchase options for shares issued by the Company, as set out in Article 168, Paragraph 3, Law No. 6.404, of December 15, 1976 (Corporation Law), to eligible officers and employees of the Company and its controlled companies (Linx Group), in order to attract, motivate them and retain them, and align their interests to those of the Company and its shareholders.
1. Option
1.1. Every option grants its holder the right to purchase one (1) common share (B3: LINX3) issued by the Company (Share), strictly upon the terms and conditions set forth in this Plan (Option).
1.2. In order to settle the vesting of the Options, the Company may, at the discretion of the Board of Directors: (a) issue new shares within the limit of the authorized capital; or (b) sell treasury shares.
1.3. The Shares subject to the Options shall be entitled to dividends, interest on equity and other proceeds declared by the Company from the Option vesting settlement date, upon payment of the Vesting Price and issuance or transfer of the Share to the Participant.
1.4. The Options do not grant any rights and privileges of shareholder of the Company until the Option vesting settlement.
2. Management
2.1. The Plan shall be managed by the Board of Directors of the Company, with the assistance of the Compensation Committee, providing for broad powers to take such proper, required actions, in accordance with the best market practices.
2.2. The Board of Directors may approve, annually or as often as it may think fit, Stock Option Programs (Programs), whereby the Participants, number of Options, calculation of the Vesting Price, distribution of the Options among Participants, the effective date and other respective specific rules of each Program shall be defined, according to the maximum referenced corporate dilution limit, as set forth in Article 5.1 of this Plan.
2.3. The Board of Directors may add new Participants to ongoing Programs, and treat differently officers and employees of the Linx Group who may be in a similar situation, not being bound to any isonomy, equalization or equity rules, which shall apply to all conditions regarded as applicable to any one or more of them.
3. Eligibility
3.1. Among the officers and employees of the Company and its controlled companies, the following are eligible to the Plan (i) Officers; (ii) Senior Managers; or (iii) other employees of the Company, at the discretion of the Board of Directors.
3.2. In each Program, the Board of Directors shall designate at its sole discretion, from those eligible, those to which the Options shall be offered (Participants), as well as the number of Options to be granted to each Participant. The designation of the Participant in a certain Program does not imply its designation as Participant in any other Program.
3.3. Adhesion to each Program is voluntary, and the person interested in participating in each Program to which he or she was designated shall execute the relevant Adhesion Agreement within the term fixed in each Program.
4. Business Contract
4.1. The terms and conditions of each Option shall be set forth in a Stock Option Agreement and other Covenants (Option Agreement) to be executed by the Company and each Participant.
4.2. The Option Agreement is a burdensome business of an exclusively commercial nature and creates no labor or social security obligation between the Company and the Participants, whether they may be statutory officers or employees.
Adhesion to each Program is voluntary and requires awareness and acceptance by the Participant of the risk of losing the amount invested in the purchase or subscription of Shares, as well as the other risks involving the investment in shares of the Company.
4.3. The Options are personal and non-transferrable, and the Participant may, in no event, assign, transfer, pledge or in any way dispose to any third parties such Options, or the rights and obligations inherent thereto, except in accordance with the Option Agreement.
5. Maximum Reference Corporate Dilution Limit
5.1. The Plan shall be limited to a maximum Reference Corporate Dilution of up to five percent (5%) of the capital stock of the Company on the approval date of each Program. The Reference Corporate Dilution corresponds to the percentage represented by the maximum amount of shares encompassed by the Options, deferred shares and other outstanding rights of this Plan and the Deferred Stock Option Plan of the Company approved on January 23, 2019.
5.2. The shareholders of the Company shall not have a preemptive right to grant or vest the Options, as set forth in Article 171, paragraph 3, of the Corporation Law.
6. Vesting Price
6.1 The price to be paid by the Participant to the Company for the vesting of each Option shall correspond to the average price per financial volume of the common shares issued by the Company in the auctions by B3 S.A. - Brasil, Bolsa e Balcão held within two (2) months immediately prior to the approval month of each Program (Vesting Price).
6.2. In the event of distribution of dividends, interest on equity, capital refund or other proceeds in cash, the Vesting Price shall be adjusted on the day the share starts to be traded EX in the spot market, less the amount of the net proceeds in cash of the Vesting Price, provided that the settlement is performed with EX securities.
6.3. In the event of subscription of any other preemptive rights, the Vesting Price shall be adjusted on the date the share starts to be traded EX in the spot market, less the amount of such right, which shall be calculated based on the latest price prior to the EX date, provided that the settlement is performed with EX securities.
6.4. In the event of grouping, splitting, bonus or any other proceeding in new shares, the Option vesting settlement shall be performed with EX securities by adjusting the number of Shares subject to each Option and the Vesting Price proportionally to the percentage of such grouping, splitting, bonus or any other proceeding in new shares. In case the corporate event allows converting the Vesting Price and the Shares subject to the Option in multiple wholes of the standard batch, the adjustment shall be made on the date the share starts to be traded EX in the spot market .
6.5. No fraction of a Share shall be sold, granted or issued upon the Option vesting settlement, and the Board of Directors may make additional adjustments to the terms and conditions of the outstanding Options, if necessary, by virtue of changes in the Companys corporate structure, and such decision shall be final and binding.
7. Payment Terms
7.1. The Vesting Price shall be paid by the Participants to the Company in cash at the time of purchase of the Shares, according to the payment method determined by the Company.
8. Term for the Options to be Vested (Vesting)
8.1. The acquisition of the right to vest the Options (Vesting) shall occur upon compliance with the grace periods of each Program, when the Options become subject to vesting by the Participant (Vested Options). The Vesting of the Options shall occur in four annual installments of twenty-five percent (25%), the first installment from the first anniversary of the effective date of the Program and the other installments from subsequent anniversaries, as indicated in the table below:
Vesting of the Options (from the effective date of each Program) |
|
Percentage of the Vested Options |
|
Before the first anniversary |
|
0 |
% |
From the first anniversary |
|
25 |
% |
From the second anniversary |
|
50 |
% |
From the third anniversary |
|
75 |
% |
From the fourth anniversary |
|
100 |
% |
8.2. The Board of Directors may at its sole discretion change the rules for Vesting of the Options applicable to each Program, as well as exceptionally waive compliance with the grace periods of the Options.
8.3. The rules for Vesting of the Options may be changed during the term of effectiveness of the Programs, provided that this is for the benefit of the Participants.
9. Vesting and Term of the Options
9.1. The Participant may vest the Vested Options within eight (8) years from the effective date of each Program (Options Term).
9.2. The Options shall be vested upon delivery of the relevant Option Vesting Form duly filed and signed by the Participant.
9.3. The Investor Relations Officer may establish at any time restrictions for the vesting of the Options on dates coinciding with periods of no trading of securities issued by the Company.
9.4. Without prejudice to the right of the Investor Relations Officer setting forth, at any time, restrictions for the vesting of the Options, the Board of Directors may set and publish fixed dates, in each quarter, for the Participants to vest their Options and settle the vested Options.
9.5. Upon vesting of an Option, the Board of Directors shall define whether the capital stock of the Company shall be increased by issuing new Shares to be subscribed by the Participants, in accordance with Article 166, subparagraph III, of the Corporation Law, or whether they shall be used for the Option vesting settlement with treasury Shares, according to the applicable regulations.
9.6. Except if the Board of Directors sets and discloses a fixed date, the Company shall by the end of the month following the month of receipt of the Option Vesting Form transfer or issue the Shares to the Participant, upon execution of the relevant subscription instrument or stock transfer form, as the case may be, and receipt of the Vesting Price.
9.7. In case the two (2) latest months of the Options Term coincide with the period of no trading of securities issued by the Company, the Options Term shall be suspended during such no trading period, and start again as soon as the trading restriction ceases.
9.8. Options not vested during the Options Term shall be automatically, lawfully terminated, irrespective of prior notice or indemnification.
10. Lock-up Period
10.1. The Participant may not, directly or indirectly, sell, assign, exchange, dispose of, transfer, confer to the capital of another company, grant options or execute any instrument or agreement that results or would result in the direct or indirect disposal, for a fee or free of charge, of the Shares purchased by vesting Options, according to the percentages and terms to be defined by the Board of Directors upon approval of each Program (Lock- up), as set forth in Article 10.1.1 below.
10.1.1. The Lock-up shall not be less than ten percent (10%) of the Shares purchased through the vesting of the Options, and the term shall not be below one (1) month from the date of the Option vesting settlement.
11. Corporate Reorganization
11.1. The grant of the Options under the Plan shall not prevent the Company from getting involved in corporate reorganization transactions, such as transformation, merger, amalgamation, spin-off and merger of shares.
11.2. The Board of Directors of the Company and the companies involved in such transactions may, at their sole
discretion, take, without prejudice to other actions that they may decide by equity to: (a) replace the Options for stock options issued by the company succeeding the Company, with such proper adjustments to the number of Options and the Vesting Price; (b) advance of the Vesting of the Options, so that the Options may be vested by the Participants in a timely fashion to allow for the inclusion of the Shares arising from the Option vesting settlement in the transaction at issue; and/or (c) redeem the Options by paying in cash the amount which the Participant would be entitled to under the Plan in case the Options were to be vested on the redemption date. The adjustments made to the Plan are binding, and the Participants disagreeing with such adjustments shall be entitled to waive their Options.
12. Change of Control
12.1. In case of direct or indirect disposal by the controlling persons of the Company, whether by one single transaction or successive transactions, of such number of shares that would result in a change of control of the Company, as set forth in the Novo Mercado Listing Regulations, the Board of Directors may, at its sole discretion, approve the advance of the Vesting of the Options, so that the Options may be vested by the Participants in a timely fashion and the Shares arising from Option vesting settlement may be sold in the IPO to be carried out under the Novo Mercado Listing Regulations and the Bylaws then in full force and effect.
13. Dissolution, Liquidation or Bankruptcy
13.1. In the event of dissolution, liquidation or bankruptcy of the Company, the Options until then granted shall automatically terminate.
14. No Interference with Employment Relationship or Term in Office
14.1. No provision of this Plan may be construed as to create rights for employee Participants in addition to those inherent to this Plan, or to grant rights to the Participants relating to the guarantee of continuing to be an employee or manager, or interfere in any other way with the right of the Company, subject to the statutory and employment contract conditions, to terminate at any time the relationship with the Participant.
14.2. No provision of this Plan shall grant to any Participant or statutory officer the right to remain until the end of his or her term in office, or interfere in any other way with the right of the Company to remove him or her, or give him or her the right to be reelected.
15. Voluntary Termination or Without Cause
15.1. In case of Voluntary Termination or Without Cause , the Participant shall be entitled to vest the Vested Options within thirty (30) days from the Termination date. All Options not subject to vesting (Unvested Options) shall be automatically, lawfully terminated, irrespective of prior notice or indemnity, and any exceptions to this rule shall be approved by the Board of Directors.
15.1.1. For the purposes of this Plan, the term Voluntary Termination or Without Cause means the termination of the legal relationship of the Participant with the Linx Group in the events of voluntary termination, dismissal, resignation, replacement or no reelection as statutory officer, and termination without cause of the employment contract.
16. Termination for Cause
16.1. In case of Termination for Cause, all Options granted thereto, whether Vested Options or Unvested Options, shall be automatically, lawfully terminated, irrespective of prior notice or indemnity, and any exceptions to this rule shall be approved by the Board of Directors .
16.1.1. For the purposes of this Plan, the term Termination for Cause means the termination of the legal relationship of the Participant with the Linx Group for just cause, in the events set forth in the Brazilian Consolidated Labor Laws, according to the wording then in force, in the case of Participants who are employees, and, in the case of Participants who are non-employee statutory officers, the following events: (a) failure by the Participant to perform his or her duties arising from his or her office as officer; (b) criminal conviction in case of international offenses; (c) commitment by the Participant of dishonest or fraudulent acts against the Company or its controlled or affiliated companies; (d) any action or inaction arising from intentional acts or fault of the Participant that may be harmful for the business, image or financial situation of the Linx Group, provided that they are duly demonstrated; (e) significant violation of an
instrument governing the office of a statutory officer; (f) noncompliance with the Bylaws, Code of Ethics and other corporate provisions applicable to the Participant, as officer; and (g) noncompliance with the obligations set forth in the Corporation Law applicable to officers of corporations, including, without limitation, those set forth in Articles 153 to 157 of such Law.
17. Retirement
17.1. In case of Retirement of the Participant, all Vested Options may be vested within thirty (30) days from the date of Retirement, and all Unvested Options may be vested within their own terms and according to the regular Vesting rules, provided that the Participant is not working for a competitor and also subject to any additional conditions defined by the Board of Directors.
17.1.1. Retirement shall, for the purposes of this Plan, mean the termination of the legal relationship between the holder of the Option with the Linx Group due to actual termination of the career and retirement of the Participant, upon approval, as the case may be, by the Board of Directors, at its sole discretion. In case the application for Retirement is commenced by the Participant, by reviewing such application, the Board of Directors shall take the following into consideration (i) whether the application is timely, that is, it must be made at least six (6) months in advance; (ii) any post-retirement professional activity plan by the Participant, which shall not contemplate any activities competing with those of the Linx Group; (iii) other circumstances applicable to the case. The decision of the Board of Directors shall be discretionary and not linked to the retirement rules for time of service or age, as set forth in the social security (INSS) or supplementary retirement rules of any private plan that may be sponsored by the Linx Group.
17.2. In the event the Participant is involved in activities competing with those of the Linx Group, the Board of Directors may declare as lawfully terminated, irrespective of prior notice or indemnity, all outstanding Unvested Options that may be granted to the Participant.
18. Death or Permanent Disability
18.1. In the event of death of the Participant, all Unvested Options may be vested in advance. The Vested or Unvested Options shall extend to their heirs and successors, by statutory succession or will, and may be vested in whole or in part by the heirs successors or spouses of the Participant for twelve (12) months from the date of the death.
18.2. In case of permanent disability of the Participant, all Unvested Options may be vested in advance. The Participant or its legal representative shall be entitled to vest the Vested or Unvested Options within six (6) months from the date the permanent disability was verified.
19. Plan Effective Date
19.1. The Plan shall be in full force and effect immediately after approval thereof by the Special Shareholders Meeting of the Company, and may be terminated, suspended or modified, at any time, upon decision of the Shareholders Meeting. The expiration of the Plan shall not affect the efficacy of the Options that may be outstanding and granted based thereon.
20. Miscellaneous
20.1. Each Participant shall comply with the tax laws in force and pay the respective taxes applicable to the Options.
20.2. Any Option granted shall be subject to all terms and conditions set forth herein, which terms and conditions shall prevail in case of inconsistencies regarding the provisions of any contract or document mentioned herein.
20.3. Cases omitted herein shall be governed by the Board of Directors.
20.4. Any significant changes in the laws, regulations or case law in respect of the capital markets or tax, social security and labor aspects applicable to long-term incentive plans may result in partial or full review of the Plan, or even suspension or termination thereof, at the discretion of the Board of Directors.
20.5. The Board of Directors may afford specific treatment to special cases and situations during the term of the Plan, provided that the rights already granted to the Participants are not affected. Such particular treatment shall not constitute precedent to be invoked by other Participants.
***
LINX S.A. DEFERRED STOCK PLAN
This Deferred Stock Plan of LINX S.A. (Company), approved by the Special Shareholders Meeting of the Company held on January 23, 2019 (Plan), sets forth the general long term incentive conditions by granting Restricted Shares issued by the Company to eligible officers and employees of the Company and its controlled companies (Linx Group), in order to attract, motivate and retain them, and align their interests to those of the Company and its shareholders.
1. Restricted Share
1.1. Each Deferred Share confers its holder the right to receive one (1) common share (B3: LINX3) issued by the Company (Share), strictly upon the terms and conditions set forth in this Plan .
1.1.1. The term Restricted Share means the right to receive one share on a certain future date, subject to compliance with the Vesting set forth in Article 7 of this Plan, as share bonus.
1.2. In order to settle the vesting of the Restricted Shares, the Company may: (a) transfer treasury shares; or (b) in case it is impossible from a legal point of view to use treasury shares, pay in cash the amount equal to the quantity of vested Restricted Shares, multiplied by the weighted average price by financial volume of the common shares issued by the Company in the auctions by B3 S.A. - Brasil, Bolsa e Balcão held within two (2) months immediately prior to the payment date .
1.3. The Restricted Shares shall be entitled to dividends, interest on equity and other proceeds declared by the Company from the Restricted Share vesting settlement date, upon transfer of the Share to the Participant.
1.4. The Restricted Shares do not grant any rights and privileges of shareholder of the Company until the Restricted Share vesting settlement.
2. Management
2.1. The Plan shall be managed by the Board of Directors of the Company, with the assistance of the Compensation Committee, and provide for broad powers to make such proper, necessary actions.
2.2. The Board of Directors may approve, annually or as often as it may think fit, Restricted Share Programs (Programs), whereby the Participants, the number of Restricted Shares granted, the distribution of Restricted Shares among the Participants, the effective date and other respective specific rules of each Program will be defined, in accordance with the maximum limits of the Reference Corporate Dilution, as set forth in Article 5.1 of this Plan.
2.3. The Board of Directors of the Company shall set the Vesting period of each Program, and may further not apply any Vesting period, especially in case of hiring bonuses .
2.4. The Board of Directors may add new Participants to ongoing Programs, and treat differently officers and employees of the Linx Group who may be in a similar situation, not being bound to any isonomy, equalization or equity rules, which shall apply to all conditions regarded as applicable to any one or more of them.
3. Eligibility
3.1. Among the officers and employees of the Company and its controlled companies, the following are eligible to the Plan (i) external Directors; (ii) Officers; (iii) Senior Managers; or (iv) other employees, at the discretion of the Board of Directors .
3.2. In each Program, the Board of Directors shall designate at its sole discretion, from those eligible, those to which the Restricted Shares shall be offered (Participants), as well as the number of Restricted Shares to be granted to each Participant. The designation of the Participant in a certain Program does not imply its designation as Participant in any other Program
3.3. Adhesion to each Program is voluntary, and the person interested in participating in each Program to which he or she was designated shall execute the relevant Adhesion Agreement within the term fixed in each Program.
4. Contract and Statutory Nature
4.1. The terms and conditions of each Restricted Share shall be set out in a Restricted Share Grant Agreement and Other Covenants (Restricted Share Agreement), to be executed by the Company and each Participant.
4.2. The Restricted Share Agreement is a promise of a bonus to be received by the Participant if and when the Vesting of the Restricted Shares occurs, and shall comply with the tax, social security and labor laws applicable to the Shares granted or amounts paid to the Participants, including social security charges and withholding income tax.
4.3. The Restricted Shares are personal and non-transferrable, and the Participant may in no event assign, transfer, pledge or in any way dispose to any third parties of such Restricted Shares, or the rights and obligations inherent thereto, except in compliance with the Restricted Share Agreement.
5. Maximum Reference Corporate Dilution Limit
5.1. Although the plan does not imply corporate dilution, because it does not contemplate the possibility of issuing shares to settle the vesting of the Restricted Shares, the Plan shall be limited to a maximum Reference Corporate Dilution of up to five percent (5%) of the capital stock of the Company on the approval date of each Program. The Reference Corporate Dilution corresponds to the percentage represented by the maximum amount of shares encompassed by the Restricted Shares, share purchase options and other outstanding rights of this Plan and the Stock Option Plan of the Company approved on January 23, 2019.
6. Grouping, Splitting or Bonus
6.1. In the event of grouping, splitting, bonus or any other proceeding in new shares, the Restricted Share vesting settlement shall be performed with EX securities by adjusting the number of Shares subject to each Restricted Share proportionally to the percentage of such grouping, splitting, bonus or any other proceeding in new shares. In case the corporate event allows converting the Restricted Shares in multiple wholes of the standard batch, the adjustment shall be made on the date the share starts to be traded EX in the spot market.
6.2. No fraction of a Share shall be sold, granted or issued upon the Restricted Share vesting settlement, and the Board of Directors may make additional adjustments to the terms and conditions of the outstanding Restricted Shares, if necessary, by virtue of changes in the Companys corporate structure, and such decision shall be final and binding.
7. Term for the Restricted Shares to be Vested (Vesting)
7.1. The acquisition of the right to vest the Restricted Shares (Vesting) shall occur upon compliance with the grace periods set out in Articles 7.1.1 and 7.1.2 below, when the Restricted Shares may be vested by the Participant (Vested Restricted Shares).
7.1.1. The full Vesting of the Restricted Shares granted to the Participants, except for external Directors, shall occur within the terms fixed by the Board of Directors of the Company at the time each Program is granted.
7.1.2. The full Vesting of the Restricted Shares granted to external Directors shall occur on the first (1 st ) anniversary of the effective date of the Program; however the external Directors may not, directly or indirectly, sell, assign, exchange, dispose of, transfer, grant to the capital of another company, grant options or execute any instrument or agreement that results or would result in the direct or indirect disposal, for a fee or free of charge of the Vested Restricted Shares, for one (1) year from the Vesting date (Lock-up).
7.2. The Board of Directors may at its sole discretion change the rules for the Vesting of the Restricted Shares applicable to each Program, and exceptionally waive compliance with the grace periods or the Lock-up of the Restricted Shares.
7.3. The rules for Vesting of the Restricted Shares may be changed during the term of the Programs, provided that this is for the benefit of the Participants.
8. Vesting and Term of the Restricted Shares
8.1. The Participant may vest the Vested Restricted Shares for eight (8) years from the effective date of each Program (Term of the Restricted Shares), as set forth in Articles 7.1.1 and 7.1.2 above.
8.2. The Restricted Shares shall be vested upon delivery of the relevant Restricted Shares Vesting Form duly filled out
and signed by the Participant.
8.3. The Investor Relations Officer may set out at any time restrictions for vesting the Restricted Shares on dates coinciding with periods of no trading of securities issued by the Company.
8.4. Without prejudice of the right of the Investor Relations Officer to set out, at any time, restrictions for the vesting of the Restricted Shares, the Board of Directors may set and publish fixed dates, in each quarter, for the vesting of the Restricted Shares by the Participants and settlement of the vested Restricted Shares.
8.5. Upon vesting of the Restricted Share, the Board of Directors shall authorize the Executive Board to perform the Restricted Share vesting settlement by using treasury Shares or, in case it is impossible from a legal point of view to use treasury shares, pay in cash the amount equal to the quantity of the shares, multiplied by the Market Value.
8.6. Except if the Board of Directors sets forth and publishes a fixed date, the Company shall by the end of the month following the month of receipt of the Restricted Share Vesting Form transfer the Shares to the Participant, upon execution of the relevant stock transfer form or payment of the respective Market Value, as the case may be.
8.7. In case the two (2) last months of the Term of the Restricted Shares coincide with the period of no trading of securities issued by the Company, the Term of the Restricted Shares shall be suspended during such no trading period, and start as soon as such no trading period ceases.
8.8. The Restricted Shares not vested during the Term of the Restricted Shares shall be automatically and lawfully terminated, irrespective of prior notice or indemnity.
9. Corporate Reorganizations
9.1. The grant of the Restricted Shares under the Plan shall not prevent the Company from engaging in corporate reorganizations, such as transformation, merger, spin-off, and merger of shares.
9.2. The Board of Directors of the Company and the companies engaged in such transactions may, at their sole discretion, without prejudice to other actions that they take by equity: (a) replace the Restricted Shares with Restricted Shares issued by the company succeeding the Company, with such proper adjustments to the amount of Restricted Shares; (b) advance the Vesting of the Restricted Shares, so that the Restricted Shares may be vested by the Participants on a timely basis to allow for the inclusion of the Shares arising from the Restricted Share vesting settlement in the transaction at issue; and/or (c) the redemption of the Restricted Shares, upon payment in cash of the amount the Participant would be entitled to under the Plan in case the Restricted Shares were vested on the redemption date. The adjustments to the Plan shall be binding, and the Participants disagreeing with such adjustments shall be entitled to waive their Restricted Shares.
10. Change of Control
10.1. In case of direct or indirect disposal by the controlling persons of the Company, whether by one single transaction or successive transactions, of such number of shares that would result in a change of control of the Company, as set forth in the Novo Mercado Listing Regulations, the Board of Directors may, at its sole discretion, approve the advance of the Vesting of the Restricted Shares, so that the Restricted Shares may be vested by the Participants in a timely fashion and the Shares arising from Restricted Share vesting settlement may be sold in the IPO to be carried out under the Novo Mercado Listing Regulations and the Bylaws then in full force and effect.
11. Dissolution, Liquidation or Bankruptcy
11.1. In the event of dissolution, liquidation or bankruptcy of the Company, the Restricted Shares until then granted shall automatically terminate .
12. No Interference with Employment or Term in Office
12.1. No provision of this Plan may be construed as to create rights for employee Participants in addition to those inherent to this Plan, or to grant rights to the Participants relating to the guarantee of continuing to be an employee or manager, or interfere in any other way with the right of the Company, subject to the statutory and employment agreement conditions, to terminate at any time the relationship with the Participant.
12.2. No provision of this Plan shall grant to any Participant or statutory officer the right to remain until the end of his or her term in office, or interfere in any other way with the right of the Company to remove him or her, or give him or her the right to be reelected.
13. Voluntary Termination or Without Cause
13.1. In case of Voluntary Termination or Without Cause, the Participant shall be entitled to vest the Vested Restricted Shares within thirty (30) days from the Termination. All Restricted Shares not yet subject to vesting (Unvested Restricted Shares) shall be automatically, lawfully terminated, irrespective of prior notice or indemnity, provided that any exceptions to this rule shall be approved by the Board of Directors.
13.1.1. For the purposes of this Plan, the term Voluntary Termination or Without Cause means the termination of the legal relationship of the Participant with the Linx Group in the events of voluntary termination, dismissal, resignation, replacement or no reelection as statutory officer, and termination without cause of the employment agreement.
14. Termination for Cause
14.1. In case of Termination for Cause, all Restricted Shares granted thereto, whether Vested Restricted Shares or Unvested Restricted Shares, shall be automatically, lawfully terminated, irrespective of prior notice or indemnity, provided that any exceptions to this rule shall be approved by the Board of Directors.
14.1.1. For the purposes of this Plan, the term Termination for Cause means the termination of the legal relationship of the Participant with the Linx Group for cause, in the events set forth in the Brazilian Consolidated Labor Laws, according to the wording then in force, in the case of Participants who are employees, and, in the case of Participants who are non-employee statutory officers, the following events: (a) failure by the Participant to perform his or her duties arising from his or her office as officer; (b) criminal conviction in case of international offenses; (c) commitment by the Participant of dishonest or fraudulent acts against the Company or its controlled or affiliated companies; (d) any action or inaction arising from intentional acts or fault of the Participant that may be harmful for the business, image or financial situation of the Linx Group, provided that they are duly demonstrated; (e) significant violation of an instrument governing the office of a statutory officer; (f) noncompliance with the Bylaws, Code of Ethics and other corporate provisions applicable to the Participant, as officer; and (g) noncompliance with the obligations set forth in Law No. 6.404/1976, consolidated by Law No. 10.303/2001, which is applicable to managers of corporations, including, without limitation, those set forth in Articles 153 through 157 of such law.
