As filed with the Securities and Exchange Commission on September 2, 2020.

Registration Statement No. 333-

 

 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549 

 

FORM F-4 

Registration Statement 

Under
the Securities Act of 1933
 

 

StoneCo Ltd. 

(Exact Name of Registrant as Specified in its Charter) 

 

The Cayman Islands

(State or Other Jurisdiction of
Incorporation or Organization)

7374
(Primary Standard Industrial
Classification Code Number)

Not Applicable 

(I.R.S. Employer
Identification Number)

4th Floor, Harbour Place 

103 South Church Street, P.O. Box 10240 

Grand Cayman, KY1-1002, Cayman Islands 

+55 (11) 3004-9680 

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices) 

 

Cogency Global Inc. 

122 East 42nd Street, 18th Floor 

New York, NY 10168 

(212) 947-7200 

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

Byron B. Rooney

Daniel Brass 

Davis Polk & Wardwell LLP 

450 Lexington Avenue 

New York, New York 10017

 

Approximate date of commencement of proposed sale of the securities to the public: As promptly as practicable after the date this Registration Statement becomes effective and upon the satisfaction or waiver of all other conditions to completion of the transactions described herein.

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.

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.

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)
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

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.

 

 

 

CALCULATION OF REGISTRATION FEE
Title Of Each Class
Of Securities To Be Registered
Amount To Be Registered(1) Proposed Maximum Offering Price Per Share Proposed Maximum Aggregate Offering Price(2) Amount Of
Registration Fee(3)
Class A common shares, U.S.$0.000079365 par value 2,269,998 N/A U.S.$124,853,074.01

U.S.$16,205.93 

 

Notes:

(1)Represents the estimated maximum number of shares of Class A common shares, U.S.$0.000079365 par value, of the registrant (“StoneCo Class A Common Shares”) issuable upon completion of the transaction described in the prospectus contained herein (the “Transaction”) and is based upon the product of (a) 179,058,617 (the “estimated number”) of issued and outstanding shares of common stock of Linx, S.A. (“Linx”) and (b) 0.0126774