15. Retirement
15.1. In case of Retirement of the Participant, all Vested Restricted Shares may be vested within thirty (30) days from the date of Retirement, and all Unvested Restricted Shares may be vested within their own terms and according to the regular Vesting rules, provided that the Participant is not working for a competitor and also subject to any additional conditions defined by the Board of Directors, provided that any exceptions to this rule shall be approved by the Board of Directors.
15.1.1. Retirement shall, for the purposes of this Plan, mean the termination of the legal relationship between the holder of the Restricted Share with the Linx Group due to actual termination of the career and retirement of the Participant, upon approval, as the case may be, by the Board of Directors, at its sole discretion. In case the application for Retirement is commenced by the Participant, by reviewing such application, the Board of Directors shall take the following into consideration (i) whether the application is timely, that is, it must be made at least six (6) months in advance; (ii) any post-retirement professional activity plan by the Participant, which shall not contemplate any activities competing with those of the Linx Group; (iii) other circumstances applicable to the case. The decision of the Board of Directors shall be discretionary and not linked to the retirement rules for time of service or age, as set forth in the social security (INSS) or supplementary retirement rules of any private plan that may be sponsored by the Linx Group.
15.2. In the event the Participant is involved in activities competing with those of the Linx Group, the Board of Directors may declare as lawfully terminated, irrespective of prior notice or indemnity, all outstanding Unvested Restricted Shares that may be granted to the Participant.
16. Death or Permanent Disability
16.1. In the event of death of the Participant, all Unvested Restricted Shares may be vested in advance. The Vested or Unvested Restricted Shares shall extend to their heirs and successors, by statutory succession or will, and may be vested in whole or in part by the heirs, successors or spouses of the Participant for twelve (12) months from the date of the death .
16.2. In case of permanent disability of the Participant, all Unvested Restricted Shares may be vested in advance. The Participant or its legal representative shall be entitled to vest the Vested or Unvested Restricted Shares within six (6) months from the date the permanent disability was verified.
17. Plan Effective Date
17.1. The Plan shall be in full force and effect immediately after approval thereof by the Companys Special Shareholders Meeting, and may be terminated, suspended or modified, at any time, upon decision of the Shareholders Meeting. The expiration of the Plan shall not affect the efficacy of the Restricted Shares that may be outstanding and granted based thereon .
18. Miscellaneous
18.1. Any Restricted Share granted shall be subject to all terms and conditions set forth herein, which terms and conditions shall prevail in case of inconsistencies regarding the provisions of any contract or document mentioned herein.
18.2. Cases omitted herein shall be governed by the Board of Directors.
18.3. Any significant changes in the laws, regulations or case law in respect of the capital markets or tax, social security and labor aspects applicable to long-term incentive plans may result in partial or full review of the Plan, or even suspension or termination thereof, at the discretion of the Board of Directors.
18.4. The Board of Directors may afford specific treatment to special cases and situations during the term of the Plan, provided that the rights already granted to the Participants are not affected. Such particular treatment shall not constitute precedent to be invoked by other Participants.
***
LINX PAY HUB
SPECIAL RESTRICTED SHARE PLAN
( approved by the Board of Directors meeting of Linx S.A. held on May 2, 2019)
Terms used in this Linx Pay Hub Special Restricted Share Plan (Special Restricted Share Plan) are defined in the Restricted Share Plan of Linx S.A., approved by the Special Shareholders Meeting held on January 23, 2019 ( Restricted Share Plan ).
1. DEFINITIONS
The following terms are used in this Special Restricted Share Plan, notwithstanding any other definitions in this Special Restricted Share Plan:
GROSS REVENUES: Aggregate sale amount of products and services related to payment solution business, less any cancellations and/or commercial discounts and/or defaults and/or anticipation of receivables.
ADJUSTED CONTRIBUTION MARGIN: Means the revenues from payment solution business, including revenues from anticipation of receivables, loan, financing and financial floating transactions related to the business, less any taxes imposed on sales and cancelations, as well as any transaction costs, in accordance with criteria defined in the business plan filed at the Companys principal place of business.
INITIAL AWARD: For the purposes of this Special Restricted Share Plan, it means the sum of the aggregate number of Restricted Share related to each vesting tranche, without multiplier in case of exceeding results of performance indicators.
ADDITIONAL AWARD : For the purposes of this Linx Pay Hub Special Restricted Share Plan, it means an additional vesting , plus a multiplier in case of exceeding results of performance indicators, up to 50% of the aggregate award amount.
2. OBJECTIVES OF LINX PAY HUB SPECIAL RESTRICTED STOCK PLAN
The objective of this Linx Pay Hub Special Restricted Share Plan is to establish directives and procedures to manage the award of Restricted Share issued by Linx S.A. ( Company ) on a special basis , to managers that work on the execution of the business plan of payment solution division of the Company
and its controlled companies (Linx Pay Hub), in accordance with criteria determined in the Restricted Share Plan, in order to retain the Companys professionals as well as to achieve long-term interests of stakeholders and shareholders on a sustainable way, leveraging the Companys results, especially regarding generation of results within the next five (5) years.
3. AGGREGATE AWARD NUMBER AND DISTRIBUTION AMONG PARTICIPANTS
Pursuant to the Special Restricted Share Plan ( Linx Pay Hub ), up to one million and two hundred thousand (1,200,000) Restricted Share will be awarded in a single tranche, of which up to eight hundred thousand (800,000) Restricted Share as an Initial Award and up to four hundred thousand (400,000) Restricted Share as an Additional Award, to be distributed among Participants previously indicated by the Companys Board of Directors, in accordance with a table approved by the Board of Directors, which, initialed by the presiding board, shall be filed at the Companys principal place of business.
The Board of Directors delivered to each Participant a Notice of Indication of Participation in Linx Pay Hub Special Restricted Share Plan.
For such distribution, the Board of Directors has taken into consideration the key positions at the Company directly associated with the execution of its long-term strategy, especially with respect to generation of value to the Company within the next five (5) years.
4. PERFORMANCE INDICATORS AND VESTING/LOCK-UP PERIOD
The vesting of Restricted Share from the Initial Award will take place within the next five (5) years, pro-rata, i.e. at the end of each year, starting on December 31, 2019, up to twenty percent (20%) of the Initial Award shall be vested , upon achievement of performance indicators established by the Company for each vesting year, i.e. the gross revenues and Adjusted Contribution margin, in accordance with the business plan approved by the Companys Board of Directors, which, as initialed by the presiding board, shall be filed at the Companys principal place of business. Furthermore, upon vesting , Participants shall wait a lock-up period of two (2) years for each pro-rata and incremental vesting period.
Each year, Participants may be vested in up to twenty percent (20%) of Restricted Share from the Initial Award, of which:
(i) ten percent (10%) of Restricted Share will be vested if it achieved the gross revenues established for each vesting year; and
(ii) ten percent (10%) of Restricted Share will be vested if it achieved the adjusted contribution margin established for each vesting year.
Participant will forfeit its pro-rata vesting rights for such year in case neither gross revenues nor adjusted contribution margin had been achieved, which may be re-established if, at the end of the fifth year of Linx Pay Hub Special Restricted Share Plan, the Participant achieves cumulatively 100% of gross revenues
and adjusted contribution margin targets.
At the end of the fifth (5th) year of Linx Pay Hub Special Restricted Share Plan, Participants aggregate results for each performance indicators achieved by the Participant shall be calculated (sum of each year). If such sum exceeds the aggregate gross revenues and adjusted contribution margin targets established for the same period, the Participant may be vested an additional fifty percent (50%).
If the aggregate sum of Linx Pay Hub Special Restricted Share Plan targets for all years exceeds up to 20%, the Participant will be entitled to an additional award equivalent to (i) zero point five percent (0.5%) for each one percent (1%) exceeding the aggregate sum of gross revenues target up to 20%; and (ii) zero point five percent (0.5%) for each one percent (1%) exceeding the aggregate sum of adjusted contribution margin up to 20%.
If the aggregate sum of Linx Pay Hub Special Restricted Share Plan targets related to gross revenues and adjusted contribution margin for each year exceeds 20%, the Participant may be entitled to an additional award equivalent to (i) twenty-five percent (25%) over the exceeding gross revenues target; and (ii) twenty-five percent (25%) over the exceeding adjusted contribution margin target.
5. RETENTION AND TERMINATION PERIODS
In the event of resignation, dismissal, replacement or no reelection of the Participant before December 31, 2023, all unvested Restricted Share awarded under this Special Restricted Share Plan shall be automatically canceled, regardless of any prior notice or indemnification, with no further obligation by the Company.
Before or after December 31, 2023, in the event of Participants termination due to dishonesty conduct of the Participant, as per Linx Pay Hub Special Restricted Share Plan, all Unvested or Vested Restricted Share subject to a lock-up period awarded to the Participant under the Special Restricted Share Plan shall be immediately and automatically canceled, regardless any prior notice or indemnification. In this event, the Companys Board of Directors, at its discretion, upon the Participants termination, may release Vested Restricted Share to such beneficiary during the lock-up period.
For the purposes of this Linx Pay Hub Special Restricted Share Plan, termination due to dishonesty or fraudulent conduct shall mean: (a) criminal conviction due to willful offenses; (b) dishonesty or fraudulent conduct of the Participant against the Company or its controlled or affiliated companies; (c) any Participants negligence or willful action or inaction, that could harm Group Linx business, image or financial condition, provided that duly evidenced; (d) material breach of any instrument governing statutory managers positions; (e) failure to comply with the Bylaws, Ethics Code and other corporate provisions applicable to the Participant, as manager; (f) failure to comply with any requirements set forth by Law No. 6.404/1976, as amended by Law No. 10.303/2001, applicable to managers of corporations, including but not limited to those set forth in articles 153 of 157 of such Law; (g) failure to comply with Anticorruption Laws, Law No. 12.846/2013 and FCPA, U.K. Anti-bribery Act ; and (h) criminal
conviction to suspension or temporary non-qualification applied by the Brazilian Securities Commission, which make the Participant ineligible to management positions in publicly-held companies.
In the event of Participants retirement before December 31, 2023, all Unvested Restricted Share awarded to him under this Special Restricted Share Plan shall be automatically cancelled, regardless of any prior notice or indemnification. In this event, all Vested Restricted Share that had not been exercised by the Participant yet may be exercised, provided that in accordance with the terms under the Companys Restricted Share Plan within thirty (30) days from the date of the Participants retirement, which shall fully comply with lock-up rules established under this Special Restricted Share Plan, except if otherwise agreed with by the Companys Board of Directors.
In the event of Participants death before December 31, 2023, all Unvested Restricted Share awarded to Participants under this agreement shall be automatically cancelled, notwithstanding any prior notice or indemnification. In this event, all Unvested Restricted Share shall be extended to the Participants heirs and successors, upon legal succession or will, and may be totally or partially exercised, if not, in accordance with the terms established by the Restricted Share Plan, by any Participants duly qualified heirs, successors or marital portion within twelve (12) months for the date of death, which shall fully comply with lock-up rules under this agreement, except if otherwise agreed with by the Companys Board of Directors.
In the event of Participants permanent incapacity before December 31, 2023, all Unvested Restricted Share awarded to the Participant under this Special Restricted Share Plan shall be cancelled, regardless of any prior notice or indemnification. In this event, the Participant or its legal representative shall be entitled to exercise all Vested Restricted Share in case they have not been exercised by the time of determination of his incapacity, in accordance with the terms in effect under the Companys Restricted Share Plan, within six (6) months from the date of the determination of such incapacity, which shall fully comply with lock-up rules under this Special Restricted Share Plan, except if otherwise agreed with by the Companys Board of Directors.
6. TERM
Linx Pay Hub Special Restricted Share Plan shall comply with term of effectiveness provisions of the Companys Restricted Share Plan in effect when this plan is approved and shall be in effect as of May 2, 2019; however, the period for assessment of any performance indicators shall begin on January 1 st , 2019.
7. RESTRICTED STOCK AWARD AGREEMENT
Linx Pay Hub Special Restricted Share Plan Participants, in order to be validly entitled to any Restricted Share, shall enter with a Restricted Share Award Agreement and other Covenants of Linx Pay Hub Special Restricted Share Plan with the Company, in the form approved the by Board of Directors which, after initialed by the presiding board, shall be filed at the Companys principal place of business.
In order to settle any Deferred Share, the Company, at its own discretion, may: (a) transfer any treasury
stock; (b) pay in cash the amount equivalent to the number of exercised Restricted Share, multiplied by average weighted price of financial volume of the Companys common shares traded at B3 S.A. Brasil, Bolsa e Balcão two (2) months immediately before the month of the date of settlement; or (c) transfer treasury stock and effect a payment in cash. The Company shall withhold any Income Tax upon settlement of any vested Restricted Share, based on the number of vested Restricted Share, multiplied by average weighted price of financial volume of the Companys common shares traded at B3 two (2) months immediately before the month of the date of settlement.
***
BNDES
Credit Facility Financing Agreement No. 14.2.0880.1 entered into by and between the BNDES and LINX SISTEMAS E CONSULTORIA LTDA., with an intervening third party.
CREDIT FACILITY FINANCING AGREEMENT No. 14.2.0880.1 ENTERED INTO BY AND BETWEEN THE NATIONAL BANK FOR ECONOMIC AND SOCIAL DEVELOPMENT (BNDES) AND LINX SISTEMAS E CONSULTORIA LTDA., WITH AN INTERVENING THIRD PARTY, AS PROVIDED BELOW:
The NATIONAL BANK FOR ECONOMIC AND SOCIAL DEVELOPMENT (BANCO NACIONAL DE DESENVOLVIMENTO ECONÔMICO E SOCIAL - BNDES) , herein referred to simply as the BNDES, a federal publicly-held company, with its principal place of business in Brasília, Federal District, and services in this City, at Avenida República do Chile No. 100, enrolled with the National Corporate Taxpayers Register (CNPJ) under No. 33.657.248/0001-89, by its undersigned representatives;
and
LINX SISTEMAS E CONSULTORIA LTDA. , hereinafter referred to as the BENEFICIARY, a limited liability company with its principal place of business in São Paulo, State of São Paulo, at Rua Cenno Sbrighi, No. 170, 1 st 10 th floors, Building II, district of Água Branca, Postal Code (CEP) No. 05.036-010, enrolled with the National Corporate Taxpayers Register (CNPJ) under No. 54.517.628/0001-98, by its undersigned representatives;
And also, as INTERVENING PARTY, LINX S.A. , a corporation with its principal place of business in São Paulo, State of São Paulo, at Rua Cenno Sbrighi, No. 170, 9 th floor, suite 1, Building II, district of Água Branca, Postal Code (CEP) No. 05.036-010, enrolled with the National Corporate Taxpayers Register (CNPJ) under No. 06.948.969/0001-75, by its undersigned representatives,
Have mutually agreed as follows:
ONE
NATURE, AMOUNT, AND PURPOSE OF THE AGREEMENT
By this Agreement, the BNDES grants to the BENEFICIARY a credit in the total amount of one hundred and two million eight hundred and two thousand Reais (R$102,802,000.00) out of its ordinary funds, which consist, among other sources, of funds from the Worker Support Fund (FAT) and funds originating from the FAT Special Deposits and from the Social Integration Program/Civil Servant Asset Formation Program (PIS/PASEP) Equity Fund, subject, as to their allocation, to the laws applicable to each such source, in accordance with the provisions of Section Two, Paragraph Two, divided into three (3) Subcredits, in the following amounts:
I - Subcredit A : ninety-eight million five hundred and sixty-one thousand Reais (R$98,561,000.00) ;
II - Subcredit B : three million and five hundred thousand Reais (R$3,500,000.00), and.
III - Subcredit C : seven hundred and forty-one thousand Reais (R$741,000.00).
SOLE PARAGRAPH
The credit granted hereunder shall be allocated as follows:
I Subcredit A : To finance the investment Plan of the BENEFICIARY, contemplating infrastructure, training and quality research and development, marketing, and sales actions, within the scope of the BNDES Program for the Development of the Domestic Software and Information Technology Services Industry (BNDES PROSOFT Empresa);
II Subcredit B : To the purchase of domestic equipment that qualify under the criteria of the Special Industrial Financing Agency (FINAME), as required for the project mentioned in Item I of the Sole Paragraph of this Section; and
III Subcredit C : To investments in social projects in the community, according to the Mini Empresa program, in partnership with Junior Achievement.
TWO
CREDIT AVAILABILITY
The credit shall be made available to the BENEFICIARY, in installments, upon satisfaction of the release conditions referred to in Section Twelve, according to the needs for the execution of the financed project, subject to the BNDES financial schedule, which is subordinated to the definition of funds for its investments by the National Monetary Council.
PARAGRAPH ONE
At the time of release of the funds under this transaction, the debits determined by law and those contractually authorized by the BENEFICIARY shall be made. The total remaining balance of funds available to the BENEFICIARY shall be immediately transferred to checking account No. 13060-8 held by the BENEFICIARY with Banco Itaú Unibanco (No. 341), branch No. 0191.
PARAGRAPH TWO
The amount of each credit installment to be made available to the BENEFICIARY shall be calculated in accordance with the criteria set forth in the law establishing the Long-Term Interest Rate (TJLP) for determination of debit balances of financings contracted in the BNDES System until November 30, 1994.
PARAGRAPH THREE
The total amount of the credit shall be used by the BENEFICIARY within twenty-seven (27) months from the date of execution of this Agreement, without prejudice to the BNDESs option, before or after the expiration of such term, under the guarantees set forth in this Agreement, to extend such term upon express authorization by letter, regardless of any other formality or registration.
THREE
INTEREST ON SUBCREDITS A AND B
The principal amount of the debt owed by the BENEFICIARY arising from Subcredits A and B shall bear interest at a rate of one point sixty-seven percent (1.67%) per annum (by way of consideration) above the Long-Term Interest Rate (TJLP) as published by the Central Bank of Brazil, in accordance with the following system:
I When the TJLP is greater than six percent (6%) per annum :
a) The amount corresponding to the TJLP portion that exceeds six percent (6%) per annum shall be capitalized on the fifteenth (15 th ) day of each month of the term of this Agreement and at its maturity or settlement, subject to the provisions of Section Eighteen, and calculated based on the application of the following capitalization term on the debit balance, taking into account all the financial events occurred during the period:
TC = [(1 + TJLP)/1.06] n/360 1 (capitalization term equal to, opens bracket, ratio between the TJLP plus one and one point zero six, closes bracket, raised to a power corresponding to the ratio between n and three hundred and sixty, less one), where:
TC capitalization term;
TJLP Long-Term Interest Rate, as published by the Central Bank of Brazil; and
n number of days between the date of the financial event and the date of capitalization, maturity, or settlement of the obligation, it being understood that financial event shall mean any and all events of a financial nature which result or may result in a change in the debit balance of this Agreement.
b) The percentage of one point ninety-six percent (1.67%) per annum above the TJLP (compensation) referred to in the main provision of this Section plus the TJLP itself shall apply to the debit balance on the interest due dates mentioned in Paragraph Two or on the date of maturity or settlement of this Agreement, subject to the provisions of clause a, it being understood that the daily calculation of interest shall take into account the number of days elapsed between the date of each financial event and the abovementioned due dates; and
II When the TJLP is equal to or less than six percent (6%) per annum :
The percentage of one point sixty-seven percent (1.67%) per annum above the TJLP (compensation) referred to in the main provision of this Section plus the TJLP itself shall apply to the debit balance on the interest due dates mentioned in Paragraph Two or on the date of maturity or settlement of this Agreement, it being understood that the daily calculation of interest shall take into account the number of days elapsed between the date of each financial event and the abovementioned due dates.
PARAGRAPH ONE
The amount referred to in item I, clause a, which shall be capitalized and incorporated into the principal amount of the debt, shall be payable in accordance with the provisions of Section Six.
PARAGRAPH TWO
The amount determined in accordance with the provisions of item I, clause b or item II shall be payable quarterly, on the fifteenth (15 th ) day of February, May, August, and November of each year, during the period between November 15, 2014 and February 15, 2017, and monthly, beginning on and including March 15, 2017, together with the principal amount repayment installments, and at the maturity or settlement of this Agreement, subject to the provisions of Section Eighteen.
FOUR
INTEREST ON SUBCREDIT C
The principal amount of the debt owed by the BENEFICIARY arising from Subcredit C shall bear interest at the Long-Term Interest Rate (TJLP) as published by the Central Bank of Brazil, in accordance with the following system:
I - When the TJLP is greater than six percent (6%) per annum :
a) The amount corresponding to the TJLP portion that exceeds six percent (6%) per annum shall be capitalized on the fifteenth (15 th ) day of each month of the term of this Agreement and at its maturity or settlement, subject to the provisions of Section Eighteen, and calculated based on the application of the following capitalization term on the debit balance, taking into account all the financial events occurred during the period:
TC = [(1 + TJLP)/1.06] n/360 1 (capitalization term equal to, opens bracket, ratio between the TJLP plus one and one point zero six, closes bracket, raised to a power corresponding to the ratio between n and three hundred and sixty, less one), where:
TC capitalization term;
TJLP Long-Term Interest Rate, as published by the Central Bank of Brazil; and
n number of days between the date of the financial event and the date of capitalization, maturity, or settlement of the obligation, it being understood that financial event shall mean any and all events of a financial nature which result or may result in a change in the debit balance of this Agreement; and
b) The TJLP shall apply to the debit balance on the interest due dates mentioned in Paragraph Two or on the date of maturity or settlement of this Agreement, subject to the provisions of clause a, it being understood that the daily calculation of interest shall take into account the number of days elapsed between the date of each financial event and the abovementioned due dates; and
II When the TJLP is equal to or less than six percent (6%) per annum :
The TJLP shall apply to the debit balance on the interest due dates mentioned in Paragraph Two or on the date of maturity or settlement of this Agreement, it being understood that the daily calculation of interest shall take into account the number of days elapsed between the date of each financial event and the abovementioned due dates.
PARAGRAPH ONE
The amount referred to in item I, clause a, which shall be capitalized and incorporated into the principal amount of the debt, shall be payable in accordance with the provisions of Section Six.
PARAGRAPH TWO
The amount determined in accordance with the provisions of item I, clause b or item II shall be payable quarterly, on the fifteenth (15 th ) day of February, May, August, and November of each year, during the period between November 15, 2014 and February 15, 2017, and monthly, beginning on and including March 15, 2017, together with the principal amount repayment installments, and at the maturity or settlement of this Agreement, subject to the provisions of Section Eighteen.
FIVE
DEBT PROCESSING AND COLLECTION
The collection of principal amount and charges shall be made through a Collection Notice issued in advance by the BNDES for the BENEFICIARY to settle such obligations on their due dates.
SOLE PARAGRAPH
No failure to receive the Collection Notice shall exempt the BENEFICIARY from its obligation to pay the principal amount installments and charges on the dates set forth in this Agreement.
SIX
REPAYMENT
The principal amount of the debt arising from this Agreement shall be paid to the BNDES in forty-eight (48) successive monthly installments, each in the principal amount of the debt becoming due, divided by the number of repayment installments not yet due, the first of which shall be due and payable on March fifteen (15), 2017, subject to the provisions of Section Eighteen, and the BENEFICIARY agrees to settle all obligations arising from this Agreement together with the last installment, on February fifteen (15), 2021.
SEVEN
CHANGE IN THE LEGAL STANDARD FOR COMPENSATION OF FUNDS ORIGINATING FROM THE PIS/PASEP FUND AND/OR FROM THE FAT
If the legal standard for compensation of the funds transferred to the BNDES and originating from the PIS/PASEP Equity Fund and/or from the Worker Support Fund (FAT) is replaced, the compensation set forth in Sections Three and Four may, at the discretion of the BNDES, use such new standard for compensation of such funds or any other standard indicated by the BNDES which, in addition to preserving the actual amount of the transaction, compensates at the same levels as before. In this case, the BNDES shall give written notice of such change to the BENEFICIARY.
EIGHT
SPECIAL OBLIGATIONS OF THE BENEFICIARY
The BENEFICIARY agrees to:
i comply, as applicable, until the final settlement of the debt arising from this Agreement, with the PROVISIONS APPLICABLE TO BNDES CONTRACTS approved by Resolution No. 665 of December 10, 1987, as partially amended by Resolution No. 775 of December 16, 1991, by Resolution No. 863 of March 11, 1996, by Resolution No. 878 of September 4, 1996, by Resolution No. 894 of March 6, 1997, by Resolution No. 927 April 1, 1998, by Resolution No. 976 of September 24, 2001, by Resolution No. 1.571 of March 4, 2008, by Resolution No. 1.832 of September 15, 2009, by Resolution No. 2.078 of March 15, 2011, by Resolution No. 2.139 of August 30, 2011, by Resolution No. 2.181 of November 8, 2011, by Resolution No. 2.556 of December 23, 2013, by Resolution No. 2.558 of December 23, 2013, by Resolution No. 2.607 of April 8, 2014, and by Resolution No. 2.616 of May 6, 2014, all issued by the Executive Board the BNDES and published in the Federal Official Gazette ( Diário Oficial da União ) (Section I) on December 29, 1987, December 27, 1991, April 8, 1996, September 24, 1996, March 19, 1997, April 15, 1998, October 31, 2001, March 25, 2008, November 6, 2009, April 4, 2011, September 13, 2011, November 17, 2011, January 1, 2014, February 14, 2014, May 6, 2014, and September 3, 2014, respectively, a copy of which is hereby
delivered to the BENEFICIARY, which, having become aware of all the contents thereof, represents that it accepts it as an integral and inseparable part of this Agreement for all legal purposes and effects;
II execute and complete the project financed hereunder within twenty-four (24) months from the date of issuance of this Agreement, without prejudice to the BNDESs option, before or after the expiration of such term, under the guarantees set forth in this Agreement, to extend such term upon express authorization by letter, regardless of any other formality or registration;
III in the event of a downsizing of the staff of the BENEFICIARY during the term of this Agreement as a result of the project referred to in Section One, Sole Paragraph, offer a training program focused on job opportunities in the region and/or a worker repositioning program, upon submission to the BNDES for consideration of a document specifying and attesting to the completion of the negotiations held with the relevant trade union or unions involved in the dismissal process;
IV take, during the term of this Agreement, measures and actions to prevent or correct any damage to the environment and occupational safety and health which may be caused by the project referred to in Section One, Sole Paragraph ;
V maintain its good standing as to its obligations to the environmental agencies during the term of this Agreement;
VI comply, during the term of this Agreement, with the provisions of law applicable to disabled persons;
VII give notice to the BNDES, on the date of the event, of the name and Individual Taxpayers Register of the Ministry of Finance (CPF/MF) number of any person who, whether exercising a salaried position or being among its owners, controlling members, or officers, is certified or takes office as a Federal Deputy or Senator;
VIII not grant loans, directly or indirectly, without prior authorization from the BNDES, including by subscription of debentures or profit-sharing bonds, to any individuals or legal entities, whether or not members of the same business group as the BENEFICIARY, subject to the provisions of items VIII.1 and VIII.2 below;
VIII.1 The transactions described in Item VIII include advancements and/or any other transactions relating to credits granted members and related parties;
VIII.2 The interest on the loans shall be at least three percent (3%) above that stipulated in Section Three, except when such transactions are carried out for the purpose described in Section One;
IX not assume, without prior authorization from the BNDES, any new debts, directly or indirectly, including by issuance of debentures or profit-sharing bonds, before any individuals or legal entities, whether or not members of the same business group as the BENEFICIARY, subject to the provisions of item IX.1 below;
IX.1 the following events are not included in the debts referred to in Item IX above: (i) financings entered into directly and/or indirectly with the BNDES, (ii) transactions carried out to meet ordinary businesses of the BENEFICIARY, and (iii) loans the amounts of which do not exceed the amount of ten million Reais (R$10,000,000.00) per business year throughout the term of this Agreement;
X submit to the BNDES, within the term of the Agreement, within one hundred and eighty (180) days after the end of each fiscal year, consolidated annual financial statements covering its individual results and the results of all its subsidiaries headquartered within the national territory, together with the respective opinions prepared by an independent audit firm registered with the Brazilian Securities Commission (CVM);
XI not create, except upon prior express authorization from the BNDES, security interests of any kind in transactions with other creditors without providing the same type of security to the BNDES under the same conditions and with the same priority, except in the events set forth in Item XII of this Section;
XII give prior express notice to the BNDES of the creation of any security interest by operation of law or as a bond in connection with any lawsuits and administrative proceedings in which it appears as a defendant*, as well as in the event of fiduciary ownership in financings for purchase of equipment;
XIII disclose, on the website of the BENEFICIARY on the Internet and in a prominent place at the headquarters of the company, that it is a financial cooperation beneficiary of the BNDES, according to the form to be provided by the BNDES;
XIV submit, whenever requested by the BNDES, documents of any nature of companies in which it holds any direct or indirect equity interest;
XV not incorporate, directly or indirectly, or acquire an equity interest in companies, within the Country or abroad, without prior express authorization from the BNDES, throughout the term of the Agreement, except in case of transactions involving less than fifty million Reais (R$50,000,000.00);
XVI not sell or encumber, without prior authorization from the BNDES, any permanent assets the amount of which exceeds ten million Reais (R$10,000,000.00) per annum, except in the case of:
a) unserviceable or obsolete goods;
b) assets which are replaced by new ones with identical purpose; and
XVII submit to the BNDES, within thirty (30) days from the date of correspondence from the BNDES so requiring, during the term of this Agreement, copies of the Income Tax Returns of the BENEFICIARY for the fiscal years requested; and
XVIII not transfer, assign, encumber, or dispose of, under any circumstances or in any manner, its ownership rights in any technology or products developed by the BENEFICIARY with funds from this Agreement without prior express authorization from the BNDES.
NINE
OBLIGATIONS OF THE PARENT INTERVENING PARTY
The INTERVENING PARTY identified in the preamble to this Agreement hereby agrees to:
I submit to the BNDES for approval any proposals concerning matters relating to the encumbrance, on any account, of any share held by it and issued by the BENEFICIARY, to the sale, acquisition, merger, consolidation, spin-off, or any other act that implies or may imply changes in the current setup of the BENEFICIARY, a transfer of the corporate control of the BENEFICIARY, or its ceasing from being a controlling shareholder of the BENEFICIARY under art. 116 of Law No. 6.404 of December 15, 1976;
II not cause the inclusion in any corporate agreement, bylaws, or articles of association of the BENEFICIARY of any provision that implies:
a) restrictions on the growth capacity or technological development of the BENEFICIARY; or
b) restrictions on the access of the BENEFICIARY to new markets; or
c) restrictions on or impairment of its ability to pay the financial obligations under its transactions with the BNDES;
III not take any actions or measures that impair or alter the economic and financial balance of the BENEFICIARY;
IV take all the necessary measures to ensure the fulfillment of the purpose of this transaction;
V not incorporate, directly or indirectly, or acquire an equity interest in companies, within the Country or abroad, without prior express authorization from the BNDES, throughout the term of the Agreement, except in case of transactions involving less than fifty million Reais (R$50,000,000.00);
VI submit, whenever requested by the BNDES, documents of any nature of companies in which it holds any direct or indirect equity interest;
VII submit to the BNDES, within thirty (30) days from the date of correspondence from the BNDES so requiring, throughout the term of this Agreement, copies of its Income Tax Returns for the fiscal years requested;
VIII request prior consent from the BNDES to any transfer, assignment, encumbrance, or disposal of shares issued by the BENEFICIARY and its subsidiaries throughout the term of this Agreement;
IX not sell or encumber, without prior authorization from the BNDES, any permanent assets the amount of which exceeds ten million Reais (R$10,000,000.00) per annum, except in the case of:
a) unserviceable or obsolete goods; or
b) assets which are replaced by new ones with identical purpose; and
X maintain, during the term of the Agreement, two of the following ratios, as determined semi-annually in its consolidated financial statements audited by an independent audit firm registered with the Brazilian Securities Commission:
a) General Indebtedness/Total Assets: equal to or less than 60%;
b) Net Debt/EBITDA: equal to or less than 2.00;
c) EBITDA/Net Operating Revenue: equal to or greater than 20%.
PARAGRAPH ONE
If the BENEFICIARY fails to achieve at least two of the ratios established in Item X of this Section, it agrees to either create, within one hundred and eighty (180) days from the date of written notice from the BNDES, security interests accepted by the BNDES in an amount corresponding to at least one hundred and thirty percent (130%) of the amount of the financing or of the debt arising therefrom or submit a bank guarantee for the total amount of the debt provided by a financial institution which, at the discretion of the BNDES, is in an economic and financial situation that ensures it a degree of notorious solvency, unless the abovementioned ratio is achieved within such period.
PARAGRAPH TWO
For purposes of calculation of the ratios set forth in Item X of this Section, the following definitions and standards shall be adopted:
a) EBITDA - Operating Income before interest, income tax, depreciation, and amortization;
b) Net Debt Aggregate sum of the balance of the consolidated onerous debts of the INTERVENING PARTY, including loans and financings, mutuums, issuance of fixed-income securities, promissory notes, and debentures, whether convertible or not, in the local or international capital market, as well as the sale or assignment of future receivables, if they are accounted for as obligations, and other indebtedness financial transactions of the company recorded in current and non-current liabilities less Cash and Cash Equivalents (cash and financial investments);
c) General Indebtedness Aggregate sum of Current and Non-Current Liabilities;
d) The parameters relating to the result (i.e. EBITDA and Net Operating Revenue) refer to the figures for the last twelve (12) months prior to the calculation;
e) The financial ratio referred to in item X, clause b of the main provision of this Section shall be regarded as not achieved if the figure determined for such ratio is negative due to negative EBITDA; and
f) For purposes of calculation of the financial ratio referred to in item X, clause b of the main provision of this Section, the amounts classified in the Balance Sheet of the INTERVENING PARTY as Accounts Payable for Acquisition of Subsidiaries shall not be regarded as Net Debt.
TEN
LIABILITY IN CORPORATE SUCCESSION
In the event of corporate succession, any successors of the BENEFICIARY shall be jointly and severally liable for the obligations arising from this Agreement.
SOLE PARAGRAPH
The main provision of this Section shall not apply in the event of prior consent from the BNDES to the waiver of joint and several liability in a partial spin-off.
ELEVEN
MUTUAL POWER OF ATTORNEY
The BENEFICIARY and the INTERVENING PARTY hereby irrevocably and irreversibly mutually appoint each other their attorneys-in-fact until the final settlement of the debt hereunder, with powers to receive service of process, notices,
and summons, as well as with general judicial powers, which may be delegated to counsel, all in connection with any judicial or extrajudicial proceedings that are filed against them by the BNDES as a result of this Agreement, it being understood that they may take all actions necessary for a good and faithful performance of this power of attorney.
TWELVE
CONDITIONS FOR RELEASE OF THE FINANCIAL CONTRIBUTION
In addition to compliance, as appropriate, with the conditions set forth in articles 5 and 6 of the abovementioned PROVISIONS APPLICABLE TO BNDES CONTRACTS and in the MONITORING RULES AND INSTRUCTIONS referred to in article 2 of such PROVISIONS for the use of each credit installment, the release of the financial cooperation shall be subject to the following:
I For the release of the first Credit installment :
Submission of this Financing Agreement, with all legal formalities, including the relevant recordations in the Registries of Deeds and Documents of the Judicial Districts of Rio de Janeiro (RJ) and São Paulo (SP);
II For release of each Credit installment :
a) no occurrence of any fact that, at the discretion of the BNDES, may substantially alter the economic and financial status of the beneficiary or impair the execution of the project financed hereunder by altering it or preventing its completion in accordance with the terms of the project approved by the BNDES;
b) submission by the BENEFICIARY of a Certificate of No Outstanding Social-Security Liability (CND) or of a Certificate of Suspended Social-Security Liability (CPD-EN) issued by the Brazilian Federal Revenue Service via INTERNET, to be obtained by the BENEFICIARY at www.receita.fazenda.gov.br and checked by the BNDES on the same website; and,
c) proof of good standing with environmental agencies or, if such proof has already been submitted and is in force, a statement from the BENEFICIARY of the continued validity of such document; and
d) submission, preferably in an electronic file, of a list containing data identifying the assets corresponding to the credit installment to be used and detailing the equipment, manufacturer, value, and any other information that may be requested by the BNDES in order to prove that the machinery and equipment purchased out of funds arising from this Agreement are accredited with the BNDES.
THIRTEEN
GUARANTEE
LINX S.A., identified in the preamble, accepts this Agreement in the capacity of guarantor and principal payor and expressly waives the benefits of articles 366, 827, and 838 of the Civil Code, it being understood that it shall be jointly and severally liable, until the final settlement of this Agreement, for the faithful and exact performance of all the obligations assumed by the BENEFICIARY hereunder.
FOURTEEN
DEFAULT
In the event of default of any obligations assumed by the BENEFICIARY and by the Intervening Parties, the provisions of arts. 40-47-A of the PROVISIONS APPLICABLE TO BNDES CONTRACTS referred to in Section Eight, Item I shall apply.
FIFTEEN
LAWSUIT FINE
In the event of judicial collection of the debt arising from this Agreement, the BENEFICIARY shall pay a fine of ten percent (10%) on the principal amount and charges of the debt, as well as any extrajudicial and judicial expenses and attorneys fees, from the date of filing of the collection suit.
SIXTEEN
EARLY SETTLEMENT OF THE DEBT
In the event of early settlement of the debt, the guarantees shall be released, subject to the provisions of art. 18, paragraph two of the PROVISIONS APPLICABLE TO BNDES CONTRACTS referred to in Section Eight, Item I.
SEVENTEEN
ACCELERATION
The BNDES may accelerate this Agreement, upon which the debt shall become enforceable and any disbursements shall be immediately suspended, if, in addition to the events mentioned in articles 39 and 40 of the PROVISIONS APPLICABLE TO BNDES CONTRACTS referred to in Section Eight, Item I, the BNDES can demonstrate:
a) a downsizing of the staff of the BENEFICIARY in violation of the provisions of Section Eight, Item III;
b) the existence of a final and unappealable adverse judgment resulting from any actions taken by the Beneficiary which imply child labor, slave labor, or environmental crime; and
c) the inclusion in a corporate agreement, bylaws, or articles of association of the BENEFICIARY or of any of its controlling companies of any provision that implies restrictions on or an impairment of its ability to pay its financial obligations arising from this transaction.
PARAGRAPH ONE
This Agreement shall be accelerated, upon which the debt shall become enforceable and any disbursements shall be immediately suspended, in the event of application of the proceeds from this Agreement to any purpose other than that provided for in Section One, Sole Paragraph. The BNDES shall give notice of such fact to the Federal Prosecution Office for the purposes and effects of Law No. 7.492 of June 16, 1986.
PARAGRAPH TWO
This Agreement shall also be accelerated, upon which the debt shall become enforceable and any disbursements shall be immediately suspended, on the date when any person who exercises a salaried position at the BENEFICIARY or is among its owners, controlling members, or officers is certified or takes office as a Federal Deputy or Senator, as such persons are subject to the prohibitions set forth in article 54, items I and II of the Federal Constitution. No default charges shall be imposed if the payment occurs within five (5) business days from the date of such certification, under penalty of otherwise the charges established for events of acceleration due to default being imposed.
PARAGRAPH THREE
No acceleration based on the provisions of clause b shall occur if the remediation imposed is complied with or as long as the sentence imposed on the BENEFICIARY is being served, subject to the due process of law.
EIGHTEEN
DUE DATES ON PUBLIC HOLIDAYS
The due dates of all principal and charges repayment installments which fall on Saturdays, Sundays, or national, state, district, or municipal public holidays, including banking holidays, shall be, for all purposes and effects of this Agreement, postponed to the first subsequent business day, in which case the charges shall be calculated up to such date, and the following regular period for determination and calculation of the charges under this Agreement shall also start on such date.
SOLE PARAGRAPH
Unless otherwise expressly provided, the public holidays in the place where the principal place of business of the BENEFICIARY is located, the address of which is indicated in this Agreement, shall be considered for the purposes of the main provision of this Section.
NINETEEN
FINANCIAL COOPERATION COMMISSION
The BENEFICIARY shall pay to the BNDES a Financial Cooperation Commission of zero point three percent (0.3%) on the amount of this Agreement.
PARAGRAPH ONE
The amount of the Financial Cooperation Commission shall be discounted from the first credit release.
PARAGRAPH TWO
If the first release does not occur, or if the amount mentioned in Paragraph One of this Section is not deducted from the first credit release, the BENEFICIARY agrees to pay it to the BNDES within forty-five (45) days to from the date on which it is notified to do so.
PARAGRAPH THREE
If the Financial Cooperation Commission is not paid as provided for in this Section, the BENEFICIARY shall be subject to the sanctions set forth in this Agreement and in the PROVISIONS APPLICABLE TO BNDES CONTRACTS referred to in Section Eight, Item I of this Agreement.
TWENTY
AUTHORIZATION
The BENEFICIARY authorizes the BNDES to deduct from the first credit installment, at the time of release thereof, an amount of three hundred and eight thousand four hundred and six Reais (R$308,406.00) for the Financial Cooperation Commission mentioned in Section Nineteen.
TWENTY-ONE
JURISDICTION
The courts of Rio de Janeiro and the courts sitting in the place where the headquarters of the BNDES are located are hereby elected as the Courts of competent jurisdiction for any disputes arising from this Agreement which cannot be resolved out of court.
TWENTY-TWO
ENVIRONMENTAL LIABILITY
The BENEFICIARY agrees, regardless of fault, to reimburse the BNDES for any amount that it is compelled to pay due to any environmental damage arising from the project referred to in Section One, Sole Paragraph, as well as to indemnify the BNDES for any losses or damages it may suffer as a result of such environmental damage.
BENEFICIARY LINX SISTEMAS E CONSULTORIA LTDA. has submitted Certificate of Suspended Social-Security Liability (CPD-EN) No. 177382014-88888628 issued by the Brazilian Federal Revenue Service on June 11, 2014 and valid until December 8, 2014.
INTERVENING PARTY LINX S.A. has submitted a Certificate of No Outstanding Social-Security Liability (CND) No. 221292014-88888969 issued by the Brazilian Federal Revenue Service on August 25, 2014 and valid until February 21, 2015.
The BNDES is represented herein by its Vice President, in accordance with the power of attorney drawn up in Book No. 930, page No. 169, act No. 145 of the Office of the 22 nd Notary Public of the Judicial District of the Capital of the State of Rio de Janeiro, and by the Officer of the BNDES as signing and identified below.
The pages of this Instrument were initialed by Henrique Assunção Pratas Sobral, counsel for the BNDES, upon authorization from the undersigned legal representatives.
In witness whereof, the parties executed this instrument in three (3) identical counterparts, in the presence of the undersigned witnesses.
Rio de Janeiro,
For the BNDES:
NATIONAL BANK FOR ECONOMIC AND SOCIAL DEVELOPMENT - BNDES
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For the BENEFICIARY:
/s/ Alberto Menache |
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LINX SISTEMAS E CONSULTORIA LTDA.
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For the INTERVENING PARTY AND GUARANTOR
/s/ Alberto Menache |
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LINX S.A.
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WITNESSES:
/s/ Elisabete Nascimento Amaral |
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/s/ Simon Menache |
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Elisabete Nascimento Amaral |
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Simon Menache |
Identity No.: 24.591.288-5 |
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Identity No.: 9.473.398-3 |
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Individual Taxpayers Register (CPF) No.: 265.669.818-96 |
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Individual Taxpayers Register (CPF) No.: 053.180.178-70 |
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(SIGNATURE PAGE OF CREDIT FACILITY FINANCING AGREEMENT NO. 14.2.0880.1 ENTERED INTO BY AND BETWEEN THE NATIONAL BANK FOR ECONOMIC AND SOCIAL DEVELOPMENT (BNDES), LINX SISTEMAS E CONSULTORIA LTDA., AND LINX S.A.)
/s/ Henrique Sobral |
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Attorney-at-Law |
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Exhibit 10.5
BNDES
CREDIT FACILITY FINANCING AGREEMENT NO. 15.2.0579.1 ENTERED INTO BY AND BETWEEN THE NATIONAL BANK FOR ECONOMIC AND SOCIAL DEVELOPMENT (BNDES) AND LINX SISTEMAS E CONSULTORIA LTDA., WITH INTERVENING THIRD PARTIES, AS PROVIDED BELOW:
The NATIONAL BANK FOR ECONOMIC AND SOCIAL DEVELOPMENT (BANCO NACIONAL DE DESENVOLVIMENTO ECONÔMICO E SOCIAL - BNDES), herein referred to simply as the BNDES, a federal publicly-held company, with its principal place of business in Brasília, Federal District, and services in this City, at Avenida República do Chile No. 100, enrolled with the National Corporate Taxpayers Register (CNPJ) under No. 33.657.248/0001-89, by its undersigned representatives;
LINX SISTEMAS E CONSULTORIA LTDA., hereinafter referred to as the BENEFICIARY, a limited liability company with its principal place of business in São Paulo, State of São Paulo, at Rua Cenno Sbrighi, No. 170, 1 st 10 th floors, Building II, district of Água Branca, Postal Code (CEP) No. 05.036-010, enrolled with the National Corporate Taxpayers Register (CNPJ) under No. 54.517.628/0001-98, by its undersigned representatives;
And also, as INTERVENING PARTY, LINX S.A., a corporation with its principal place of business in São Paulo, State of São Paulo, at Rua Cenno Sbrighi, No. 170, 9 th floor, suite 1, Building II, district of Água Branca, Postal Code (CEP) No. 05.036-010, enrolled with the National Corporate Taxpayers Register (CNPJ) under No. 06.948.969/0001-75, by its undersigned representatives,
Have mutually agreed as follows:
ONE
NATURE, AMOUNT, AND PURPOSE OF THE AGREEMENT
By this Agreement, the BNDES grants to the BENEFICIARY a credit in the total amount of fifty-four million Reais (R$54,000,000.00) out of its ordinary funds, which consist, among other sources, of funds from the Worker Support Fund (FAT) and funds originating from the FAT Special Deposits and from the Social Integration Program/Civil Servant Asset Formation Program (PIS/PASEP) Equity Fund, subject, as to their allocation, to the laws applicable to each such source, in accordance with the provisions of Section Two, Paragraph Two (Credit Availability), divided into two (2) Subcredits, in the following amounts:
I - Subcredit A : fifty-three million seven hundred and forty-six thousand Reais (R$53,746,000.00) ; and
II - Subcredit B : two hundred and fifty-four thousand Reais (R$254,000.00).
SOLE PARAGRAPH
The credit granted hereunder shall be allocated as follows:
Subcredit A : To finance the investment Plan of the BENEFICIARY, contemplating infrastructure, training and quality research and development, marketing, and sales actions, within the scope of the BNDES Program for the Development of the Domestic Software and Information Technology Services Industry (BNDES PROSOFT Empresa); and
II · Subcredit B : To investments in one or more social projects in the community.
TWO
CREDIT AVAILABILITY
The credit shall be made available to the BENEFICIARY, in installments, upon satisfaction of the release conditions referred to in Section Twelve (Financial Cooperation Release Conditions), according to the needs for the execution of the financed project, subject to the BNDES financial schedule, which is subordinated to the definition of funds for its investments by the National Monetary Council.
PARAGRAPH ONE
At the time of release of the funds under this transaction, the debits determined by law and those contractually authorized by the BENEFICIARY shall be made. The total remaining balance of funds available to the BENEFICIARY shall be immediately transferred to checking account No. 13060-8 held by the BENEFICIARY with Banco Itaú (No. 341), branch 0191.
PARAGRAPH TWO
The amount of each credit installment to be made available to the BENEFICIARY shall be calculated in accordance with the criteria set forth in the law establishing the Long-Term Interest Rate (TJLP) for determination of debit balances of financings contracted in the BNDES System until November 30, 1994.
PARAGRAPH THREE
The total amount of the credit shall be used by the BENEFICIARY within twenty-seven (27) months from the date of execution of this Agreement, without prejudice to the BNDESs option, before or after the expiration of such term, under the guarantees set forth in this Agreement, to extend such term upon express authorization by letter, regardless of any other formality or registration.
THREE
INTEREST ON SUBCREDIT A
The principal amount of the debt owed by the BENEFICIARY arising from Subcredit A shall bear interest at a rate of one point ninety-six percent (1.96%) per annum (by way of consideration) above the Long-Term Interest Rate (TJLP) as published by the Central Bank of Brazil, in accordance with the following system:
I When the TJLP is greater than six percent (6%) per annum :
a) The amount corresponding to the TJLP portion that exceeds six percent (6%) per annum shall be capitalized on the fifteenth (15 th ) day of each month of the term of this Agreement and at its maturity or settlement, subject to the provisions of Section Seventeen (Due Dates on Public Holidays), and calculated based on the application of the following capitalization term on the debit balance, taking into account all the financial events occurred during the period:
TC = [(1 + TJLP)/1.06] n/360 1 (capitalization term equal to, opens bracket, ratio between the TJLP plus one and one point zero six, closes bracket, raised to a power corresponding to the ratio between n and three hundred and sixty, less one), where:
TC capitalization term;
TJLP Long-Term Interest Rate, as published by the Central Bank of Brazil; and
n number of days between the date of the financial event and the date of capitalization, maturity, or settlement of the obligation, it being understood that financial event shall mean any and all events of a financial nature which result or may result in a change in the debit balance of this Agreement; and
b) The percentage of zero point ninety-six percent (1.96%) per annum above the TJLP (compensation) referred to in the main provision of this Section plus the TJLP itself shall apply to the debit balance on the interest due dates mentioned in Paragraph Two or on the date of maturity or settlement of this Agreement, subject to the provisions of clause a, it being understood that the daily calculation of interest shall take into account the number of days elapsed between the date of each financial event and the abovementioned due dates; and
II When the TJLP is equal to or less than six percent (6%) per annum :
The percentage of zero point ninety-six percent (1.96%) per annum above the TJLP (compensation) referred to in the main provision of this Section plus the TJLP itself shall apply to the debit balance on the interest due dates mentioned in Paragraph Two or on the date of maturity or settlement of this Agreement, it being understood that the daily calculation of interest shall take into account the number of days elapsed between the date of each financial event and the abovementioned due dates.
PARAGRAPH ONE
The amount referred to in item I, clause a, which shall be capitalized and incorporated into the principal amount of the debt, shall be payable in accordance with the provisions of Section Six (Repayment).
PARAGRAPH TWO
The amount determined in accordance with the provisions of item I, clause b or item II shall be payable quarterly, on the fifteenth (15 th ) day of December, March, June, and September of each year, during the period between December 15, 2015 and March 15, 2018, and monthly, beginning on April 15, 2018, together with the principal amount repayment installments, and at the maturity or settlement of this Agreement, subject to the provisions of Section Seventeen (Due Dates on Public Holidays).
FOUR
INTEREST ON SUBCREDIT B
The principal amount of the debt owed by the BENEFICIARY arising from Subcredit B shall bear interest at the Long-Term Interest Rate (TJLP) as published by the Central Bank of Brazil, in accordance with the following system:
When the TJLP is greater than six percent (6%) per annum :
a) The amount corresponding to the TJLP portion that exceeds six percent (6%) per annum shall be capitalized on the fifteenth (15 th ) day of each month of the term of this Agreement and at its maturity or settlement, subject to the provisions of Section Seventeen (Due Dates on Public Holidays), and calculated based on the application of the following capitalization term on the debit balance, taking into account all the financial events occurred during the period:
TC = [(1 + TJLP)/1.06] n/360 1 (capitalization term equal to, opens bracket, ratio between the TJLP plus one and one point zero six, closes bracket, raised to a power corresponding to the ratio between n and three hundred and sixty, less one), where:
TC capitalization term;
TJLP Long-Term Interest Rate, as published by the Central Bank of Brazil; and
n number of days between the date of the financial event and the date of capitalization, maturity, or settlement of the obligation, it being understood that financial event shall mean any and all events of a financial nature which result or may result in a change in the debit balance of this Agreement; and
b) The TJLP shall apply to the debit balance on the interest due dates mentioned in Paragraph Two or on the date of maturity or settlement of this Agreement, subject to the provisions of clause a, it being understood that the daily calculation of interest shall take into account the number of days elapsed between the date of each financial event and the abovementioned due dates; and
II When the TJLP is equal to or less than six percent (6%) per annum :
The TJLP shall apply to the debit balance on the interest due dates mentioned in Paragraph Two or on the date of maturity or settlement of this Agreement, it being understood that the daily calculation of interest shall take into account the number of days elapsed between the date of each financial event and the abovementioned due dates.
PARAGRAPH ONE
The amount referred to in item I, clause a, which shall be capitalized and incorporated into the principal amount of the debt, shall be payable in accordance with the provisions of Section Six (Repayment).
PARAGRAPH TWO
The amount determined in accordance with the provisions of item I, clause b or item II shall be payable quarterly, on the fifteenth (15 th ) day of December, March, June, and September of each year, during the period between December 15, 2015 and March 15, 2018, and monthly, beginning on April 15, 2018, together with the principal amount repayment installments, and at the maturity or settlement of this Agreement, subject to the provisions of Section Seventeen (Due Dates on Public Holidays).
FIVE
DEBT PROCESSING AND COLLECTION
The collection of principal amount and charges shall be made through a collection document issued in advance by the BNDES for the BENEFICIARY to settle such obligations on their due dates.
SOLE PARAGRAPH
No failure to receive the collection document shall exempt the BENEFICIARY from its obligation to pay the principal amount installments and charges on the dates set forth in this Agreement.
SIX
REPAYMENT
The principal amount of the debt arising from this Agreement shall be paid to the BNDES in forty-eight (48) successive monthly installments, each in the principal amount of the debt becoming due, divided by the number of repayment installments not yet due, the first of which shall be due and payable on April fifteen (15), 2018, subject to the provisions of Section Seventeen (Due Dates on Public Holidays), and the BENEFICIARY agrees to settle all obligations arising from this Agreement together with the last installment, on March fifteen (15), 2022.
SEVEN
CHANGE IN THE LEGAL STANDARD FOR COMPENSATION OF FUNDS ORIGINATING FROM THE PIS/PASEP FUND AND/OR FROM THE FAT
If the legal standard for compensation of the funds transferred to the BNDES and originating from the PIS/PASEP Equity Fund and/or from the Worker Support Fund (FAT) is replaced, the compensation set forth in Sections Three (Interest on Subcredit A) and Four (Incident on Subcredit B) may, at the discretion of the BNDES, use such new standard for compensation of such funds or any other standard indicated by the BNDES which, in addition to preserving the actual amount of the transaction, compensates at the same levels as before. In this case, the BNDES shall give written notice of such change to the BENEFICIARY.
EIGHT
SPECIAL OBLIGATIONS OF THE BENEFICIARY
The BENEFICIARY agrees to:
i Comply, as applicable, until the final settlement of the debt arising from this Agreement, with the PROVISIONS APPLICABLE TO BNDES CONTRACTS approved by Resolution No. 665 of December 10, 1987, as partially amended by Resolution No. 775 of December 16, 1991, by Resolution No. 863 of March 11, 1996, by Resolution No. 878 of September 4, 1996, by Resolution No. 894 of March 6, 1997, by Resolution No. 927 April 1, 1998, by Resolution No. 976 of September 29, 2001, by Resolution No. 1.571 of March 4, 2008, by Resolution No. 1.832 of September 15, 2009, by Resolution No. 2.078 of March 15, 2011, by Resolution No. 2.139 of August 30, 2011, by Resolution No. 2.181 of November 8, 2011, by Resolution No. 2.556 of December 23, 2013, by Resolution No. 2.558 of December 23, 2013, by Resolution No. 2.607 of April 8, 2014, and by Resolution No. 2.616 of May 6, 2014, all issued by the Executive Board the BNDES and published in the Federal Register ( Diário Oficial da União ) (Section I) on December 29, 1987, December 27, 1991, April 8, 1996, September 24, 1996, March 19, 1997, April 15, 1998, October 31, 2001, March 25, 2008, November 6, 2009, April 4, 2011, September 13, 2011, November 17, 2011, January 1, 2014, February 14, 2014, May 6, 2014, and September 3, 2014, respectively, a copy of which is hereby delivered to the BENEFICIARY, which, having become aware of all the contents thereof, represents that it accepts it as an integral and inseparable part of this Agreement for all legal purposes and effects;
II Execute and complete the project financed hereunder within twenty-one (21) months from the date of issuance of this Agreement, without prejudice to the BNDESs option, before or after the expiration of such term, under the guarantees set forth in this Agreement, to extend such term upon express authorization by letter, regardless of any other formality or registration;
III In the event of a downsizing of the staff of the BENEFICIARY during the term of this Agreement as a result of the project referred to in Section One (Nature, Amount, and Purpose of the Agreement), Sole Paragraph, offer a training program focused on job opportunities in the region and/or a worker repositioning program, upon submission to the BNDES for consideration of a document specifying and attesting to the completion of the negotiations held with the relevant trade union or unions involved in the dismissal process;
IV Take, during the term of this Agreement, measures and actions to prevent or correct any damage to the environment and occupational safety and health which may be caused by the project referred to in Section One (Nature, Amount, and Purpose of the Agreement), Sole Paragraph ;
V Maintain its good standing as to its obligations to the environmental agencies during the term of this Agreement;
VI Comply, during the term of this Agreement, with the provisions of law applicable to disabled persons;
VII Give notice to the BNDES, within thirty (30) calendar days from the date when it becomes aware of such event, that it or any of its subsidiaries or any of their respective managers, employees, agents, representatives, suppliers, contractors, or subcontractors are involved in any investigation, inquiry, action, and/or judicial or administrative proceeding relating to the perpetration of harmful acts, violations, or crimes against the economic or tax order, criminal laundering or concealment of assets, rights, and valuables, or crimes against the National Financial System, the Capital Market, or a national or foreign public administration, including, without limitation, any wrongdoings that may give rise to administrative, civil, or criminal liability under Laws No. 6.385 of December 7, 1976, No. 7.492 of June 16, 1986, No. 8.137 of December 27, 1990, No. 8.429 of June 2, 1992, No. 8.666 of June 21, 1993 (or any other rules on government biddings and contracts), No. 9.613 of March 3, 1998, No. 12.529 of November 30, 2011, and No. 12.846 of August 1, 2013, as well as:
a) Provide a copy of any decisions rendered in said procedures, as well as detailed information on any measures taken in response to such procedures, in which the Beneficiary, any of its subsidiaries, or their respective managers, employees, agents, or representatives are involved; and
b) Submit to the BNDES, as soon as available, a copy of any judicial or extrajudicial settlements, consent decrees, leniency agreements, or similar agreements that may be executed in which the Beneficiary, any of its subsidiaries, or their respective managers, employees, agents, or representatives are involved;
VIII Not offer, promise, give, authorize, solicit, or accept, directly or indirectly, any undue monetary or other advantage relating in any way to the purpose of this Agreement and take all measures within its power to prevent its own or its subsidiaries managers, employees, agents, representatives, suppliers, contractors, or subcontractors from doing so;
X Give notice to the BNDES, on the date of the event, of the name and Individual Taxpayers Register of the Ministry of Finance (CPF/MF) number of any person who, whether exercising a salaried position or being among its owners, controlling members, or officers, is certified or takes office as a Federal Deputy or Senator;
XI Disclose, on the website of the BENEFICIARY on the Internet and in a prominent place at the headquarters of the company, that it is a financial cooperation BENEFICIARY of the BNDES, according to the model to be provided by the BNDES;
XII Not incorporate, directly or indirectly, or acquire an equity interest in companies, within the Country or abroad, without prior express authorization from the BNDES, throughout the term of the Agreement, except in case of transactions involving less than fifty million Reais (R$50,000,000.00);
XIII Submit to the BNDES, within thirty (30) days from the date of correspondence from the BNDES so requiring, throughout the term of this Agreement, copies of the Income Tax Returns of the BENEFICIARY for the fiscal years requested;
XIV Submit, whenever requested by the BNDES, documents of any nature of companies in which it holds any direct or indirect equity interest;
XV Not transfer, assign, encumber, or dispose of, under any circumstances or in any manner, its ownership rights in any technology or products developed by the BENEFICIARY with funds from this Agreement without prior express authorization from the BNDES;
XVI Not grant loans, directly or indirectly, including by subscription of debentures or profit-sharing bonds, to any individuals or legal entities, whether or not members of the same business group as the BENEFICIARY, without prior authorization from the BNDES, subject to the provisions of items XVI.1 and XVI.2 below;
XVI.1 The transactions described in Item XVI include advancements and/or any other transactions relating to the granting of credits in favor of members and related parties;
XVI.2 The interest on the loans shall be at least three percent (3%) above that stipulated in Section Three (Incident on Subcredit A), except when such transactions are carried out for the purpose described in Section One (Nature, Amount, and Purpose of the Agreement), Sole Paragraph;
XVII Not assume any new debts, directly or indirectly, including by issuance of debentures or profit-sharing bonds, before any individuals or legal entities, whether or not members of the same business group as the BENEFICIARY, without prior authorization from the BNDES, subject to the provisions of item XVII.1 below;
XVII.1 The following events are not included in the debts referred to in Item XVII above: (i) financings entered into directly and/or indirectly with the BNDES, (ii) transactions carried out to meet ordinary businesses of the BENEFICIARY, and (iii) loans the amounts of which do not exceed the amount of ten million Reais (R$10,000,000.00) per business year throughout the term of this Agreement;
XVIII Submit to the BNDES, within the term of the Agreement, within one hundred and eighty (180) days after the end of each fiscal year, consolidated annual financial statements covering its individual results and the results of all its subsidiaries headquartered within the national territory, together with the respective opinions prepared by an independent audit firm registered with the Brazilian Securities Commission (CVM);
XIX Not create, except upon prior express authorization from the BNDES, security interests of any kind in transactions with other creditors without providing the same type of security to the BNDES under the same conditions and with the same priority, except in the events set forth in Item XX of this Section;
XX Given prior express notice to the BNDES of the creation of any security interest by operation of law or as a bond in connection with any lawsuits and administrative proceedings in which it appears as a defendant*, as well as in the event of fiduciary ownership in financings for purchase of equipment;
XXI Not sell or encumber, without prior authorization from the BNDES, any permanent assets the amount of which exceeds twenty million Reais (R$20 Million) per annum, except in the case of:
a) Unserviceable or obsolete goods; or
b) Assets which are replaced by new ones with identical purpose; and
XXII Submit, within ninety (90) days from the date of execution of this Agreement, the details of the social project or projects referred to in Section One, Sole Paragraph, item II, contemplating the social actions developed by the BENEFICIARY, in terms deemed satisfactory by the BNDES.
NINE
OBLIGATIONS OF THE PARENT INTERVENING PARTY
The INTERVENING PARTY identified in the preamble to this Agreement hereby agrees to:
I Submit to the BNDES for approval any proposals concerning matters relating to the encumbrance, on any account, of any share held by it in the share capital of the BENEFICIARY, to the sale, acquisition, merger, consolidation, spin-off, or any other act that implies or may imply changes in the current setup of the BENEFICIARY, a transfer of the corporate control of the BENEFICIARY, or its ceasing from being a majority member of the BENEFICIARY;
II Not cause the inclusion in any corporate agreement, bylaws, or articles of association of the BENEFICIARY of any provision that implies:
a) Restrictions on the growth capacity or technological development of the BENEFICIARY; or
b) Restrictions on the access of the BENEFICIARY to new markets; or
c) Restrictions on or impairment of its ability to pay the financial obligations under its transactions with the BNDES;
III Not take any actions or measures that impair or alter the economic and financial balance of the BENEFICIARY;
IV Take all the necessary measures to ensure the fulfillment of the purpose of this transaction;
V Not incorporate, directly or indirectly, or acquire an equity interest in companies, within the Country or abroad, without prior express authorization from the BNDES, throughout the term of the Agreement, except in case of transactions involving less than fifty million Reais (R$50,000,000.00);
VI Submit, whenever requested by the BNDES, documents of any nature of companies in which it holds any direct or indirect equity interest;
VII Submit to the BNDES, within thirty (30) days from the date of correspondence from the BNDES so requiring, throughout the term of this Agreement, copies of its Income Tax Returns for the fiscal years requested;
VIII Request prior consent from the BNDES to any transfer, assignment, encumbrance, or disposal of shares issued by the BENEFICIARY and its subsidiaries throughout the term of this Agreement;
IX Not sell or encumber, without prior authorization from the BNDES, any permanent assets the amount of which exceeds ten million Reais (R$10,000,000.00) per annum, except in the case of:
a) Unserviceable or obsolete goods; or
b) Assets which are replaced by new ones with identical purpose; and
X Maintain, during the term of the Agreement, two of the following ratios, as determined semi-annually in its consolidated financial statements audited by an independent audit firm registered with the Brazilian Securities Commission:
a) General Indebtedness/Total Assets: equal to or less than 60%;
b) Net Debt/EBITDA: equal to or less than 2.00;
c) EBITDA/Net Operating Revenue: equal to or greater than 20%.
PARAGRAPH ONE
If the BENEFICIARY fails to achieve at least two of the ratios established in Item X of this Section, it agrees to either create, within one hundred and eighty (180) days from the date of written notice from the BNDES, security interests accepted by the BNDES in an amount corresponding to at least one hundred and thirty percent (130%) of the amount of the financing or of the debt arising therefrom or submit a bank guarantee for the total amount of the debt provided by a financial institution which, at the discretion of the BNDES, is in an economic and financial situation that ensures it a degree of notorious solvency, unless two of the abovementioned ratios are achieved within such period.
PARAGRAPH TWO
For purposes of calculation of the ratios set forth in Item X of this Section, the following definitions and standards shall be adopted:
a) EBITDA - Operating Income before interest, income tax, depreciation, and amortization;
b) Net Debt Aggregate sum of the balance of the consolidated onerous debts of the INTERVENING PARTY, including loans and financings, mutuums, issuance of fixed-income securities, promissory notes, and debentures, whether convertible or not, in the local or international capital market, as well as the sale or assignment of future receivables, if they are accounted for as obligations, and other indebtedness financial transactions of the company recorded in current and non-current liabilities less Cash and Cash Equivalents (cash and financial investments);
c) General Indebtedness Aggregate sum of Current and Non-Current Liabilities;
d) The parameters relating to the result (i.e. EBITDA and Net Operating Revenue) refer to the figures for the last twelve (12) months prior to the calculation;
e) The financial ratio referred to in item X, clause b of the main provision of this Section shall be regarded as not achieved if the figure determined for such ratio is negative due to negative EBITDA; and
f) For purposes of calculation of the financial ratio referred to in item X, clause b of the main provision of this Section, the amounts classified in the Balance Sheet of the INTERVENING PARTY as Accounts Payable for Acquisition of Subsidiaries shall not be regarded as Net Debt.
TEN
LIABILITY IN CORPORATE SUCCESSION
In the event of corporate succession, any successors of the BENEFICIARY shall be jointly and severally liable for the obligations arising from this Agreement.
SOLE PARAGRAPH
The main provision of this Section shall not apply in the event of prior consent from the BNDES to the waiver of joint and several liability in a partial spin-off.
ELEVEN
MUTUAL POWER OF ATTORNEY
The BENEFICIARY and the INTERVENING PARTY hereby irrevocably and irreversibly mutually appoint each other their attorneys-in-fact until the final settlement of the debt hereunder, with powers to receive service of process, notices, and summons, as well as with general judicial powers, which may be delegated to counsel, all in connection with any judicial or extrajudicial proceedings that are filed against them by the BNDES as a result of this Agreement, it being understood that they may take all actions necessary for a good and faithful performance of this power of attorney.
TWELVE
CONDITIONS FOR RELEASE OF THE FINANCIAL COOPERATION
In addition to compliance, as appropriate, with the conditions set forth in articles 5 and 6 of the abovementioned PROVISIONS APPLICABLE TO BNDES CONTRACTS and in the MONITORING RULES AND INSTRUCTIONS referred to in article 2 of such PROVISIONS , the release of the financial cooperation shall be subject to the following:
I For the release of the first Credit installment : submission of this Financing Agreement, with all legal formalities, including the relevant recordations in the Registries of Deeds and Documents of the Judicial Districts of Rio de Janeiro (RJ) and São Paulo (SP);
II For the use of the first installment of Subcredit B : submission of the social project or projects referred to in Section One, Sole Paragraph, item II approved by the BNDES and contemplating the social actions developed by the BENEFICIARY.
III For release of each Credit installment :
a) No occurrence of any fact that, at the discretion of the BNDES, may substantially alter the economic and financial status of the BENEFICIARY or impair the execution of the project financed hereunder by altering it or preventing its completion in accordance with the terms of the project approved by the BNDES;
b) Submission by the BENEFICIARY of a Certificate of No Outstanding Federal Tax Liability (CND) or of a Certificate of Suspended Federal Tax Liability (CPEND) issued jointly by the Brazilian Federal Revenue Service (RFB) and by the Office of the General Counsel for the National Treasury (PGFN) via INTERNET, to be obtained by the BENEFICIARY at www.receita.fazenda.gov.br or www.pqfn.fazenda.gov.br and checked by the BNDES on the same websites; and
c) Proof of good standing with environmental agencies or, if such proof has already been submitted and is in force, a statement from the BENEFICIARY of the continued validity of such document.
THIRTEEN
GUARANTEE
LINX S.A., identified in the preamble, accepts this Agreement in the capacity of guarantor and principal payor and expressly waives the benefits of articles 366, 827, and 838 of the Civil Code, it being understood that it shall be jointly and severally liable, until the final settlement of this Agreement, for the faithful and exact performance of all the obligations assumed by the BENEFICIARY hereunder.
FOURTEEN
DEFAULT
In the event of default of any obligations assumed by the BENEFICIARY and by the INTERVENING PARTIES, the provisions of arts. 40-47-A of the PROVISIONS APPLICABLE TO BNDES CONTRACTS referred to in Section Eight (Special Obligations of the Beneficiary), item I shall apply.
FIFTEEN
EARLY SETTLEMENT OF THE DEBT
In the event of early settlement of the debt, the guarantees shall be released, subject to the provisions of art. 18, paragraph two of the PROVISIONS APPLICABLE TO BNDES CONTRACTS referred to in Section Eight (Special Obligations of the Beneficiary), item I.
SIXTEEN
ACCELERATION
The BNDES may accelerate this Agreement, upon which the debt shall become enforceable and any disbursements shall be immediately suspended, if, in addition to the events mentioned in articles 39 and 40 of the PROVISIONS APPLICABLE TO BNDES CONTRACTS referred to in Section Eight (Special Obligations of the Beneficiary), item I, the BNDES can demonstrate:
a) A downsizing of the staff of the BENEFICIARY in violation of the provisions of Section Eight (Special Obligations of the Beneficiary), item III;
b) The existence of a final and unappealable adverse judgment resulting from any actions taken by the Beneficiary which imply child labor, slave labor, or environmental crime; or
c) The inclusion in a corporate agreement, bylaws, or articles of association of the BENEFICIARY or of any of its controlling companies of any provision that implies restrictions on or an impairment of its ability to pay its financial obligations arising from this transaction.
PARAGRAPH ONE
This Agreement shall be accelerated, upon which the debt shall become enforceable and any disbursements shall be immediately suspended, in the event of application of the proceeds from this Agreement to any purpose other than that provided for in Section One (Nature, Amount, and Purpose of the Agreement). The BNDES shall give notice of such fact to the Federal Prosecution Office for the purposes and effects of Law No. 7.492 of June 16, 1986.
PARAGRAPH TWO
This Agreement shall also be accelerated, upon which the debt shall become enforceable and any disbursements shall be immediately suspended, on the date when any person who exercises a salaried position at the BENEFICIARY or is among its owners, controlling members, or officers is certified or takes office as a Federal Deputy or Senator, as such persons are subject to the prohibitions set forth in article 54, items I and II of the Federal Constitution. No default charges shall be imposed if the payment occurs within five (5) business days from the date of such certification, under penalty of otherwise the charges established for events of acceleration due to default being imposed.
PARAGRAPH THREE
No acceleration based on the provisions of clause b shall occur if the remediation imposed is complied with or as long as the sentence imposed on the Beneficiary is being served, subject to the due process of law.
SEVENTEEN
DUE DATES ON PUBLIC HOLIDAYS
The due dates of all principal and charges repayment installments which fall on Saturdays, Sundays, or national, state, district, or municipal public holidays, including banking holidays, shall be, for all purposes and effects of this Agreement, postponed to the first subsequent business day, in which case the charges shall be calculated up to such date, and the following regular period for determination and calculation of the charges under this Agreement shall also start on such date.
SOLE PARAGRAPH
Unless otherwise expressly provided, the public holidays in the place where the principal place of business of the BENEFICIARY is located, the address of which is indicated in this Agreement, shall be considered for the purposes of the main provision of this Section.
EIGHTEEN
AUTHORIZATION
The BENEFICIARY authorizes the BNDES to deduct from the first credit installment, at the time of release thereof, an amount of one hundred and sixty-two thousand Reais (R$162,000.00) for the Financial Cooperation Commission mentioned in Section Nineteen (Financial Cooperation Commission).
NINETEEN
FINANCIAL COOPERATION COMMISSION
The BENEFICIARY shall pay to the BNDES a Financial Cooperation Commission of zero point three percent (0.3%) on the amount of this Agreement.
PARAGRAPH ONE
The amount of the Financial Cooperation Commission shall be discounted from the first credit release.
PARAGRAPH TWO
If the first release does not occur, or if the amount mentioned in Paragraph One of this Section is not deducted from the first credit release, the BENEFICIARY agrees to pay it to the BNDES within forty-five (45) days to from the date on which it is notified to do so.
PARAGRAPH THREE
If the Financial Cooperation Commission is not paid as provided for in this Section, the BENEFICIARY shall be subject to the sanctions set forth in this Agreement and in the PROVISIONS APPLICABLE TO BNDES CONTRACTS referred to in Section 8 (Special Obligations of the Beneficiary) of this Agreement.
TWENTY
COMMISSIONS AND CHARGES
The BENEFICIARY acknowledges that it shall pay Commissions and Charges to the BNDES, subject to the events of application and to the amounts disclosed by the BNDES on the website www.bndes.gov.br.
TWENTY-ONE
JURISDICTION
The courts of Rio de Janeiro and the courts sitting in the place where the headquarters of the BNDES are located are hereby elected as the Courts of competent jurisdiction for any disputes arising from this Agreement which cannot be resolved out of court.
TWENTY-TWO
ENVIRONMENTAL LIABILITY
The BENEFICIARY agrees, regardless of fault, to reimburse the BNDES for any amount that it is compelled to pay due to any environmental damage arising from the project referred to in Section One (Nature, Amount, and Purpose of the Agreement), as well as to indemnify the BNDES for any losses or damages it may suffer as a result of such environmental damage.
TWENTY-THREE
DECLARATION OF LOYAL PRACTICES
The Beneficiary represents, as of the date of execution of this Agreement, that it is in compliance with any anti-corruption laws, regulations, and policies to which it is subject, as well as with any orders and rules issued by any governmental body or entity to which it is subject, for purposes of combating or mitigating risks related to corrupt practices, harmful acts, violations, or crimes against the economic or tax order, criminal laundering or concealment of assets, rights, and valuables, or crimes against the National Financial System, the Capital Market, or a national or foreign public administration, including, without limitation, any wrongdoings that may give rise to administrative, civil, or criminal liability under Laws No. 6.385 of December 7, 1976, No. 7.492 of June 16, 1986, No. 8.137 of December 27, 1990, No. 8.429 of June 2, 1992, No. 8.666 of June 21, 1993 (or any other rules on government biddings and contracts), No. 9.613 of March 3, 1998, No. 12.529 of November 30, 2011, and No. 12.846 of August 1, 2013.
BENEFICIARY LINX SISTEMAS E CONSULTORIA LTDA. has submitted Certificate of Suspended Federal Tax Liability (CPEND) No. D1.EF.639D.199D.3EF9 issued jointly by the Brazilian Federal Revenue Service and by the Office of the General Counsel for the National Treasury on October 21, 2015 and valid until April 18, 2016.
INTERVENING PARTY LINX S.A. has submitted a Certificate of No Outstanding Federal Tax Liability (CND) No. 559E.3FF1.8309.A797 issued jointly by the Brazilian Federal Revenue Service and by the Office of the General Counsel for the National Treasury on November 11, 2015 and valid until May 1, 2016.
The BNDES is represented herein by its Vice President, in accordance with the power of attorney drawn up in Book No. 944, page No. 031, act No. 022 of the Office of the 22 nd Notary Public of the Judicial District of the Capital of the State of Rio de Janeiro, as signing and identified below.
The pages of this Instrument were initialed by Natália Teixeira Fernandes, counsel for the BNDES, upon authorization from the undersigned legal representatives.
In witness whereof, the parties executed this instrument in three (3) identical counterparts, in the presence of the undersigned witnesses.
Rio de Janeiro, December 11, 2015.
For the BNDES:
/s/ Wagner Bittencourt |
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/s/ Júlio C M Ramundo |
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BANCO NACIONAL DE DESENVOLVIMENTO ECONÔMICO E SOCIAL - BNDES |
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Name: Wagner Bittencourt |
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Name: Júlio C M Ramundo |
Title: Vice President |
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Title: Officer |
For the BENEFICIARY:
/s/ Alberto Menache |
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/s/ Dennis Herszkowicz |
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LINX SISTEMAS E CONSULTORIA LTDA. |
Name: |
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Name: |
Title: |
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Title: |
FOR THE INTERVENING PARTY
/s/ Alberto Menache |
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/s/ Dennis Herszkowicz |
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L INX S.A. |
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Name: |
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Name: |
Title: |
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Title: |
WITNESSES:
/s/ Amanda Ribeiro |
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/s/ Allan Nascimento Turano |
Name : Amanda Ribeiro |
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Name : ALLAN NASCIMENTO TURANO |
I dentity No.: 113280770 |
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I dentity No.: 25814677-8 |
Individual Taxpayers Register (C PF) No.: 11521069700 |
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Individual Taxpayers Register (C PF) No.: 137.668.957-02 |
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/s/ Natalia Teixeira Fernandes Lopez |
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Attorney-at-Law |
Exhibit 10.6
BNDES
REGISTRATION 1151290
CREDIT FACILITY FINANCING AGREEMENT NO. 13.2.0488.1 ENTERED INTO BY AND BETWEEN THE NATIONAL BANK FOR ECONOMIC AND SOCIAL DEVELOPMENT (BNDES) AND INTERCAMP SISTEMAS E COMÉRCIO DE INFORMÁTICA S/A, WITH INTERVENING THIRD PARTIES, AS PROVIDED BELOW:
The NATIONAL BANK FOR ECONOMIC AND SOCIAL DEVELOPMENT (BANCO NACIONAL DE DESENVOLVIMENTO ECONÔMICO E SOCIAL - BNDES), herein referred to simply as the BNDES, a federal publicly-held company, with its principal place of business in Brasília, Federal District, and services in this City, at Avenida República do Chile No. 100, enrolled with the National Corporate Taxpayers Register (CNPJ) under No. 33.657.248/0001-89, by its undersigned representatives;
and
INTERCAMP SISTEMAS E COMÉRCIO DE INFORMÁTICA S/A, hereinafter referred to as the BENEFICIARY, a joint-stock company with its principal place of business at Avenida Doutor Romeu Tortima, No. 413, Jardim Santa Genebra, in the City of Campinas, State of São Paulo, Postal Code (CEP) No. 13.084-791, enrolled with the National Corporate Taxpayers Register (CNPJ) under No. 04.582.447/0001-77, by its undersigned representatives; and also, as INTERVENING PARTIES:
I LEONARDO WASCHECK, Brazilian, married to Alessandra Aparecida Banstarch under the separation property regime, systems analyst, resident and domiciled at Rua Dalva Maria Fernandes Pinheiro, No. 35, Residencial Barão do Café, Campinas, São Paulo, holder of Identity Card No. 16.257.660-2 SSP-SP and enrolled with the Individual Taxpayers Register of the Ministry of Finance (CPF/MF) under No. 173.869.378-30;
II RODRIGO WASCHECK, Brazilian, married to Maria Cristina Martins Butignoli under the partial community property regime, civil engineer, resident and domiciled at Rua Luiza de Mello Bueno, No. 456, Parque das Universidades, Campinas, São Paulo, holder of Identity Card No. 14.483.512-5 SSP-SP and enrolled with the CPF/MF under No. 069.842.268-64;
III MARIA CRISTINA MARINS BUTIGNOLI WASCHECK, Brazilian, married to Rodrigo Wascheck under the partial community property regime, Public Relations graduate, resident and domiciled at Rua Luiza de Mello Bueno, No. 456, Parque das Universidades, Campinas, São Paulo, holder of Identity Card No. 18.960.937-5 SSP-SP and enrolled with the CPF/MF under No. 191.490.978-06;
IV PAULO HENRIQUE PALÁCIOS, Brazilian, living in a steady union without formal agreement with Luciane Nalin de Souza, businessman, resident and domiciled at Rua São Salvador, No. 225, apt. 91, Jardim Belo Horizonte, Campinas, São Paulo, Postal Code 13076-540, holder of Identity Card No. 16.626.947-5 SSP-SP and enrolled with the CPF/MF under No. 150375068-08; and
V LUCIANE NALIN DE SOUZA, Brazilian, living in a steady union without formal agreement with Paulo Henrique Palácios, systems analyst, resident and domiciled at Rua São Salvador, No. 225, apt. 91, Jardim Belo Horizonte, Campinas, São Paulo, Postal Code 13076-540, holder of Identity Card No. 19.415.829-9 SSP-SP and enrolled with the CPF/MF under No. 169.977.978-30; have mutually agreed as follows:
ONE
NATURE, AMOUNT, AND PURPOSE OF THE AGREEMENT
By this Agreement, the BNDES grants to the BENEFICIARY a credit in the amount of two million, seven hundred and nine thousand, two hundred and fifty-one Reais (R$2,709,251.00) out of its ordinary funds, which consist, among other sources, of funds from the Worker Support Fund (FAT) and funds originating from the FAT Special Deposits and from the Social Integration Program/Civil Servant Asset Formation Program (PIS/PASEP) Equity Fund, subject, as to their allocation, to the laws applicable to each such source, in accordance with the provisions of Section Two, Paragraph
Two, designed for investments in investment plan of the BENEFICIARY, which contemplates infrastructure, training and quality research and development, marketing, and sales actions, within the scope of the BNDES Program for the Development of the Domestic Software and Information Technology Services Industry (BNDES PROSOFT Empresa).
TWO
CREDIT AVAILABILITY
The credit shall be made available to the BENEFICIARY, in installments, upon satisfaction of the conditions precedent for use referred to in Section Twelve, according to the needs for the execution of the financed project, subject to the BNDES financial schedule, which is subordinated to the definition of funds for its investments by the National Monetary Council.
PARAGRAPH ONE
At the time of release of the funds under this transaction, the debits determined by law and those contractually authorized by the BENEFICIARY shall be made. The total remaining balance of funds available to the BENEFICIARY shall be immediately transferred to checking account No. 10.547-7 held by the BENEFICIARY with Banco Itaú, branch No. 0670.
PARAGRAPH TWO
The amount of each credit installment to be made available to the BENEFICIARY shall be calculated in accordance with the criteria set forth in the law establishing the Long-Term Interest Rate (TJLP) for determination of debit balances of financings contracted in the BNDES System until November 30, 1994.
THREE
INTEREST
The principal amount of the debt owed by the BENEFICIARY shall bear interest at a rate of one percent (1.0%) per annum (by way of consideration) above the Long-Term Interest Rate (TJLP) as published by the Central Bank of Brazil, in accordance with the following system:
I When the TJLP is greater than six percent (6%) per annum :
a) The amount corresponding to the TJLP portion that exceeds six percent (6%) per annum shall be capitalized on the fifteenth (15 th ) day of each month of the term of this Agreement and at its maturity or settlement, subject to the provisions of Section Nineteen, and calculated based on the application of the following capitalization term on the debit balance, taking into account all the financial events occurred during the period:
TC = [(1 + TJLP)/1.06] n/360 1 (capitalization term equal to, opens bracket, ratio between the TJLP plus one and one point zero six, closes bracket, raised to a power corresponding to the ratio between n and three hundred and sixty, less one), where:
TC capitalization term;
TJLP Long-Term Interest Rate, as published by the Central Bank of Brazil; and
n number of days between the date of the financial event and the date of capitalization, maturity, or settlement of the obligation, it being understood that financial event shall mean any and all events of a financial nature which result or may result in a change in the debit balance of this Agreement; and
b) The percentage of one percent (1.0%) per annum above the TJLP (compensation) referred to in the main provision of this Section plus the non-capitalized portion of TJLP of six percent (6%) per annum shall apply to the debit balance on the interest due dates mentioned in Paragraph Two or on the date of maturity or settlement of this Agreement, subject to the provisions of clause a, it being understood that the daily calculation of interest shall take into account the number of days elapsed between the date of each financial event and the abovementioned due dates; and
II When the TJLP is equal to or less than six percent (6%) per annum :
The percentage of one percent (1.0%) per annum above the TJLP (compensation) referred to in the main provision of this Section plus the TJLP itself shall apply to the debit balance on the interest due dates mentioned in Paragraph Two or on the date of maturity or settlement of this Agreement, it being understood that the daily calculation of interest shall take into account the number of days elapsed between the date of each financial event and the abovementioned due dates.
PARAGRAPH ONE
The amount referred to in item I, clause a, which shall be capitalized and incorporated into the principal amount of the debt, shall be payable in accordance with the provisions of Section Six.
PARAGRAPH TWO
The amount determined in accordance with the provisions of item I, clause b or item II shall be payable quarterly, on the fifteenth (15 th ) day of March, June, September and December of each year, during the period between September 15, 2013 and September 15, 2015, and monthly, from and including October 15, 2015, together with the principal amount repayment installments, and at the maturity or settlement of this Agreement, subject to the provisions of Section Nineteen.
FOUR
CHARGE FOR CREDIT RESERVE
The BENEFICIARY shall pay to BNDES a Charge for Credit Reserve at the rate of one tenth percent (0.1%), chargeable for thirty (30)-day periods or fraction thereof and levied on:
I - the credit amount, for a period from July 13, 2013 to the date hereof, the respective payment of which is required for initial use of the credit, of which it shall be deductible because the agreement was entered into after the lapse of the term set forth by the BNDES;
II - the unused balance of each installment of the credit, from the date immediately following the date of availability thereof to the date of the use, when the payment thereof shall be enforceable; and
III - the unused balance of the credit, from the day immediately following the date of availability thereof to the date of cancellation, made at the request of the BENEFICIARY, or at the initiative of the BNDES, and the payment of which shall be enforceable on the date of the request or of BNDES decision, as the case may be.
SOLE PARAGRAPH
The levy of the charge referred to in aforementioned items II and III shall occur in the event of fixation of a system of availability of funds.
FIVE
DEBT PROCESSING AND COLLECTION
The collection of principal amount and charges shall be made through a Collection Notice issued in advance by the BNDES for the BENEFICIARY to settle such obligations on their due dates.
SOLE PARAGRAPH
No failure to receive the Collection Notice shall exempt the BENEFICIARY from its obligation to pay the principal amount installments and charges on the dates set forth in this Agreement.
SIX
REPAYMENT
The principal amount of the debt arising from this Agreement shall be paid to the BNDES in forty-eight (48) successive monthly installments, each in the principal amount of the debt becoming due, divided by the number of repayment installments not yet due, the first of which shall be due and payable on October fifteen (15), 2015, subject to the provisions of Section Nineteen, and the BENEFICIARY agrees to settle all obligations arising from this Agreement together with the last installment, on September fifteen (15), 2019.
SEVEN
CHANGE IN THE LEGAL STANDARD FOR COMPENSATION OF FUNDS ORIGINATING FROM THE PIS/PASEP FUND AND/OR FROM THE FAT
If the legal standard for compensation of the funds transferred to the BNDES and originating from the PIS/PASEP Equity Fund and/or from the Worker Support Fund (FAT) is replaced, the compensation set forth in Section Three may, at the discretion of the BNDES, use such new standard for compensation of such funds or any other standard indicated by the BNDES which, in addition to preserving the actual amount of the transaction, compensates at the same levels as before. In this case, the BNDES shall give written notice of such change to the BENEFICIARY.
EIGHT
SPECIAL OBLIGATIONS OF THE BENEFICIARY
The BENEFICIARY agrees to:
I Comply, as applicable, until the final settlement of the debt arising from this Agreement, with the PROVISIONS APPLICABLE TO BNDES CONTRACTS approved by Resolution No. 665 of December 10, 1987, as partially amended by Resolution No. 775 of December 16, 1991, by Resolution No. 863 of March 11, 1996, by Resolution No. 878 of September 4, 1996, by Resolution No. 894 of March 6, 1997, by Resolution No. 927 April 1, 1998, by Resolution No. 976 of September 29, 2001, by Resolution No. 1.571 of March 4, 2008, by Resolution No. 1.832 of September 15, 2009, by Resolution No. 2.078 of March 15, 2011, by Resolution No. 2.139 of August 30, 2011, and by Resolution No. 2.181 of November 8, 2011, all issued by the Executive Board the BNDES and published in the Federal Register ( Diário Oficial da União ) (Section I) on December 29, 1987, December 27, 1991, April 8, 1996, September 24, 1996, March 19, 1997, April 15, 1998, October 31, 2001, March 25, 2008, November 6, 2009, April 4, 2011, September 13, 2011 and November 17, 2011, respectively, a copy of which is hereby delivered to the BENEFICIARY, which, having become aware of all the contents thereof, represents that it accepts it as an integral and inseparable part of this Agreement for all legal purposes and effects;
II To use the total credit amount within twenty-four (24) months from the date of execution of this Agreement, without prejudice to the BNDESs option, before or after the expiration of such term, under the guarantees set forth in this Agreement, to extend such term upon express authorization by letter, regardless of any other formality or registration;
III In the event of a downsizing of the staff of the BENEFICIARY during the term of this Agreement as a result of the project referred to in Section One, offer a training program focused on job opportunities in the region and/or a worker repositioning program, upon submission to the BNDES for consideration of a document specifying and attesting to the completion of the negotiations held with the relevant trade union or unions involved in the dismissal process;
IV Take, during the term of this Agreement, measures and actions to prevent or correct any damage to the environment and occupational safety and health which may be caused by the project referred to in Section One ;
V Maintain its good standing as to its obligations to the environmental agencies during the term of this Agreement;
VI Comply, during the term of this Agreement, with the provisions of law applicable to disabled persons;
VII Give notice to the BNDES, on the date of the event, of the name and Individual Taxpayers Register of the Ministry of Finance (CPF/MF) number of any person who, whether exercising a salaried position or being among its owners, controlling members, or officers, is certified or takes office as a Federal Deputy or Senator;
VIII Formalize the appointment of new guarantors to assume the charge that is the subject matter of Section Thirteen, within up to thirty (30) days as from the death, interdiction or declaration of absence of the Intervening Parties LEONARDO WASCHECK, RODRIGO WASCHECK and PAULO HENRIQUE PALÁCIOS;
IX - Submit to the BNDES, during the term of the Agreement, within one hundred and twenty (120) days after the end of each fiscal year, the financial statement covering its individual results and the results of all its subsidiaries, jointly with the respective opinions prepared by an independent audit firm registered with the Brazilian Securities Commission - CVM;
X Disclose, on the website of the BENEFICIARY on the Internet and in a prominent place at the headquarters of the company, that it is a financial cooperation beneficiary of the BNDES, according to the model to be provided by the BNDES;
XI Not incorporate, directly or indirectly, companies in Brazil or abroad, or acquire an equity interest in companies, within the Country or abroad, directly or indirectly, without prior express authorization from the BNDES, throughout the term of this Agreement;
XII Submit to the BNDES, within thirty (30) days from the date of correspondence from the BNDES so requiring, throughout the term of this Agreement, copies of the Income Tax Returns of the BENEFICIARY for the fiscal years requested;
XIII Submit, whenever requested by the BNDES, documents of any nature of companies in which it holds any direct or indirect equity interest;
XIV Assign to the BNDES the preemptive right, to be exercised by means of BNDESPAR, on the issue, by a company controlled by the BENEFICIARY, of any instruments convertible into shares, and in any capital increases of the controlled company, in the event of entry of third-party investors;
XIV.1 The right set forth in item XIV above shall be exercised or not by the BNDES at its discretion, and it shall be limited to the credit amount, adjusted by the TJLP plus the interest defined in Section Three, from the date of release of the funds to the date of subscription of the instruments or of the future capital increase, under the same conditions as the subscribers or investors, it being understood that, for that purpose, the BNDES shall pronounce its interest within sixty (60) days as from the date of communication of the wish to issue the instruments or of presentation of the trading to the BNDES;
XV Not change the legal type of joint-stock company during the term of effectiveness of this Agreement;
XVI Request the prior and written consent of the BNDES to grant loans, including the subscription of debentures, directly by the BENEFICIARY or by its controlled companies, to individuals or legal entities having or not a legal relationship with the BENEFICIARY;
XVII Request the prior and express consent of the BNDES to take out loans, including the issue of debentures, from individuals or legal entities that have a legal relationship with the BENEFICIARY or not, except in the events of (i) transactions carried out to meet ordinary businesses of the BENEFICIARY or for the purpose of mere replenishment or substitution of material, and (ii) financing transactions and credits directly or indirectly obtained from the BNDES;
XVIII Limit the payments to shareholders, by way of dividends, interest on equity and profit sharing, in each fiscal year, to the following percentages relating to the profit ascertained in each financial year, based on the audited annual statements: (i) twenty-five percent (25%) whenever the ratio Net Equity/ Total Assets is equal to or lower than 0.4; or (ii) fifty percent (50%) whenever this ration ranges from 0.4 to 0.7;
XVIII.1 Whenever the ratio Net Equity / Total Assets exceeds 0.7%, the limitation of payment to the shareholders set forth in item XVIII shall not apply.
XIX Keep a ratio Net Equity / Total Assets in excess of 0.3% during the term of effectiveness of this Agreement, based on the audited annual statements;
XX Not transfer, assign, encumber or dispose of, in any event or modality, the right of ownership on the technology or the products developed by the BENEFICIARY with the funds originating from this Agreement without the prior and express authorization of the BNDES.
XXI In the event of early settlement of the debt originating from this Agreement, pay to the BNDES, on the settlement date, a premium equivalent to thirty percent (30%) of the debt balance, as determined on the date of said settlement.
NINE
OBLIGATIONS OF THE PARENT INTERVENING PARTIES
The Parent Intervening Parties LEONARDO WASCHECK, RODRIGO WASCHECK and PAULO HENRIQUE PALÁCIOS identified in the preamble to this Agreement hereby agree to:
I Submit to the BNDES for approval any proposals concerning matters relating to the encumbrance, on any account, of any share issued by the BENEFICIARY held by them, to the sale, acquisition, merger, consolidation, spin-off, or any other act that implies or may imply changes in the current setup of the BENEFICIARY, a transfer of the corporate control of the BENEFICIARY, or its ceasing from being a controlling shareholder of the BENEFICIARY, pursuant to the provisions of article 116 of Law No. 6.404, of December 15, 1976;
II Not cause the inclusion in any corporate agreement, bylaws, or articles of association of the BENEFICIARY of any provision that implies:
a) Restrictions on the growth capacity or technological development of the BENEFICIARY;
b) Restrictions on the access of the BENEFICIARY to new markets; or
c) Restrictions on or impairment of its ability to pay the financial obligations under its transactions with the BNDES;
III Not take any actions or measures that impair or alter the economic and financial balance of the BENEFICIARY;
IV Take all the necessary measures to ensure the fulfillment of the purpose of this transaction;
V Submit to the BNDES, within thirty (30) days from the date of correspondence from the BNDES so requiring, throughout the term of this Agreement, copies of its Income Tax Returns for the fiscal years requested;
VI Assign to the BNDES the preemptive right, to be exercised by means of BNDESPAR, on the issue, by the BENEFICIARY, of any instruments convertible into shares, and in any capital increase of the BENEFICIARY, in the event of entry of third-party investors;
VI.1 the rights set forth in item VI above shall be exercised or not by the BNDES at its discretion, and they shall be limited to the credit amount, as adjusted by the TJLP, plus the interest defined in Section Three, from the date of release of the funds to the date of subscription of the instruments or of the future capital contribution, under the same conditions as the subscribers or investors, for which purpose the BNDES shall pronounce its interest within sixty (60) days as from the date of communication of the wish to issue the instruments or of the presentation of the trading to the BNDES.
TEN
LIABILITY IN CORPORATE SUCCESSION
In the event of corporate succession, any successors of the Beneficiary shall be jointly and severally liable for the obligations arising from this Agreement.
SOLE PARAGRAPH
The main provision of this Section shall not apply in the event of prior consent from the BNDES to the waiver of joint and several liability in a partial spin-off.
ELEVEN
MUTUAL POWER OF ATTORNEY
The BENEFICIARY, the guarantor and the other intervening parties hereby irrevocably and irreversibly mutually appoint each other their attorneys-in-fact until the final settlement of the debt hereunder, with powers to receive service of process, notices, and summons, as well as with general judicial powers, which may be delegated to counsel, all in connection with any judicial or extrajudicial proceedings that are filed against them by the BNDES as a result of this Agreement, it being understood that they may take all actions necessary for a good and faithful performance of this power of attorney.
TWELVE
CONDITIONS FOR USE OF THE CREDIT
In addition to compliance, as appropriate, with the conditions set forth in articles 5 and 6 of the abovementioned PROVISIONS APPLICABLE TO BNDES CONTRACTS and in the MONITORING RULES AND INSTRUCTIONS referred to in article 2 of such PROVISIONS , the use of the credit shall be subject to the following:
I For use of each credit installment:
a) presentation of documents proving, at the discretion of the BNDES, that the capital stock of the BENEFICIARY corresponds, at the time of the release, to at least forty-five percent (45%) of the total amount of the financial debts of the BENEFICIARY.
a.1.) For definition purposes, total financial debts shall be understood as the sum of the balance of the consolidated onerous debts of the BENEFICIARY, including the credit installments already released by the BNDES and their respective charges, in addition to the next credit installment to be released by the BNDES; loans and financings, mutuums, issuance of fixed-income securities, promissory notes, and debentures, whether convertible or not, in the local or international capital market, as well as the sale or assignment of future receivables, if they are accounted for as obligations, and other indebtedness financial transactions of the BENEFICIARY recorded in current and non-current liabilities.
b) No occurrence of any fact that, at the discretion of the BNDES, may substantially alter the economic and financial status of the beneficiary or impair the execution of the project financed hereunder by altering it or preventing its completion in accordance with the terms of the project approved by the BNDES;
c) Submission by the BENEFICIARY of a Clearance Certificate of Social-Security Contributions CND or of a Certificate of Suspended Social-Security Contribution CPD - EN, issued by the Brazilian Federal Revenue Service (RFB) via INTERNET, to be obtained by the BENEFICIARY at www.receita.fazenda.gov.br or and checked by the BNDES on the same website;
d) Proof of good standing with environmental agencies or, if such proof has already been submitted and is in force, a statement from the BENEFICIARY of the continued validity of such document.
e) Compliance with the obligation set forth in item XIX of Section Eight.
THIRTEEN
GUARANTEE
LEONARDO WASCHECK, RODRIGO WASCHECK and PAULO HENRIQUE PALÁCIOS, identified in the preamble, accept this Agreement in the capacity of guarantors and principal payors and expressly waives the benefits of articles 366, 827, and 838 of the Civil Code, it being understood that it shall be jointly and severally liable, until the final settlement of this Agreement, for the faithful and exact performance of all the obligations assumed by the BENEFICIARY hereunder.
FOURTEEN
SPOUSAL CONSENT
The Intervening Parties MARIA CRISTINA MARINS BUTIGNOLI WASCHECK and LUCIANE NALIN DE SOUZA, identified in the preamble of this Agreement, authorize, respectively, their spouse and common-law partner, the Intervening Parties RODRIGO WASCHECK and PAULO HENRIQUE PALÁCIOS, in accordance with the provisions of article 1.647, III, of the Civil Code, to provide the guarantee to which Section Thirteen refers.
SOLE PARAGRAPH
In the event of change in the matrimonial or steady union regime during effectiveness of this Agreement, the guarantors shall remain subject to all effects of the guarantee provided to the BNDES, in the exact terms and under the exact conditions agreed hereunder.
FIFTEEN
DEFAULT
In the event of default of any obligations assumed by the BENEFICIARY and by the Intervening Parties, the provisions of arts. 40-47-A of the PROVISIONS APPLICABLE TO BNDES CONTRACTS referred to in Section Eight, item I shall apply.
SIXTEEN
FILING FINE
In the event of collection of the debt originating from this Agreement in Court, the BENEFICIARY shall pay a fine of ten percent (10%) of the principal and debt charges, in addition to extrajudicial and judicial expenses and attorneys fees due as from the filing date of the action for collection.
SEVENTEEN
EARLY SETTLEMENT OF THE DEBT
In the event of early settlement of the debt, the guarantees shall be released, and the provisions of art. 18, paragraph two of the PROVISIONS APPLICABLE TO BNDES CONTRACTS referred to in Section Eight, item I shall apply to the other obligations.
EIGHTEEN
ACCELERATION
The BNDES may accelerate this Agreement, upon which the debt shall become enforceable and any disbursements shall be immediately suspended, if, in addition to the events mentioned in articles 39 and 40 of the PROVISIONS APPLICABLE TO BNDES CONTRACTS referred to in Section Eight, item I, the BNDES can demonstrate:
a) A downsizing of the staff of the BENEFICIARY in violation of the provisions of Section Eight, item III;
b) The existence of a final and unappealable adverse judgment resulting from any actions taken by the Beneficiary which imply child labor, slave labor, or environmental crime;
c) The inclusion in a corporate agreement, bylaws, or articles of association of the BENEFICIARY or of any of its controlling companies of any provision that implies restrictions on or an impairment of its ability to pay its financial obligations arising from this transaction;
d) Noncompliance with the obligation set forth in item VIII of Section Eight.
PARAGRAPH ONE
This Agreement shall be accelerated, upon which the debt shall become enforceable and any disbursements shall be immediately suspended, in the event of application of the proceeds from this Agreement to any purpose other than that provided for in Section One. The BNDES shall give notice of such fact to the Federal Prosecution Office for the purposes and effects of Law No. 7.492 of June 16, 1986.
PARAGRAPH TWO
This Agreement shall also be accelerated, upon which the debt shall become enforceable and any disbursements shall be immediately suspended, on the date when any person who exercises a salaried position at the BENEFICIARY or is among its owners, controlling members, or officers is certified or takes office as a Federal Deputy or Senator, as such persons are subject to the prohibitions set forth in article 54, items I and II of the Federal Constitution. No default charges shall be imposed if the payment occurs within five (5) business days from the date of such certification, under penalty of otherwise the charges established for events of acceleration due to default being imposed.
PARAGRAPH THREE
No acceleration based on the provisions of clause b shall occur if the remediation imposed is complied with or as long as the sentence imposed on the BENEFICIARY is being served, subject to the due process of law.
NINETEEN
DUE DATES ON PUBLIC HOLIDAYS
The due dates of all principal and charges repayment installments which fall on Saturdays, Sundays, or national, state, district, or municipal public holidays, including banking holidays, shall be, for all purposes and effects of this Agreement, postponed to the first subsequent business day, in which case the charges shall be calculated up to such date, and the following regular period for determination and calculation of the charges under this Agreement shall also start on such date.
SOLE PARAGRAPH
Unless otherwise expressly provided, the public holidays in the place where the principal place of business of the BENEFICIARY is located, the address of which is indicated in this Agreement, shall be considered for the purposes of the main provision of this Section.
TWENTY
JURISDICTION
The courts of Rio de Janeiro and the courts sitting in the place where the headquarters of the BNDES are located are hereby elected as the Courts of competent jurisdiction for any disputes arising from this Agreement which cannot be resolved out of court.
The BENEFICIARY has presented the Clearance Certificate of Social-Security Contributions CND No. 000222013-21024447, issued on February 18, 2013 by the Brazilian Federal Revenue Service and valid through August 17, 2013.
The BNDES is represented herein by its Vice President, in accordance with the power of attorney drawn up in Book No. 925, page No. 120, act No. 108 of the 22 nd Notary Public of the Judicial District of the Capital of the State of Rio de Janeiro, and by the Officer of the BNDES, both undersigned and identified below.
(SIGNATURE PAGE OF THE CREDIT FACILITY FINANCING AGREEMENT NO. 13.2.0488.1 ENTERED INTO BY AND BETWEEN THE NATIONAL BANK FOR ECONOMIC AND SOCIAL DEVELOPMENT (BNDES) AND INTERCAMP SISTEMAS E COMÉRCIO DE INFORMÁTICA S/A, WITH INTERVENING THIRD PARTIES)
The pages of this Instrument were initialed by Lílian Metelli Arcos de Oliveira Benjamin, counsel for the BNDES, upon authorization from the undersigned legal representatives.
In witness whereof, the parties executed this instrument in four (4) identical counterparts, in the presence of the undersigned witnesses.
Rio de Janeiro, August 15, 2013.
For the BNDES:
/s/ Wagner Bittencourt de Oliveira |
|
/s/ Julio Cesar Maciel Ramundo |
Wagner Bittencourt de Oliveira |
|
Julio Cesar Maciel Ramundo |
Vice-President |
|
Officer |
BANCO NACIONAL DE DESENVOLVIMENTO ECONÔMICO E SOCIAL BNDES
For the BENEFICIARY:
/s/ Rodrigo Wascheck |
|
/s/ Leonardo Wascheck |
INTERCAMP SISTEMAS E COMÉRCIO DE INFORMÁTICA S/A
GUARANTORS
/s/ Leonardo Wascheck |
|
/s/ Rodrigo Wascheck |
LEONARDO WASCHECK |
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RODRIGO WASCHECK |
|
|
|
/s/ Paulo Henrique Palácios |
|
|
PAULO HENRIQUE PALÁCIOS |
|
|
INTERVENING PARTIES:
/s/ M aria Cristina Marins Butignoli Wascheck |
|
|
M ARIA CRISTINA MARINS BUTIGNOLI WASCHECK |
|
|
/s/ Luciane Nalin de Souza |
|
|
LUCIANE NALIN DE SOUZA |
|
|
WITNESSES:
/s/ Renata da Costa Morais |
|
/s/ Daniel Alves Lima |
Name : Renata da Costa Morais |
|
Name : Daniel Alves Lima |
I dentity No.: 09843587-8 |
|
I dentity No.: 009.933.947-5 |
Individual Taxpayers Register (C PF) No.: 072.348 . 467-86 |
|
Individual Taxpayers Register (C PF) No.: 014.512.457-69 |
BNDES
AMENDMENT NO. 1 TO CREDIT FACILITY FINANCING AGREEMENT No. 13.2.0488.1, DATED AUGUST 15, 2013, ENTERED INTO BY AND BETWEEN THE NATIONAL BANK FOR ECONOMIC AND SOCIAL DEVELOPMENT (BNDES) AND LINX SISTEMAS E CONSULTORIA LTDA., WITH AN INTERVENING THIRD PARTY, AS PROVIDED BELOW:
The NATIONAL BANK FOR ECONOMIC AND SOCIAL DEVELOPMENT (BANCO NACIONAL DE DESENVOLVIMENTO ECONÔMICO E SOCIAL - BNDES) , herein referred to simply as the BNDES , a federal publicly-held company, with its principal place of business in Brasília, Federal District, and services in this City, at Avenida República do Chile No. 100, enrolled with the National Corporate Taxpayers Register (CNPJ) under No. 33.657.248/0001-89, by its undersigned representatives;
and
LINX SISTEMAS E CONSULTORIA LTDA. (successor by merger of INTERCAMP SISTEMAS E COMÉRCIO DE INFORMÁTICA S.A. ), hereinafter referred to as the BENEFICIARY , a limited liability company with its principal place of business at Avenida das Nações Unidas, No. 7221, 4 th , 5 th , 6 th , 7 th , and 14 th floors, Birmann 21 Building, Pinheiros, Postal Code (CEP): 05425-902, State of São Paulo, in the City of São Paulo, enrolled with the National Corporate Taxpayers Register (CNPJ) under No. 54.517.628/0001-98, by its undersigned representatives;
And also, as INTERVENING PARTY , LINX S.A. , a corporation with its principal place of business at Avenida das Nações Unidas, No. 7221, 7 th floor, Birmann 21 Building, Postal Code (CEP): 05425-902, State of São Paulo, in the City of São Paulo, enrolled with the National Corporate Taxpayers Register (CNPJ) under No. 06.948.969/0001-75, by its undersigned representatives, have mutually agreed to amend Credit Facility Financing Agreement No. 13.2.0488.1, hereinafter referred to simply as the AGREEMENT , entered into on August 15, 2013 by and between the BNDES and the BENEFICIARY , with intervening third parties, recorded under No. 1151290 with the 1 st Registry of Deeds and Documents of the Judicial District of Campinas, SP, on August 22, 2013, and under No. 1084887 with the 3 rd Registry of Deeds and Documents of the Judicial District of Rio de Janeiro, RJ, on August 28, 2013, of which this instrument shall henceforth be an integral part for all legal purposes and effects, in accordance with the following clauses:
ONE
INCREASE OF THE INTEREST RATE
By this Amendment, the BNDES and the BENEFICIARY agree to increase, effective May 4, 2017, the interest rate referred to in Section Three of the AGREEMENT from one percent (1.0%) per annum above the Long-Term Interest Rate (TJLP) (the Original Interest Rate ) to two point thirty-six percent (2.36%) per annum above the Long-Term Interest Rate (TJLP) (the New Interest Rate ), it being understood that the other conditions for accrual and payment of interest, as well as the system set forth in Section Three of the AGREEMENT , shall remain in force.
SOLE PARAGRAPH
The BENEFICIARY shall pay any difference between the New Interest Rate and the Original Interest Rate that has not yet been paid together with the interest and principal installment to be repaid on the 15 th of the month immediately following the date of execution hereof, without prejudice to the collection of the charges set forth in the Provisions Applicable to BNDES Contracts referred to in Section Eight, item I of the AGREEMENT .
TWO
CREATION OF GUARANTEE
By this Amendment, the Parties agree to include LINX S.A. , identified in the preamble to this Amendment, which shall henceforth assume all the obligations of the Intervening Parties and Guarantors under Section Thirteen of the AGREEMENT in the capacity of guarantor and principal payor and expressly waives the benefits of articles 366, 827, and 838 of the Civil Code, it being understood that it shall be jointly and severally liable, until the final settlement of the AGREEMENT , for the faithful and exact performance of all the obligations assumed by the BENEFICIARY .
THREE
RELEASE OF INTERVENING PARTIES AND GUARANTORS LEONARDO WASCHECK, RODRIGO WASCHECK, AND PAULO HENRIQUE PALÁCIOS
Intervening Parties and Guarantors LEONARDO WASCHECK , RODRIGO WASCHECK , and PAULO HENRIQUE PALÁCIOS , all identified in the preamble to the AGREEMENT , are hereby released from all obligations set forth in the AGREEMENT .
FOUR
CONTRACTUAL CHANGES
By this Amendment, as a result of the merger of INTERCAMP SISTEMAS E COMÉRCIO DE INFORMÁTICA S.A. into LINX SISTEMAS E CONSULTORIA LTDA. , identified in the preamble, the Parties agree to make the following changes in the AGREEMENT : i) deletion of items VIII, IX, XI, XIV, XV, XVI, XVII, XVIII, XIX, and XXI from Section Eight, ii) addition of the obligations referred to in Section Eight, items XII, XVI, XVII, XVIII, XIX, XX, and XXI of Agreement No. 15.2.0579.1 of December 11, 2015 to Section Eight of the AGREEMENT , iii) amendment to Section Nine, iv) amendment to the main provision of Section Thirteen, v) deletion of clause d from the main provision of Section Eighteen, and vi) deletion of Section Fourteen.
SOLE PARAGRAPH
As a result of the main provision of this Section, Sections Eight, Nine, and Thirteen of the AGREEMENT shall henceforth read as follows:
EIGHT
SPECIAL OBLIGATIONS OF THE BENEFICIARY
The BENEFICIARY agrees to:
I comply, as applicable, until the final settlement of the debt arising from this Agreement, with the PROVISIONS APPLICABLE TO BNDES CONTRACTS approved by Resolution No. 665 of December 10, 1987, as partially amended by Resolution No. 775 of December 16, 1991, by Resolution No. 863 of March 11, 1996, by Resolution No. 878 of September 4, 1996, by Resolution No. 894 of March 6, 1997, by Resolution No. 927 April 1, 1998, by Resolution No. 976 of September 24, 2001, by Resolution No. 1.571 of March 4, 2008, by Resolution No. 1.832 of September 15, 2009, by Resolution No. 2.078 of March 15, 2011, by Resolution No. 2.139 of August 30, 2011, and by Resolution No. 2.181 of November 8, 2011, all issued by the Executive Board the BNDES and published in the Federal Official Gazette (Diário Oficial da União) (Section I) on December 29, 1987, December 27, 1991, April 8, 1996, September 24, 1996, March 19, 1997, April 15, 1998, October 31, 2001, March 25, 2008, November 6, 2009, April 4, 2011, September 13, 2011, and November 17, 2011, respectively, a copy of which is hereby delivered to the BENEFICIARY, which, having become aware of all the contents thereof, represents that it accepts it as an integral and inseparable part of this Agreement for all legal purposes and effects;
II use the total amount of the credit within twenty-four (24) months from the date of issuance of this Agreement, without prejudice to the BNDESs option, before or after the expiration of such term, under the guarantees set forth in this Agreement, to extend such term upon express authorization by letter, regardless of any other formality or registration ;
III in the event of a downsizing of the staff of the BENEFICIARY during the term of this Agreement as a result of the project referred to in Section One, offer a training program focused on job opportunities in the region and/or a worker repositioning program, upon submission to the BNDES for consideration of a document specifying and attesting to the completion of the negotiations held with the relevant trade union or unions involved in the dismissal process;
IV take, during the term of this Agreement, measures and actions to prevent or correct any damage to the environment and occupational safety and health which may be caused by the project referred to in Section One ;
V maintain its good standing as to its obligations to the environmental agencies during the term of this Agreement;
VI comply, during the term of this Agreement, with the provisions of law applicable to disabled persons;
VII give notice to the BNDES, on the date of the event, of the name and Individual Taxpayers Register of the Ministry of Finance (CPF/MF) number of any person who, whether exercising a salaried position or being among its owners, controlling members, or officers, is certified or takes office as a Federal Deputy or Senator;
VIII disclose, on the website of the BENEFICIARY on the Internet and in a prominent place at the headquarters of the company, that it is a financial cooperation beneficiary of the BNDES, according to the model to be provided by the BNDES;
IX submit to the BNDES, within thirty (30) days from the date of correspondence from the BNDES so requiring, throughout the term of this Agreement, copies of the Income Tax Returns of the BENEFICIARY for the fiscal years requested;
X submit, whenever requested by the BNDES, documents of any nature of companies in which it holds any direct or indirect equity interest;
XI not transfer, assign, encumber, or dispose of, under any circumstances or in any manner, its ownership rights in any technology or products developed by the BENEFICIARY with funds from this Agreement without prior express authorization from the BNDES;
XII not incorporate, directly or indirectly, or acquire an equity interest in companies, in Brazil or abroad, without prior express authorization from the BNDES, throughout the term of the Agreement, except in case of transactions involving less than fifty million Reais (R$50,000,000.00);
XIII not grant loans, directly or indirectly, including by subscription of debentures or profit-sharing bonds, to any individuals or legal entities, whether or not members of the same business group as the BENEFICIARY, without prior authorization from the BNDES, subject to the provisions of items XIII.1 and XIII.2 below;
XIII.1 The transactions described in Item XIII include advancements and/or any other transactions relating to the granting of credits in favor of members and related parties;
XIII.2 The interest on the loans shall be at least three percent (3%) above that stipulated in Section Three, except when such transactions are carried out for the purpose described in Section One;
XIV not assume any new debts, directly or indirectly, including by issuance of debentures or profit-sharing bonds, before any individuals or legal entities, whether or not members of the same business group as the BENEFICIARY, without prior authorization from the BNDES, subject to the provisions of item XIV.1 below;
XIV.1 the following events are not included in the debts referred to in Item XIV above: (i) financings entered into directly and/or indirectly with the BNDES, (ii) transactions carried out to meet ordinary businesses of the BENEFICIARY, and (iii) loans the amounts of which do not exceed the amount of ten million Reais (R$10,000,000.00) per business year throughout the term of this Agreement;
XV submit to the BNDES, within the term of the Agreement, within one hundred and eighty (180) days after the end of each fiscal year, consolidated annual financial statements covering its individual results and the results of all its subsidiaries headquartered within the national territory, together with the respective opinions prepared by an independent audit firm registered with the Brazilian Securities Commission (CVM);
XVI not create, except upon prior express authorization from the BNDES, security interests of any kind in transactions with other creditors without providing the same type of security to the BNDES under the same conditions and with the same priority, except in the events set forth in Item XVII of this Section;
XVII give prior express notice to the BNDES of the creation of any security interest by operation of law or as a bond in connection with any lawsuits and administrative proceedings in which it appears as a defendant*, as well as in the event of fiduciary ownership in financings for purchase of equipment; and
XVIII not sell or encumber, without prior authorization from the BNDES, any permanent assets the amount of which exceeds ten million Reais (R$10,000,000.00) per annum, except in the case of:
a) unserviceable or obsolete goods; or
b) assets which are replaced by new ones with identical purpose.
NINE
OBLIGATIONS OF THE PARENT INTERVENING PARTY
INTERVENING PARTY LINX S.A., identified in the preamble to this Agreement, hereby agrees to:
I submit to the BNDES for approval any proposals concerning matters relating to the encumbrance, on any account, of any share held by it in the share capital of the BENEFICIARY, to the sale, acquisition, merger, consolidation, spin-off, or any other act that implies or may imply changes in the current setup of the BENEFICIARY, a transfer of the corporate control of the BENEFICIARY, or its ceasing from being a majority member of the BENEFICIARY;
II not cause the inclusion in any corporate agreement, bylaws, or articles of association of the BENEFICIARY of any provision that implies:
a) restrictions on the growth capacity or technological development of the BENEFICIARY;
b) restrictions on the access of the BENEFICIARY to new markets; or
c) restrictions on or impairment of its ability to pay the financial obligations under its transactions with the BNDES;
III not take any actions or measures that impair or alter the economic and financial balance of the BENEFICIARY;
IV take all the necessary measures to ensure the fulfillment of the purpose of this transaction;
V not incorporate, directly or indirectly, or acquire an equity interest in companies, within the Country or abroad, without prior express authorization from the BNDES, throughout the term of the Agreement, except in case of transactions involving less than fifty million Reais (R$50,000,000.00);
VI submit, whenever requested by the BNDES, documents of any nature of companies in which it holds any direct or indirect equity interest;
VII submit to the BNDES, within thirty (30) days from the date of correspondence from the BNDES so requiring, throughout the term of this Agreement, copies of its Income Tax Returns for the fiscal years requested;
VIII request prior consent from the BNDES to any transfer, assignment, encumbrance, or disposal of shares issued by the BENEFICIARY and its subsidiaries throughout the term of this Agreement;
IX not sell or encumber, without prior authorization from the BNDES, any permanent assets the amount of which exceeds ten million Reais (R$10,000,000.00) per annum, except in the case of:
a) unserviceable or obsolete goods; or
b) assets which are replaced by new ones with identical purpose; and
X maintain, during the term of the Agreement, two of the following ratios, as determined semi-annually in its consolidated financial statements audited by an independent audit firm registered with the Brazilian Securities Commission:
a) General Indebtedness/Total Assets: equal to or less than 60%;
b) Net Debt/EBITDA: equal to or less than 2.00;
c) EBITDA/Net Operating Revenue: equal to or greater than 20%.
PARAGRAPH ONE
If the BENEFICIARY fails to achieve at least two of the ratios established in Item X of this Section, it agrees to either create, within one hundred and eighty (180) days from the date of written notice from the BNDES, security interests accepted by the BNDES in an amount corresponding to at least one hundred and thirty percent (130%) of the amount of the financing or of the debt arising therefrom or submit a bank guarantee for the total amount of the debt provided by a financial institution which, at the discretion of the BNDES, is in an economic and financial situation that ensures it a degree of notorious solvency, unless two of the abovementioned ratios are achieved within such period.
PARAGRAPH TWO
For purposes of calculation of the ratios set forth in Item X of this Section, the following definitions and standards shall be adopted:
a) EBITDA - Operating Income before interest, income tax, depreciation, and amortization;
b) Net Debt Aggregate sum of the balance of the consolidated onerous debts of the INTERVENING PARTY, including loans and financings, mutuums, issuance of fixed-income securities, promissory notes, and debentures, whether convertible or not, in the local or international capital market, as well as the sale or assignment of future receivables, if they are accounted for as obligations, and other indebtedness financial transactions of the company recorded in current and non-current liabilities less Cash and Cash Equivalents (cash and financial investments);
c) General Indebtedness Aggregate sum of Current and Non-Current Liabilities;
d) The parameters relating to the result (i.e. EBITDA and Net Operating Revenue) refer to the figures for the last twelve (12) months prior to the calculation;
e) The financial ratio referred to in item X, clause b of the main provision of this Section shall be regarded as not achieved if the figure determined for such ratio is negative due to negative EBITDA; and
f) For purposes of calculation of the financial ratio referred to in item X, clause b of the main provision of this Section, the amounts classified in the Balance Sheet of the INTERVENING PARTY as Accounts Payable for Acquisition of Subsidiaries shall not be regarded as Net Debt.
( )
THIRTEEN
GUARANTEE
LINX S.A. , identified in the preamble, accepts this Agreement in the capacity of guarantor and principal payor and expressly waives the benefits of articles 366, 827, and 838 of the Civil Code, it being understood that it shall be jointly and severally liable, until the final settlement of this Agreement, for the faithful and exact performance of all the obligations assumed by the BENEFICIARY hereunder.
FIVE
RATIFICATION
The Parties hereto hereby ratify all the clauses and conditions of the AGREEMENT , to the extent not conflicting with the provisions of this Amendment, and maintain the other warranties agreed upon in such AGREEMENT , it being understood that this instrument shall not imply a novation.
The pages of this instrument were initialed by Natália Teixeira Fernandes Lopez, counsel for the BNDES , upon authorization from the undersigned legal representatives.
In witness whereof, the parties executed this instrument in two (2) identical counterparts, in the presence of the undersigned witnesses.
Rio de Janeiro, July 31, 2017
For the BNDES :
/s/ Cláudio Figueiredo Coelho Leal |
|
/s/ Claudia Pimentel Trindade Prates |
BANCO NACIONAL DE DESENVOLVIMENTO ECONÔMICO E SOCIAL - BNDES
Cláudio Figueiredo Coelho Leal |
|
Claudia P. Trindade Prates |
Superintendent of the Industrial and Services Area |
|
Officer |
For the BENEFICIARY:
/s/ Denis Herszkowicz |
|
/s/ Alberto Menache |
LINX SISTEMAS E CONSULTORIA LTDA.
INTERVENING PARTY:
/s/ Denis Herszkowicz |
|
/s/ Denis Herszkowicz |
L INX S.A.
WITNESSES:
/s/ Mara Regina de Almeida Vitta |
|
/s/ Ana Paula Frijo |
Name : Mara Regina de Almeida Vitta |
|
Name : Ana Paula |
I dentity No.: 25.347.150-3 SSP/SP |
|
I dentity No.: 28.733.692X |
Individual Taxpayers Register (C PF) No.: 271.370.028-03 |
|
Individual Taxpayers Register (C PF) No.: 281772.648.00 |
BNDES
CREDIT FACILITY FINANCING AGREEMENT No. 18.2.0547.1 ENTERED INTO BY AND BETWEEN THE NATIONAL BANK FOR ECONOMIC AND SOCIAL DEVELOPMENT BNDES AND LINX SISTEMAS E CONSULTORIA LTDA., WITH INTERVENING THIRD PARTY, AS PROVIDED BELOW:
The NATIONAL BANK FOR ECONOMIC AND SOCIAL DEVELOPMENT (BANCO NACIONAL DE DESENVOLVIMENTO ECONÔMICO E SOCIAL - BNDES), herein referred to simply as the BNDES, a federal publicly-held company, with its principal place of business in Brasília, Federal District, and services in this City, at Avenida República do Chile No. 100, enrolled with the National Corporate Taxpayers Register (CNPJ) under No. 33.657.248/0001-89, by its undersigned representatives;
and
LINX SISTEMAS E CONSULTORIA LTDA., hereinafter referred to as BENEFICIARY, a limited-liability company, with its principal place of business at Avenida das Nações Unidas, No. 7221, 4 th , 5 th , 6 th , 7 th and 14 th floors, Building Birmann 21, Pinheiros, State of São Paulo, in the City of São Paulo, enrolled with the CNPJ under No. 54.517.628/0001-98, by its undersigned representatives;
and also, as INTERVENING CONTROLLING COMPANY, LINX S.A., a joint-stock company with its principal place of business at Avenida das Nações Unidas, No. 7221, 7 th Floor, Suite 01, Building Birmann 21, State of São Paulo, in the City of São Paulo, enrolled with the CNPJ under No. 06.948.969/0001-75, by its undersigned representatives,
have mutually agreed as follows:
ONE
NATURE. AMOUNT AND PURPOSE OF THE AGREEMENT
The BNDES extends to the BENEFICIARY, by this Agreement, a credit in the amount of three hundred and eighty-eight million, four hundred and forty-one thousand Reais (R$388,441,000.00), divided into two (2) Subcredits, in the following amounts:
I - Subcredit A : three hundred and eight-seven million, six hundred and forty-one thousand Reais (R$387,641,000.00) out of its ordinary funds, which consist, among other sources, of funds from the Worker Support Fund (FAT) and funds originating from the FAT Special Deposits and from the Social Integration Program/Civil Servant Asset Formation Program (PIS/PASEP) Equity Fund, subject, as to their allocation, to the laws applicable to each such source, in accordance with the provisions of Section Two, Paragraph Two (Credit Availability); and
II - Subcredit B : Eight hundred thousand Reais (R$800.000,00) out of its ordinary funds, which consist, among other sources, of funds from the Worker Support Fund (FAT) and funds originating from the FAT Special Deposits and from the PIS/PASEP Equity Fund, subject, as to their allocation, to the laws applicable to each such source, in accordance with the provisions of Section Two, Paragraph Two (Credit Availability).
SOLE PARAGRAPH
The credit granted hereunder shall be allocated as follows:
I - Subcredit A : to the Investment Plan for the period 2018-2020, contemplating actions in infrastructure, research and development, training , marketing and sales; and
II - Subcredit B: to the investments in social project(s).
TWO
CREDIT AVAILABILITY
The credit shall be made available to the BENEFICIARY, in installments, upon satisfaction of the release conditions referred to in Section Twelve (Financial Cooperation Release Conditions), according to the needs for the execution of
the financed project, subject to the BNDES financial schedule, which is subordinated to the definition of funds for its investments by the National Monetary Council.
PARAGRAPH ONE
At the time of release of the funds under this transaction, the debits determined by law and those contractually authorized by the BENEFICIARY shall be made. The total remaining balance of funds available to the BENEFICIARY shall be immediately transferred to checking account No. 13.060-8 held by the BENEFICIARY with Banco Itaú Unibanco S.A. (No. 341), branch No. 0191.
PARAGRAPH TWO
The amount of each installment of the credit to be extended to the BENEFICIARY shall not be adjusted for inflation or otherwise adjusted.
PARAGRAPH THREE
The total amount of the credit shall be used by the BENEFICIARY within twenty-four (24) months from the date of execution of this Agreement, without prejudice to the BNDESs option, before or after the expiration of such term, under the guarantees set forth in this Agreement, to extend such term upon express authorization by letter, regardless of any other formality or registration.
THREE
INTEREST ON SUBCREDIT A
As from the Disbursement Date or from the date of payment of the immediately preceding Compensation, as the case may be, to the maturity date or payment of the immediately subsequent Compensation, conventional interest shall be due, levied on the Principal resulting from Subcredit A, corresponding to the rate composed (i) of the accrued variation of the National Broad Consumer Price Index disclosed by the Brazilian Geography and Statistics Institute IBGE (IPCA), calculated on a pro rata temporis basis, (ii) of the prefixed interest rate of three point ten percent (3.10%) per annum (J) and (iii) of the BNDES spread of one point thirty-seven percent (1.37%) per annum (BNDES Spread), the last two of which based on a calendar year with two hundred and fifty-two (252) Business Days, calculated on a pro rata temporis basis, under a composed capitalization regime, in accordance with the following formula (Compensation):
JU = SD x (InterestFactor-1)
where:
JU: corresponds to the accrued Compensation of the period, calculated with [two] (2) decimals, rounded, due in the end of each Interest Period;
SD = corresponds to the debit balance on the first day of the Interest Period with [two] (2) decimals, rounded ;
InterestFactor: interest factor determined in accordance with the following formula:
InterestFactor = (TLPFactor x SpreadFactor)
Where:
TLP Factor: corresponds to the accrued factor of the monthly percentage variations of the IPCA composed with the prefixed interest rate (J), calculated as follows:
Where:
n = total number of indices considered in the calculation, where n is a whole number;
p i = corresponds to the percentage variation of the National Broad Consumer Price Index (IPCA), as determined and disclosed by the Brazilian Geography and Statistics Institute - IBGE (IPCA), of the second month before the adjustment month, if the adjustment is made before the anniversary date. On the very anniversary date or after that date, it shall correspond to the amount of the percentage variation of the IPCA of the month preceding the month of adjustment;
dup = number of Business Days from (i) (and including) the Disbursement Date for the first month of adjustment or from (ii) (and including) the immediately preceding anniversary, for the months, to (i) (and excluding) the calculation date or to (ii) (and excluding) the subsequent anniversary date, whichever is lower, limited to dut, it being understood that dup shall be a whole number;
dut = number of Business Days from (and including) the preceding Anniversary Date to (and excluding) the subsequent Anniversary Date, it being understood that dut shall be a whole number;
J = corresponds to the prefixed interest rate times the adjustment factor, pursuant to the provisions of article 3 of Law No. 13.483, of 2017, both as determined and disclosed by the Central Bank of Brazil; and
du =corresponds to the number of Business Days from (i) and including the Disbursement Date, in the case of the first Interest Period, or from (ii) and including the maturity date or immediately preceding payment of Compensation, in the other cases, to and excluding the calculation date, it being understood that du shall be a whole number.
Spread Factor: corresponds to the BNDES spread, according to the formula below:
Where:
du =corresponds to the number of Business Days from (i) and including the Disbursement Date, in the case of the first Interest Period, or from (ii) and including the maturity date or immediately preceding payment of Compensation, in the other cases, to and excluding the calculation date, it being understood that du shall be a whole number.
The first Interest Period is comprised from and including the Disbursement Date to and excluding the maturity date of the first Compensation. The other Interest Periods commence on and include the final date of the preceding Interest period and end on and exclude the subsequent scheduled maturity date of the Compensation.
Upon occurrence of each financial event on a date other than a maturity date, a new debit balance shall be calculated considering the effects of this event and capitalizing the interest determined to that date. Financial event shall be understood as any and all financial fact that results or which may result in a change in the debit balance.
The amount determined in accordance with the main provision shall be payable quarterly, on the fifteenth (15 th ) day of the months of March, June, September, and December of each year, during the period between the 15 th day following formalization of this agreement and December 15, 2020, and monthly, from and including January 15, 2021, together with the principal amount repayment installments, and at the maturity or settlement of this Agreement, subject to the provisions of Section Eighteen (Due Dates on Public Holidays).
All intermediary calculations shall be made with sixteen (16) decimals and not rounded.
The Anniversary Date corresponds to the 15 th day of each month.
FOUR
INTEREST ON SUBCREDIT B
From the Disbursement Date or from the date of payment of the immediately preceding Compensation, as the case may be, to the maturity date or payment of the immediately subsequent Compensation, conventional interest shall be due, levied on the Principal resulting from Subcredit B, corresponding to the rate composed (i) of the accrued variation of the National Broad Consumer Price Index disclosed by the Brazilian Geography and Statistics Institute IBGE (IPCA), calculated on a pro rata temporis basis, (ii) of the prefixed interest rate of three point ten percent (3.10%) per annum (J) and (iii) of the BNDES spread of ninety-seven hundredths percent (0.97%) per annum (BNDES Spread), the last two
of which based on a calendar year with two hundred and fifty-two (252) Business Days, calculated on a pro rata temporis basis, under a composed capitalization regime, in accordance with the following formula (Compensation):
JU = SD x (InterestFactor-1)
where:
JU: corresponds to the accrued Compensation of the period, calculated with [two] (2) decimals, rounded, due in the end of each Interest Period;
SD = corresponds to the debit balance on the first day of the Interest Period with [two] (2) decimals, rounded;
InterestFactor: interest factor determined in accordance with the following formula:
InterestFactor = (TLPFactor x SpreadFactor)
Where:
TLP Factor: corresponds to the accrued factor of the monthly percentage variations of the IPCA composed with the prefixed interest rate (J), calculated as follows:
Where:
N = total number of indices considered in the calculation, where n is a whole number;
p i = corresponds to the percentage variation of the National Broad Consumer Price Index (IPCA), as determined and disclosed by the Brazilian Geography and Statistics Institute - IBGE (IPCA), of the second month before the adjustment month, if the adjustment is made before the anniversary date. On the very anniversary date or after that date, it shall correspond to the amount of the percentage variation of the IPCA of the month preceding the month of adjustment;
dup = number of Business Days from (i) (and including) the Disbursement Date for the first month of adjustment or from (ii) (and including) the immediately preceding anniversary, for the months, to (i) (and excluding) the calculation date or to (ii) (and excluding) the subsequent anniversary date, whichever is lower, limited to dut, it being understood that dup shall be a whole number;
dut = number of Business Days from (and including) the preceding Anniversary Date to (and excluding) the subsequent Anniversary Date, it being understood that dup shall be a whole number;
J = corresponds to the prefixed interest rate times the adjustment factor, pursuant to the provisions of article 3 of Law No. 13.483, of 2017, both as determined and disclosed by the Central Bank of Brazil; and
du = corresponds to the number of Business Days from (i) and including the Disbursement Date, in the case of the first Interest Period, or from (ii) and including the maturity date or immediately preceding payment of Compensation, in the other cases, to and excluding the calculation date, it being understood that du shall be a whole number.
Spread Factor: corresponds to the BNDES Spread: according to the formula below:
Where:
du = corresponds to the number of Business Days from (i) and including the Disbursement Date, in the case of the first Interest Period, or from (ii) and including the maturity date or immediately preceding payment of Compensation, in the other cases, to and excluding the calculation date, it being understood that du shall be a whole number.
The first Interest Period is comprised from and including the Disbursement Date to and excluding the maturity date of the first Compensation. The other Interest Periods commence on and include the final date of the preceding Interest period and end on and exclude the subsequent scheduled maturity date of the Compensation.
Upon occurrence of each financial event on a date other than a maturity date, a new debit balance shall be calculated considering the effects of this event and capitalizing the interest determined to that date. Financial event shall be understood as any and all financial fact that results or which may results in a change in the debit balance.
The amount determined in accordance with the main provision shall be payable quarterly, on the fifteenth (15th) day of the months of March, June, September, and December of each year, during the period between the 15th day following formalization of this agreement and December 15, 2020, and monthly, from and including January 15, 2021, together with the principal amount repayment installments, and at the maturity or settlement of this Agreement, subject to the provisions of Section Eighteen (Due Dates on Public Holidays).
All intermediary calculations shall be made with sixteen (16) decimals and not rounded.
The Anniversary Date corresponds to the 15 th day of each month.
FIVE
DEBT PROCESSING AND COLLECTION
The collection of principal amount and charges shall be made through a collection document issued in advance by the BNDES for the BENEFICIARY to settle such obligations on their due dates.
SOLE PARAGRAPH
No failure to receive the collection document shall exempt the BENEFICIARY from its obligation to pay the principal amount installments and charges on the dates set forth in this Agreement.
SIX
REPAYMENT
The principal amount of the debt arising from this Agreement shall be paid to the BNDES in eighty-four (84) successive monthly installments, each in the principal amount of the debt becoming due, divided by the number of repayment installments not yet due, the first of which shall be due and payable on January fifteen (15), 2021, subject to the provisions of Section Eighteen (Due Dates on Public Holidays), and the BENEFICIARY agrees to settle all obligations arising from this Agreement together with the last installment, on December fifteen (15), 2027.
SEVEN
CHANGE IN THE LEGAL STANDARD FOR COMPENSATION OF FUNDS ORIGINATING FROM THE PIS/PASEP FUND AND/OR FROM THE FAT
If the legal standard for compensation of the funds transferred to the BNDES and originating from the PIS/PASEP Equity Fund and/or from the Worker Support Fund (FAT) is replaced, the compensations set forth in Sections Three (Interest on Subcredit A) and Four (Interest on Subcredit B) may, at the discretion of the BNDES, use such new standard for compensation of such funds or any other standard indicated by the BNDES which, in addition to preserving the actual amount of the transaction, compensates at the same levels as before. In this case, the BNDES shall give written notice of such change to the BENEFICIARY.
EIGHT
SPECIAL OBLIGATIONS OF THE BENEFICIARY
The BENEFICIARY agrees to:
I - comply, as applicable, until final settlement of the debt arising from this Agreement, with the PROVISIONS APPLICABLE TO BNDES CONTRACTS, approved by Resolution No. 665 of December 10, 1987, as partially amended by Resolution No. 775 of December 16, 1991, by Resolution No. 863 of March 11, 1996, by Resolution No. 878 of September 4, 1996, by Resolution No. 894 of March 6, 1997, by Resolution No. 927 of April 1, 1998, by
Resolution No. 976 of September 24, 2001, by Resolution No. 1.571 of March 4, 2008, by Resolution No. 1.832 of September 15, 2009, by Resolution No. 2.078 of March 15, 2011, by Resolution No. 2.139 of August 30, 2011, by Resolution No. 2.181 of November 8, 2011, by Resolution No. 2.556 of December 23, 2013, by Resolution No. 2.558 of December 23, 2013, by Resolution No. 2.607 of April 8, 2014, by Resolution No. 2.616 of May 6, 2014, by Resolution No. 3.148 of May 24, 2017, and by Resolution No. 3.354 of August 28, 2018, all issued by the Executive Board the BNDES and published in the Federal Register (Diário Oficial da União) (Section I) on December 29, 1987, December 27, 1991, April 8, 1996, September 24, 1996, March 19, 1997, April 15, 1998, October 31, 2001, March 25, 2008, November 6, 2009, April 4, 2011, September 13, 2011, November 17, 2011, January 24, 2014, February 14, 2014, May 6, 2014, September 3, 2014, June 2, 2017, and September 17, 2018, respectively, a copy of which is available on the official BNDES website (www.bndes.gov.br) and is hereby delivered to the BENEFICIARY, which, having become aware of all the contents thereof, represents that it accepts it as an integral and inseparable part of this Agreement for all legal purposes and effects;
II - Execute and complete the project financed hereunder within twenty-four (24) months from the date of issuance of this Agreement, without prejudice to the BNDESs option, under the guarantees set forth in this Agreement, to extend such term, before its expiration, or grant an additional term, after said term, upon express authorization by letter, regardless of any other formality or registration;
III - Maintain its good standing as to its obligations relating to the project to the environmental agencies during the term of this Agreement;
IV- Notify the BNDES, within up to thirty (30) consecutive days as from the date on which it becomes aware of such event, that it or any of its managers; its direct or indirect controlling shareholders; its direct or indirect subsidiaries; its employees, agents or representatives; as well as suppliers of products or services that are essential for performance of the project/transaction are involved in any Brazilian or foreign judicial or administrative action, proceedings and/or lawsuit deemed relevant pursuant to the provisions of Paragraph Three conducted by a Brazilian or foreign administrative or judicial authority, provided they are not subject to confidentiality or under seal;
V- Not offer, promise, give, authorize, solicit, or accept, directly or indirectly, any undue monetary or other advantage relating in any way to the purpose of this Agreement and not perform harmful acts, violations or crimes against the economic or tax order, the financial system, the capital market or the Brazilian or foreign public administration, laundering or concealment of assets, rights and amounts, terrorism or terrorism financing, set forth in the applicable Brazilian and/or foreign law;
VI not perform actions representing discrimination based on race or gender, child labor, slave labor, or which represent moral or sexual harassment, or which involve a crime against the environment;
VII- perform all actions within its reach to prevent that its managers of its affiliates; its employees, agents or representatives; as well as suppliers of products or services that are essential for performance of the project/transaction perform the acts described in items IV and V;
VIII - Give notice to the BNDES, on the date of the event, of the name and Individual Taxpayers Register of the Ministry of Finance (CPF/MF) number of any person who, whether exercising a salaried position or being among its owners, controlling members, or officers, is certified or takes office as a Federal Deputy or Senator;
IX - Not incorporate, directly or indirectly, or acquire an equity interest in companies, within the Country or abroad, without prior express authorization from the BNDES, throughout the term of the Agreement;
IX. 1 The acquisitions referred to in item IX of this Section do not include the following events: (1) whenever the total amount of the acquisition plus the net debt is lower than the EBITDA of the last fiscal year; and (2) whenever the total amount of the acquisition is lower than seven percent (7%) of the Shareholders Equity of the last restated audited Financial Statement of the PARENT INTERVENING PARTY;
X - Not assume any new loans and financing, directly or indirectly, including by issuance of debentures or loan, before any individuals or legal entities whether or not members of the same business group as the BENEFICIARY, without prior authorization from the BNDES;
X.1 - The following events are not included in the debts referred to in item X of this Section: (1) financings entered into directly and/or indirectly with the BNDES; (2) transactions carried out to meet ordinary businesses of the BENEFICIARY; and (3) loans and financings the amounts of which do not exceed, per business year, five percent (5%) of the Shareholders Equity of the last restated audited annual Financial Statement of the PARENT INTERVENING PARTY;
XI - Submit, within one hundred and eighty (180) days from the date of execution of this Agreement, the details of the social project(s) referred to in Section One, Sole Paragraph, item II (Nature, Amount, and Purpose of the Agreement), contemplating the social actions developed by the BENEFICIARY, in terms deemed satisfactory by the BNDES;
XII - Not sell or encumber, without prior authorization from the BNDES, any permanent assets the amount of which exceeds ten million Reais (R$10,000,000.00) per annum, except in the case of:
a) Unserviceable or obsolete goods; or
b) Assets which are replaced by new ones with identical purpose;
XIII not use, during compliance with the purpose described in Section One (Nature, Amount, and Purpose of the Agreement), the funds of this Agreement in activities:
a) carried in any country or territory that is subject to economic or financial sanctions, embargoes or restrictive measures in effect, administrated or applied by the United Nations Security Council, by the Brazilian Government or by an authority with jurisdiction on the BENEFICIARY; or
b) that otherwise result in a breach by any person (including the BNDES) of the sanctions referred to in this item.
XIV - Not create, except upon prior express authorization from the BNDES, security interests of any kind in transactions with other creditors without providing the same type of security to the BNDES under the same conditions and with the same priority, except in the events set forth in item XV of this Section;
XV - Give prior formal notice to the BNDES of the creation of any security interest by operation of law or as a bond in connection with any lawsuits and administrative proceedings in which it appears as a defendant, as well as in the event of fiduciary ownership in financings for purchase of equipment;
XVI- If the PARENT INTERVENING PARTY fails to achieve the levels set forth in item VII of Section Nine (Obligations of the Parent Intervening Party), to create, within one hundred and twenty (120) days as from the date of the written communication of the BNDES, collateral guarantees, accepted by the BNDES, in an amount corresponding to at least one hundred and thirty percent (130%) of the financing amount or of the debt resulting therefrom, except if the aforementioned levels are reestablished within that term.
PARAGRAPH ONE
For purposes of the special obligation set forth in item IV of this Section, knowledge of the BENEFICIARY shall be understood as:
I the receipt of judicial or extrajudicial service of process, summons or notice issued by a Brazilian or foreign judicial or administrative authority;
II - communication of the fact by the BENEFICIARY to the competent authority; and
III adoption of a judicial or extrajudicial measure by the BENEFICIARY against the wrongdoer.
PARAGRAPH TWO
For purposes of the special obligation set forth in item IV of this Section, the following shall be deemed relevant:
I all sanctioning administrative proceedings, public-interest civil actions (including of administrative misconduct), citizen suits or class actions, civil or criminal actions relating to the violations set forth below, whenever they are rated as a probable or possible loss:
a) against the Brazilian or foreign public administration, against the economic or tax order, the financial system, the capital market or laundering or concealment of assets, rights and amounts, terrorism or terrorism financing, set forth in the applicable Brazilian and/or foreign law;
b) acts representing discrimination based on race or gender, child or slave labor, or which represent moral or sexual harassment or crimes against the environment;
II sanctioning administrative proceedings, public-interest civil actions (including of administrative misconduct), citizen suits or class actions, civil or criminal actions that represent a risk to the BENEFICIARYs reputation, irrespective of the subject matter or of the classification of probability of loss;
III the proceedings or actions against employees, agents or representatives of the BENEFICIARY, in which it may be held liable or which represent a risk to its reputation;
IV - the proceedings or actions against suppliers of products or services that are essential for execution of the project and which represent a risk to the BENEFICIARYs reputation and/or to execution of the project.
PARAGRAPH THREE
In the events set forth in Paragraph Two of this Section, the BENEFICIARY shall, at the request of the BNDES and whenever available, provide copies of any decisions rendered and of any judicial and extrajudicial settlements executed within the scope of the aforementioned proceedings, as well as detailed information on the measures adopted in response to such proceedings.
PARAGRAPH FOUR
For purposes of the special obligation set forth in item V of the main provision of this Section, measures to prevent the performance of corrupt practices are understood, among others, as the implementation, maintenance and/or improvement of practices and/or internal control systems, including standards of conduct, integrity policies and procedures, aiming at securing full compliance with the Brazilian and foreign law applicable to the Beneficiary and/or to its affiliates.
NINE
OBLIGATIONS OF THE PARENT INTERVENING PARTY
The PARENT INTERVENING PARTY LINX S.A., identified in the preamble to this Agreement hereby agrees to:
I - Not cause the inclusion in any corporate agreement, bylaws, or articles of association of the BENEFICIARY of any provision that implies:
a) Restrictions on the growth capacity or technological development of the BENEFICIARY;
b) Restrictions on the access of the BENEFICIARY to new markets; or
c) Restrictions on or impairment of its ability to pay the financial obligations under its transactions with the BNDES;
II - Not take any actions or measures that impair or alter the economic and financial balance of the BENEFICIARY;
III - Take all the necessary measures to ensure the fulfillment of the purpose of this transaction;
IV- Notify the BNDES, within up to thirty (30) consecutive days as from the date when it becomes aware of such event, that it or any of its managers; its direct or indirect controlling shareholders; its direct or indirect subsidiaries; or, furthermore, any of the respective managers, employees, agents or representatives of the PARENT INTERVENING PARTY; as well as suppliers of products or services that are essential for performance of the project/transaction are involved in any judicial or administrative action, proceedings and/or lawsuit deemed relevant pursuant to the provisions of Paragraph Three, conducted by a Brazilian or foreign administrative or judicial authority, provided they are not subject to confidentiality or under seal, and it may, at the request of the BNDES and whenever available, provide copies of any decisions rendered and of any judicial or extrajudicial settlements executed within the scope of the aforementioned proceedings, as well as detailed information on the actions performed in response to these proceedings;
V- Not offer, promise, give, authorize, solicit, or accept, directly or indirectly, any undue monetary or other advantage relating in any way to the purpose of this Agreement and not perform harmful acts, violations or crimes against the economic* or tax order, the financial system, the capital market or the Brazilian or foreign public administration, laundering or concealment of assets, rights and amounts, terrorism or terrorism financing, set forth in the applicable Brazilian and/or foreign law, and take all measures within its reach to prevent its and its affiliates managers, employees, agents, representatives from doing any of the above;
VI - Submit to the BNDES, within the term of the Agreement, within one hundred and eighty (180) days after the end of the first and of the second half-year period of each fiscal year, for purposes of proving compliance with the obligation set forth in item VII of this Section, consolidated annual financial statements covering its individual results and the results of all its subsidiaries headquartered within the national territory, together with the respective opinions prepared by an independent audit firm registered with the Brazilian Securities Commission (CVM);
VII maintain, during effectiveness of this Agreement, the following financial indices, subject to the provisions of Paragraph Four of this Section, the ascertainment of which shall be made every half-year period based on its consolidated financial statements:
a) General Indebtedness/ Total Assets: equal to or lower than 0.60; and
b) Net Debt/EBITDA: equal to or lower than 2.00.
PARAGRAPH ONE
For purposes of the special obligation set forth in item V, measures to prevent the performance of corrupt practices are understood, among others, as the implementation, maintenance and/or improvement of practices and/or internal control systems, including standards of conduct, integrity policies and procedures, aiming at securing full compliance with the Brazilian and foreign law applicable to the PARENT INTERVENING PARTY and/or to its affiliates.
PARAGRAPH TWO
For purposes of the special obligation set forth in item IV of this Section, knowledge of the PARENT INTERVENING PARTY shall be understood as:
I - the receipt of judicial or extrajudicial service of process, summons or notice issued by a Brazilian or foreign judicial or administrative authority;
II- communication of the fact by the PARENT INTERVENING PARTY to the competent authority; and
III - adoption of a judicial or extrajudicial measure by the PARENT INTERVENING PARTY against the wrongdoer.
PARAGRAPH THREE
For purposes of the special obligation set forth in item IV of this Section, the following shall be deemed relevant:
I - all sanctioning administrative proceedings, public-interest civil actions (including of administrative misconduct), citizen suits or class actions, civil or criminal actions relating to the violations set forth below, whenever they are rated as a probable or possible loss:
a) against the Brazilian or foreign public administration, against the economic or tax order, the financial system, the capital market or laundering or concealment of assets, rights and amounts, terrorism or terrorism financing, set forth in the applicable Brazilian and/or foreign law;
b) acts representing discrimination based on race or gender, child or slave labor, or which represent moral or sexual harassment or crimes against the environment;
II all sanctioning administrative proceedings, public-interest civil actions (including of administrative misconduct), citizen suits or class actions, civil or criminal actions that represent a risk to the PARENT INTERVENING PARTYs reputation, irrespective of the subject matter or of the classification of probability of loss;
III - the proceedings or actions against employees, agents or representatives of the PARENT INTERVENING PARTY, in which it may be held liable or which represent a risk to its reputation; and
IV - the proceedings or actions against suppliers of products or services that are essential for execution of the project and which represent a risk to the PARENT INTERVENING PARTYs reputation and/or to execution of the project.
PARAGRAPH FOUR
For purposes of this Agreement, the terms mentioned in item VII of this Section have the following meaning:
I General Indebtedness: Sum of the Current Liabilities and Non-Current Liabilities.
II - Net Debt: Sum of the balance of the consolidated onerous debts of the INTERVENING PARTY, including: loans and financing: loans; issuance of fixed-income bonds, promissory notes and debentures, whether convertible or not, in the local or international capital market; as well as the sale or assignment of future receivables, in case they are accounted for as obligations; and other indebtedness financial transactions of the company, recorded in the current and non-current liabilities, less Cash (cash and financial investments);
III -EBITDA: Operating Income before interest, income tax, depreciation, and amortization.
TEN
LIABILITY IN CORPORATE SUCCESSION
In the event of corporate succession, any successors of the Beneficiary shall be jointly and severally liable for the obligations arising from this Agreement.
SOLE PARAGRAPH
The main provision of this Section shall not apply in the event of prior consent from the BNDES to the waiver of joint and several liability in a partial spin-off.
ELEVEN
MUTUAL POWER OF ATTORNEY
The BENEFICIARY and the INTERVENING PARTY hereby irrevocably and irreversibly mutually appoint each other their attorneys-in-fact until the final settlement of the debt hereunder, with powers to receive service of process, notices, and summons, as well as with general judicial powers, which may be delegated to counsel, all in connection with any judicial or extrajudicial proceedings that are filed against them by the BNDES as a result of this Agreement, it being understood that they may take all actions necessary for a good and faithful performance of this power of attorney.
TWELVE
CONDITIONS FOR RELEASE OF THE FINANCIAL COOPERATION
In addition to compliance, as appropriate, with the conditions set forth in articles 5 and 6 of the abovementioned PROVISIONS APPLICABLE TO BNDES CONTRACTS and in the MONITORING RULES AND INSTRUCTIONS referred to in article 2 of such PROVISIONS , the release of the financial cooperation shall be subject to the following:
I - For release of each credit installment :
a) No occurrence of any fact that, at the discretion of the BNDES, may substantially alter the economic and financial status of the BENEFICIARY or impair the execution of the project financed hereunder by altering it or preventing its completion in accordance with the terms of the project approved by the BNDES;
b) Submission by the BENEFICIARY of a Certificate of No Outstanding Federal Tax Liability (CND) or of a Certificate of Suspended Federal Tax Liability (CPEND) issued jointly by the Brazilian Federal Revenue Service (RFB) and by the Office of the General Counsel for the National Treasury (PGFN) via INTERNET, to be obtained by the BENEFICIARY at www.receita.fazenda.gov.br or www.pgfn.fazenda.gov.br and checked by the BNDES on the same websites;
c) Proof of good standing with environmental agencies or, if such proof has already been submitted and is in force, a statement from the BENEFICIARY of the continued validity of such document;
d) presentation of a statement, signed by the legal representative(s) of the BENEFICIARY, reiterating the representations provided in Section Twenty-Three (Representations of the Beneficiary);
THIRTEEN
NOTICE
In the event it detects the occurrence of an event that could represent noncompliance with an obligation set forth in this Agreement, in relation to which there is no term established for compliance, the BNDES shall give written notice to the BENEFICIARY and/or to the PARENT INTERVENING PARTY, granting them a term of up to thirty (30) days as from the date of receipt of the notice to present a proof of correction and/or justification about said event.
PARAGRAPH ONE
The BNDES may, at its discretion and without prejudice to other measures and penalties set forth in this Agreement and in the PROVISIONS APPLICABLE TO BNDES CONTRACTS:
I accept the proof of correction and/or justification presented and give written notice thereof to the BENEFICIARY and/or to the PARENT INTERVENING PARTY;
II suspend the release of the financial cooperation; and/or
III declare the acceleration of the Agreement, pursuant to the provisions of Section Seventeen (Acceleration), and, furthermore, in case the purpose set forth in Section (Nature, Amount, and Purpose of the Agreement) has been jeopardized, apply the provisions of Paragraph One of Section Seventeen (Acceleration).
PARAGRAPH TWO
At the discretion of the BNDES, the measure set forth in item II of Paragraph One of this Section may be determined before the notice is delivered to the BENEFICIARY.
FOURTEEN
GUARANTEE
The PARENT INTERVENING PARTY LINX S.A., identified in the preamble, accepts this Agreement in the capacity of guarantor and principal payor and expressly waives the benefits of articles 366, 827, and 838 of the Civil Code, it being understood that it shall be jointly and severally liable, until the final settlement of this Agreement, for the faithful and exact performance of all the obligations assumed by the BENEFICIARY hereunder.
FIFTEEN
DEFAULT
In the event of default of the obligations assumed by the BENEFICIARY and by the PARENT INTERVENING PARTY, the provisions of arts. 40-47-A of the PROVISIONS APPLICABLE TO BNDES CONTRACTS referred to in Section Eight (Special Obligations of the Beneficiary), item I shall apply.
SIXTEEN
EARLY SETTLEMENT OF THE DEBT
In the event of early settlement of the debt, the guarantees shall be released, subject to the provisions of article 18, paragraph two, of the PROVISIONS APPLICABLE TO BNDES CONTRACTS mentioned in Section Eight (Special Obligations of the Beneficiary), item I.
SEVENTEEN
ACCELERATION
The BNDES may accelerate this Agreement, upon which the debt shall become enforceable and any disbursements shall be immediately suspended, if, in addition to the events mentioned in articles 39 and 40 of the PROVISIONS APPLICABLE TO BNDES CONTRACTS referred to in Section Eight (Special Obligations of the Beneficiary), item I, the BNDES can demonstrate:
a) The existence of a final and unappealable adverse judgment resulting from any actions taken by the Beneficiary which imply child labor, slave labor, or environmental crime;
b) the untruth of the representations provided in Section Twenty-Three (Representations of the Beneficiary);
c) The inclusion in a corporate agreement, bylaws, or articles of association of the BENEFICIARY or of any of its controlling companies of any provision that implies restrictions on or an impairment of its ability to pay its financial obligations arising from this transaction;
d) court-supervised or out-of-court reorganization petition, or petition for voluntary bankruptcy filed by the BENEFICIARY or its controlling shareholder(s), or adjudication of bankruptcy of the BENEFICIARY or its controlling shareholder(s);
e) consolidation, spin-off, dissolution, merger (in the capacity as surviving company or absorbed company), conversion, capital reduction with reimbursement of capital or going-private process, or change in the actual direct or indirect control of the BENEFICIARY or of its successors, during effectiveness of this Agreement, without the prior and express consent of the BNDES.
PARAGRAPH ONE
This Agreement shall be accelerated, upon which the debt shall become enforceable and any disbursements shall be immediately suspended, in the event of application of the proceeds from this Agreement to any purpose other than that provided for in Section One (Nature, Amount, and Purpose of the Agreement). The BNDES shall give notice of such fact to the Federal Public Prosecutors Office for the purposes and effects of Law No. 7.492 of June 16, 1986.
PARAGRAPH TWO
This Agreement shall also be accelerated, upon which the debt shall become enforceable and any disbursements shall be immediately suspended, on the date when any person who exercises a salaried position at the BENEFICIARY or is among its owners, controlling members, or officers is certified or takes office as a Federal Deputy or Senator, as such persons are subject to the prohibitions set forth in article 54, items I and II of the Federal Constitution. No default charges shall be imposed if the payment occurs within five (5) business days from the date of such certification, under penalty of otherwise the charges established for events of acceleration due to default being imposed.
PARAGRAPH THREE
No acceleration based on the provisions of clause a shall occur if the remediation imposed is complied with or as long as the sentence imposed on the Beneficiary is being served, subject to the due process of law.
EIGHTEEN
DUE DATES ON PUBLIC HOLIDAYS
The due dates of all principal and charges repayment installments which fall on Saturdays, Sundays, or national, state, district, or municipal public holidays, including banking holidays, shall be, for all purposes and effects of this Agreement, postponed to the first subsequent business day, in which case the charges shall be calculated up to such date, and the following regular period for determination and calculation of the charges under this Agreement shall also start on such date.
SOLE PARAGRAPH
Unless otherwise expressly provided, the public holidays in the place where the principal place of business of the BENEFICIARY is located, the address of which is indicated in this Agreement, shall be considered for the purposes of the main provision of this Section.
NINETEEN
FINANCIAL COOPERATION COMMISSION
The BENEFICIARY shall pay to the BNDES a Financial Cooperation Commission in the amount of six hundred and sixty-two thousand, nine hundred and sixty-five Reais and forty cents (R$662,965.40).
PARAGRAPH ONE
The BENEFICIARY authorizes the BNDES to deduct from the first installment of the credit, upon release thereof, the amount of six hundred and sixty-two thousand, nine hundred and sixty-five Reais and forty cents (R$662,965.40), relating to the Financial Cooperation Commission.
PARAGRAPH TWO
If the first release does not occur, or if the amount mentioned in Paragraph One of this Section is not deducted from the first credit release, the BENEFICIARY agrees to pay it to the BNDES within forty-five (45) days to from the date on which it is notified to do so.
PARAGRAPH THREE
If the Financial Cooperation Commission is not paid as provided for in this Section, the BENEFICIARY shall be subject to the sanctions set forth in this Agreement and in the PROVISIONS APPLICABLE TO BNDES CONTRACTS referred to in Section 8 (Special Obligations of the Beneficiary) of this Agreement.
TWENTY
COMMISSIONS AND CHARGES
The BENEFICIARY acknowledges that it shall pay Commissions and Charges to the BNDES in view of the request for services or other activities, subject to the events of application and to the amounts disclosed by the BNDES on the website www.bndes.gov.br.
TWENTY-ONE
JURISDICTION
The courts of Rio de Janeiro and the courts sitting in the place where the headquarters of the BNDES are located are hereby elected as the Courts of competent jurisdiction for any disputes arising from this Agreement which cannot be resolved out of court.
TWENTY-TWO
ENVIRONMENTAL LIABILITY
The BENEFICIARY agrees, regardless of fault, to reimburse the BNDES for any amount that it is compelled to pay due to any environmental damage arising from the project referred to in Section One (Nature, Amount, and Purpose of the Agreement), as well as to indemnify the BNDES for any losses or damages it may suffer as a result of such environmental damage.
TWENTY-THREE
REPRESENTATIONS OF THE BENEFICIARY
The BENEFICIARY hereby represents and warrants to the BNDES that:
I In relation to the legitimacy to execute agreements:
a) it has full power, authority and capacity to execute this Agreement and comply with the obligations assumed by it hereunder, having performed all corporate actions required to authorize the respective execution;
b) there is no Federal Deputy or Senator who has been certified or taken office who exercise a remunerated duty or is one of its owners, controlling shareholders or officers, and the prohibitions set forth in the Brazilian Federal Constitution, article 54, items I and II have not been characterized;
II In relation to the loyal practices:
a) it is compliant with the anticorruption laws, regulations and policies, as well as with the determinations and rules issued by any Brazilian or foreign body or entity to which it is subject due to a statutory or contractual obligation, the purpose of which is to inhibit or prevent corrupt practices, unlawful expenses relating to political activity, harmful acts, violations or crimes against the economic or tax order, the financial system, the capital market or the Brazilian or
foreign public administration, laundering or concealment of assets, rights and amounts, terrorism or terrorism financing, set forth in the applicable Brazilian and/or foreign law;
b) it has no knowledge that suppliers of products or services that are essential for execution of the project/transaction have performed any act relating thereto that breaches any of the rules mentioned in letter a of this item;
c) neither the Beneficiary nor its direct or indirect affiliates or, furthermore, any of the respective managers, employees, agents and representatives are Sanctioned Persons;
d) neither the Beneficiary nor its direct or indirect affiliates are organized, domiciled or located in a Sanctioned Country;
e) neither the Beneficiary nor its direct or indirect affiliates are or wish to be a party to any negotiations or transactions with any Sanctioned Person or relating to any blocked activity or transaction in a Sanctioned Country;
III In relation to the social and environmental aspects:
a) it complies with the statutory provisions relating to the National Environmental Policy and adopts measures and actions designed to avoid or correct damage or violations of the environment, occupational safety and health that may result from the project set forth in Section One (Nature, Amount, and Purpose of the Agreement);
b) it is in regular standing with the environmental bodies, and all licenses, authorizations, grants and similar instruments currently required for the project set forth in Section One (Nature, Amount, and Purpose of the Agreement) presented to BNDES remain valid;
c) it is compliant with the law applicable to persons with deficiency in the execution of the project set forth in Section One ( Nature, Amount, and Purpose of the Agreement), especially the requirements set forth in Law No. 13.146, of July 6, 2015 (Statute of Persons with Deficiency);
d) the project set forth in Section One (Nature, Amount, and Purpose of the Agreement) does not contemplate a reduction in the permanent personnel of the BENEFICIARY;
IV In relation to the tax aspects:
a) it is compliant with the tax obligations, including social, labor and social-security contributions;
PARAGRAPH ONE
The BENEFICIARY is aware that the inaccuracy of the representations provided in the main provision of this Section may result in application of the applicable legal sanctions, in addition to the acceleration of the Agreement.
PARAGRAPH TWO
The BENEFICIARY shall, whenever it requests the release of an installment of the financial cooperation or at the request of the BNDES, within up to 30 days as from the date of receipt of the notice, expressly reiterate the representations provided in this Section, informing any relevant change of fact that causes the representation to no longer be true, consistent, correct or sufficient, until final settlement of all obligations under this Agreement.
PARAGRAPH THREE
For purposes of item II of the main provision of this Section, the following definitions are adopted:
I Sanctioned Country: any country or territory that is or the government of which is subject to Sanctions;
II Sanctioned Person: any individual or legal entity, authority or governmental body the transactions with which are restricted or prohibited by the Sanctions;
III - Sanctions: economic or financial sanctions, embargoes and restrictive measures in effect, whether administrated or applied by the by the United Nations Security Council, by the Brazilian Government or by an authority with jurisdiction on the BENEFICIARY, its affiliates, or any of their respective managers, employees, agents and representatives, in view of their domicile or commercial activities.
TWENTY-FOUR
REPRESENTATIONS OF THE PARENT INTERVENING PARTY
The PARENT INTERVENING PARTY hereby represents and warrants to the BNDES that:
I - In relation to the legitimacy to be an intervening party to the agreement:
a) it has full power, authority and capacity to be an intervening party to this Agreement and comply with the obligations assumed by it hereunder, having performed all corporate actions required to authorize the respective execution hereof in the capacity as intervening party;
II - In relation to the loyal practices:
a) it is compliant with the anticorruption laws, regulations and policies, as well as with the determinations and rules issued by any Brazilian or foreign body or entity to which it is subject due to a statutory or contractual obligation, the purpose of which is to inhibit or prevent corrupt practices, unlawful expenses relating to political activity, harmful acts, violations or crimes against the economic or tax order, the financial system, the capital market or the Brazilian or foreign public administration, laundering or concealment of assets, rights and amounts, terrorism or terrorism financing, set forth in the applicable Brazilian and/or foreign law;
b) neither the PARENT INTERVENING PARTY nor its direct or indirect affiliates or, furthermore, any of the respective managers, employees, agents and representatives are Sanctioned Persons;
c) neither the PARENT INTERVENING PARTY nor its direct or indirect affiliates are organized, domiciled or located in a Sanctioned Country;
d) neither the PARENT INTERVENING PARTY nor its direct or indirect affiliates are or wish to be a party to any negotiations or transactions with any Sanctioned Person or relating to any blocked activity or transaction in a Sanctioned Country;
e) it has no knowledge of any fact that has not been expressly declared and that, if known, could adversely affect the decision to grant the financing.
III - In relation to the tax aspects:
a) it is compliant with the social-security and social contribution obligations;
PARAGRAPH ONE
The PARENT INTERVENING PARTY is aware that the inaccuracy of the representations provided in the main provision of this Section may result in application of the applicable legal sanctions, in addition to the acceleration of the Agreement.
PARAGRAPH TWO
The PARENT INTERVENING PARTY shall, at the request of the BNDES, within up to 30 days as from the date of receipt of the notice, expressly reiterate the representations provided in this Section, informing any relevant change of fact that causes the representation to no longer be true, consistent, or correct, until final settlement of all obligations under this Agreement.
PARAGRAPH THREE
For purposes of item II of the main provision of this Section, the following definitions are adopted:
I - Sanctioned Country: any country or territory that is or the government of which is subject to Sanctions;
II - Sanctioned Person: any individual or legal entity, authority or governmental body the transactions with which are restricted or prohibited by the Sanctions;
III - Sanctions: economic or financial sanctions, embargoes and restrictive measures in effect, whether administrated or applied by the by the United Nations Security Council, by the Brazilian Government or by an authority with jurisdiction on the PARENT INTERVENING PARTY, its affiliates, or any of their respective managers, employees, agents and representatives, in view of their domicile or commercial activities.
TWENTY-FIVE
PUBLICITY
The BENEFICIARY and the PARENT INTERVENING PARTY authorize the external disclosure of the full contents of this Agreement by the BNDES, irrespective of the public registration hereof with the registry office.
TWENTY-SIX
TRANSFER OF CONFIDENTIALITY
The BENEFICIARY and the PARENT INTERVENING PARTY represent to be aware that the BNDES will provide to the Federal Accounting Court (TCU), to the Federal Public Prosecutors Office (MPF) and to the Ministry of Transparency, Inspection and Control the information requested by them, with transfer of the duty of confidentiality.
TWENTY-SEVEN
COMMUNICATIONS
All communications resulting from this Agreement shall be made in writing and sent personally, by mail or by electronic message (e-mail) to the following addresses or to any other address informed by the BNDES or by the BENEFICIARY and the PARENT INTERVENING PARTY:
BNDES:
Av. República do Chile, No. 100, Centro
Rio de Janeiro - RJ
Postal Code: 20.031-917
Phone: (21) 2052-6665
E-mail: rivera@bndes.gov.br
Attn.: Head of the Information and Information Technology Department
BENEFICIARY:
Avenida das Nações Unidas, No. 7221, 4º, 5º, 6º, 7º e 14º andares, Edifício Birmann 21,
Pinheiros
São Paulo - SP
Postal Code: 05425-902
Phone:(11) 961728289
E-mail: pedro.moreira@linx.com.br
Attn.: Mr. Pedro Holmes Monteiro Moreira
PARENT INTERVENING PARTY:
Avenida das Nações Unidas, No. 7221, 7º andar, Sala 01, Edifício Birmann 21, Pinheiros
São Paulo - SP
Postal Code: 05425-902
Phone: (11) 961728289
E-mail: pedro.moreira@linx.com.br
Attn.: Mr. Pedro Holmes Monteiro Moreira
SOLE PARAGRAPH
Any communication pursuant to the provisions of this Agreement shall be valid and deemed delivered on the date of receipt, as proven by means of a receipt singed by the party to which it is delivered; in case it is sent by mail, upon return receipt; or, in case of transmission by electronic message (e-mail), on the date on which the correspondence is sent, in case it is sent until the end of the business hours of the addressee and, in case it is sent afterwards, on the following business day.
The BENEFICIARY LINX SISTEMAS E CONSULTORIA LTDA. has submitted a Certificate of Suspended Federal Tax Liability (CPEND) No. 5CF5.98C7.E437.7176 issued jointly by the Brazilian Federal Revenue Service and by the Office of the General Counsel for the National Treasury on October 15, 2018.
The PARENT INTERVENING PARTY has submitted a Certificate of No Outstanding Federal Tax Liability (CND) No. 9050.26AB.E3A2.AC76 issued jointly by the Brazilian Federal Revenue Service and by the Office of the General Counsel for the National Treasury on September 27, 2018.
The pages of this Instrument are initialed by Ana Gabriela Salcedo Teixeira Mendes, counsel for the BNDES, upon authorization from the undersigned legal representatives.
In witness whereof, the parties executed this instrument in three (3) identical counterparts, in the presence of the undersigned witnesses.
Rio de Janeiro, November 30, 2018
(SIGNATURE PAGE OF THE CREDIT FACILITY FINANCING AGREEMENT No. 18.2.0547.1 ENTERED INTO BY AND BETWEEN THE NATIONAL BANK FOR ECONOMIC AND SOCIAL DEVELOPMENT - BNDES AND LINX SISTEMAS E CONSULTORIA LTDA., WITH INTERVENING THIRD PARTY)
For the BNDES:
/s/ Julio Ramundo |
|
/s/ Ricardo Rivera |
BANCO NACIONAL DE DESENVOLVIMENTO ECONÔMICO E SOCIAL - BNDES |
Julio Ramundo |
|
Ricardo Rivera |
Superintendent |
|
Head of Department |
Industry and Services Area |
|
AI/DETIC |
For the BENEFICIARY
/s/ Alberto Menache |
|
/s/ Holmes Monteiro Moreira |
LINX SISTEMAS E CONSULTORIA LTDA.
For the PARENT INTERVENING PARTY:
/s/ Alberto Menache |
|
/s/ Holmes Monteiro Moreira |
LINX S.A.
WITNESSES
/s/ Ana Paula Frigo |
|
/s/ Tatiana Bacelar Maldonado Torres |
Name: Ana Paula Frigo |
|
Name: Tatiana Bacelar Maldonado Torres |
Identity No.: 28.733.692-X |
|
Identity No.: 1003777 53 |
Individual Taxpayers Register (CPF) No.: 281.772.648-00 |
|
Individual Taxpayers Register (CPF) No.: 042957797-27 |
CODE OF ETHICS AND CONDUCT
Code of Ethics and Conduct
1. INTRODUCTION
This Code of Ethical Conduct provides individual and group guidance on standards of behavior aligned with Linxs values and business strategy, to ensure that the companys reputation is upheld in its operations, processes and relations. Compliance with this Code of Ethical Conduct underpins Linxs relations with its customers, employees, shareholders and suppliers, regulatory authorities and society.
1.1 Purpose
The purpose of this Code of Ethical Conduct is to serve as a practical guide for personal and professional conduct, to be used by all Linxs managers, employees and suppliers of goods and services in their daily dealings and decision-making, by applying our mission, vision, values and general principles:
1.1.1 Mission
To make retailing more profitable, competitive and sustainable through the use of technology.
1.1.2 Vision
To be the natural choice in technology and services for retailing.
1.1.3 Values:
Linx is committed to operating according to the following principles:
· We observe the principles of ethics and good corporate governance practices;
· We uphold peoples right to respect, recognition and development;
· It is in our nature to build lasting relationships;
· We are entrepreneurs and innovators;
· We value quality allied with simplicity and practicality;
· We are socially and environmentally responsible.
2. CONFLICTS OF INTEREST
It is essential that our attitudes and behavior should reflect personal and professional integrity. We must always defend Linxs interests, and keep confidential the companys projects and operations and information on our customers and suppliers.
Our professional and ethical commitment to Linx ensures that our professional activities are not influenced by personal interests. We define personal interests as material or moral advantages for ourselves or our relatives, friends or people with whom we are have a personal, commercial or political relationship. Some examples of situations that can lead to actual or apparent conflict are:
· Taking part in decisions on doing business with companies or institutions in which you or a member of your family have an interest, or that can produce benefits for you personally. If you are in this situation, you must get approval in advance from the Ethics Committee;
· Arranging business with Linx by means of friendship or family ties or in order to receive a donation or gift or to obtain favors;
· Using Linxs name improperly;
· Using confidential information to make profitable personal investments;
· Passing on confidential or strategic information without authorization.
2.1 Romantic relationships, family ties or friendships with other employees of Linx, or with employees of competitors, suppliers or service providers.
Hiring friends and relations of Linxs employees is not recommended. However this may be considered in exceptional situations, provided that the opinion of the immediate superior is sought and approval obtained from the Human Resources Department. Employees in this situation must not be responsible for hiring or supervising the other person, or be able to affect their terms of employment or influence their immediate managers decisions. In addition, employees with any degree of relationship may not work in the same area or department or in areas or departments where their functions could give rise to conflicts of interest, such as Audit, Human Resources, Accounting etc.
2.2 Giveaways, presents, favors, loans and other courtesies.
Employees are not authorized to accept presents, benefits or advantages that could represent an improper relationship or damage Linx financially or morally. An improper relationship is one which conflicts with the precepts of this Code.
Institutional giveaways, identified with the logo or trademark of the supplier/partner, can be accepted. In exceptional situations where protocol or other special circumstances demand, non-institutional gifts or courtesies may be accepted, provided that they are duly reported to Human Resources Department.
Employees are forbidden to accept commissions, rebates and/or personal favors offered because of their position or function in Linx, or to receive or grant any type of reciprocity, gain or personal advantage from or to financial institutions, brokers, insured parties or customers in general, in the context of their professional relations.
Exchanging giveaways or presents and sharing entertainment for legitimate business purposes can encourage constructive relationships with third parties. However, gifts or entertainment must never influence or appear to influence impartial decision-making by Linxs employees or any third party. They must never be offered or accepted in return for preferential treatment in a business deal.
Linx forbids illegal payments or receipts, gratuities, corruption and bribery.
2.3 Activities outside Linx
Employees must not exercise external activities (whether or not for compensation) which may conflict or appear to conflict with the interests of Linx, have an adverse effect on the companys business interests or affect its ability to fulfill its responsibilities. If in doubt, ask your immediate superior and obtain the approval of Human Resources Department.
It is forbidden to sell products on office premises unless permitted by Linx.
2.4 Political activities
We always maintain a politically neutral stance in the workplace and in running the company business, mainly by refusing to support any political tendency.
Linx does not stop employees exercising their party political rights, as long as it does not affect their work.
Any such activity is personal and not as a representative of the company.
3. INTERNAL RELATIONS AND THE WORKING CLIMATE
Relations in the workplace must be based on courtesy, respect, collaboration and mutual cooperation. All employees must contribute to creating and maintaining a healthy working climate, in the following way:
· Behave honestly, transparently and cordially;
· It is unacceptable to discriminate on the basis of color, race, religious belief, sexual orientation, age, origin, physical condition, social class or political opinion;
· Employees entitled to reimbursement of expenses by the company and/or customers must claim only for costs which are absolutely necessary for their purpose, and may not use such funds for personal expenses;
· Behave conscientiously at work, and respect environmental and public health standards, and the companys commitment to sustainable development.
3.1 Moral and sexual harassment
All Linxs employees are committed to ensuring a positive working environment, above all free from pressure, demands or persecution of a moral or sexual nature. We will not tolerate any type of moral or sexual abuse or harassment of employees, service providers, suppliers, customers or anyone else with whom we are in contact. We will not accept the use of abusive or indecorous language during meetings, in communications or any other work-related dealings. The company will take the necessary steps to sanction any behavior classified as moral or sexual harassment.
3.2 Responsible leadership
As well as its expectations of its employees, Linx expects of those in positions of leadership that:
· They provide a good example to their subordinates;
· They act honestly, not using their position to impose their power improperly or abusing their authority, for example by supplying personal services or practicing sexual or moral harassment;
· They recognize the merit of each employee and provide them with equal opportunities for professional development, according to their individual characteristics, skills and contributions. No decisions affecting someones career may be made on the basis of a personal relationship.
4. RELATIONS WITH CUSTOMERS AND SUPPLIERS
a) Customers
Our commitment to satisfying our customers must be reflected in respect for their rights and the offer of solutions to meet their interests, always aligned with Linxs development objectives. We believe that our customers are our raison dêtre and, as a result, all our commitments to them must be fulfilled, without preferential treatment for anyone on the basis of self-interest or personal relations. Employees must show the highest professionalism and respect in attending to customers, acting with courtesy and efficiency. We must also make sure that all our advertising of our services and products is clear and accurate and compliant with regulations and the law.
We must inform our customers fully of the terms and conditions applicable to our products and services, and of the implicit risks, always respecting the rules of negotiation.
b) Suppliers
We must engage suppliers and establish business relations with partners that observe ethical standards compatible with our own, by a strict selection process, and ensure that they are fully aware of the provisions of this Code.
Linx is totally against child labor, forced labor or labor analogous to slavery, and we do not accept such practices by our suppliers or service providers.
Linx is committed to treating every supplier with respect, impartiality and equality, basing selection on an objective assessment of the quality of goods or services provided.
5. RELATIONS WITH SHAREHOLDERS AND THE CAPITAL MARKETS
Linx is an open organization, committed to good corporate governance practices and to ensuring the highest levels of transparency, compliance, accountability and equality of treatment of investors and the capital market in general.
We make every effort to deliver the highest added value to our shareholders in the following ways:
· We make and carry out decisions prudently and recognize that we are dealing with our shareholders assets;
· We manage risk strictly and do business in accordance with the rules;
· We issue reports to the market as required by the Brazilian Securities Commission (CVM).
All communications to shareholders must be authorized by the Investor Relations Officer and made or monitored by the Investor Relations area (ri@linx.com.br).
5.1 Privileged information and material facts
We must maintain the strictest secrecy about Linxs projects, business, activities and results which have not yet been disclosed to the market and which might affect our share price and influence market movements or investment decisions. Results must be distributed and information disclosed in a fully symmetrical fashion, without creating privileges.
Material facts must not be discussed in public places. Employees who, inadvertently or without authorization, transmit any privileged information to another person, either personally or through a third party, before its disclosure to the market, must notify the Investor Relations Officer of the fact immediately, so that the necessary measures can be taken.
Employees must not use such information to obtain any monetary advantages for themselves or others, directly or indirectly, for instance by buying or selling company shares.
6. PRESS RELATIONS AND SOCIAL MEDIA ACCOUNTS
6.1. Press
All the companys employees and business partners have the duty of looking out for the companys image and reputation, and Linxs brands and products. Any contact with any press
entity must first be approved by Marketing Department. Our representatives, when authorized to make a statement on behalf of the company, must express the institutional point of view.
6.2. Social networks
Social networks can expand the capacity to communicate and carry messages rapidly beyond your routine circle of contacts. Linxs employees must take care when using social networks such as Facebook, Twitter, YouTube and LinkedIn that they preserve the companys image, by:
· Registering with social networks in your own name, and with your personal email address, not using the Linxs name or company email address.;
· Only publishing or sharing company information which is classified as public, i.e. which has already been published in the companys official communications vehicles;
· Not disclosing confidential information about Linx or its customers, partners or suppliers, or information or opinions that could affect the companys image or that of its employees, partners, suppliers or customers;
· Ensuring that your reputation and the companys name are protected. If you become aware of any situation that could put the companys image at risk, tell marketing department immediately.
7. RELATIONS WITH COMPETITORS
Fair competition must be a cornerstone of our business and our relations with other groups and companies. We must compete on the basis of this principle.
You must not make remarks to the detriment of competitors or help spread rumors about them. Treat other business groups with the same respect that Linx expects from them.
8. CONFIDENTIALITY AND INFORMATION SECURITY
All documents and data are confidential and belong to the company. Linx is also the owner of all documents relating to product specifications, manuals, software, hardware and applications developed or in use, even if a member of the staff has helped develop them.
9. ETHICAL CONDUCT COMMITTEE
The Human Resources Department is responsible for distribution of and compliance with this Code, in order to ensure that it is efficient and effective.
The Human Resources Department may call on areas such as Legal, Finance etc. to serve on the committee when it thinks necessary.
The Human Resources Department will determine which cases should go to the CEO of Linx for a decision.
10. QUESTIONS ABOUT THE CODE AND WHISTLEBLOWING
This Code of Ethical Conduct formalizes Linxs policies and standards. It is an ethical guide for both your personal and your professional behavior.
Since it is unlikely that any Code of Ethical Conduct can provide for every situation encountered in practice, we trust to your common sense, and ask you to speak to your immediate superior or the Human Resources Department if you have any questions.
Situations that conflict with the Code or are not covered in it may arise unexpectedly at any time, and you are individually responsible for taking the correct action, remembering that the law takes precedence over the Code in every case.
Violations of the Code of Ethical Conduct will lead to the appropriate disciplinary action, irrespective of seniority, in addition to any legal penalties. Reports of such violations must be submitted to the Human Resources Office by email to comitedeetica@linx.com.br with a clear and transparent account and as much detail as possible. The identity of the whistleblower will be kept confidential on request.
RESPONSIBILITIES
Employees: to comply with the Code of Ethical Conduct and report to their direct superior or the Human Resources Department any situations conflicting with the Code.
Human Resources Office: To ensure that every employee receives a copy of this Code and provide support to managers and employees in situations that conflict with it.
Managers: To be an example of ethical conduct, comply with the code and answer questions from subordinates.
CODE OF ETHICAL CONDUCT
DECLARATION
I confirm that I have received a copy of Linxs Code of Ethical Conduct and that I have read and understood its content, and I undertake to comply with it fully.
Subsidiaries of Linx S.A.
The following are the subsidiaries of Linx S.A.:
1. Linx Sistemas e Consultoria Ltda.
2. Linx Telecomunicações Ltda.
3. Napse S.R.L.
4. Sociedad Ingeniería De Sistemas Synthesis I.T. de Chile Limitada
5. Synthesis Holding LLC.
6. Synthesis US LLC.
7. Synthesis IT de Mexico S de RL de CV
8. Retail Americas S de RL de CV
9. Synthesis I.T. Peru SRL
10. Sback Tecnologia da Informação Ltda.
11. Linx Pay Meios de Pagamentos Ltda.
Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption Experts and to the use of our report dated March 29, 2019, in the Registration Statement on Form F-1 and related Prospectus of Linx S.A dated May 29, 2019.
/s/ Ernst & Young Auditores Independentes S.S. |
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Sao Paulo, Brazil |
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May 29, 2019 |
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Exhibit 99.1
Consent of International Data Corporation
We hereby consent to (1) the use of and all references to the name of the International Data Corporation in the prospectus included in the registration statement on Form F-1 of Linx S.A. (the Company) and any amendments thereto (the Registration Statement); including, but not limited to, the use of the information supplied by us and set forth under the Summary, Industry Overview and Business sections; and (2) the filing of this consent as an exhibit to the Registration Statement by the Company for the use of our date and information cited in the above-mentioned sections of the Registration Statement.
Sincerely, |
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By: |
/s/DENIS MARSI ARCIERI |
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Name: |
Denis Marsi Arcieri |
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Title: |
Country Manager IDC Brasil |
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S ão Paulo, May 29, 2019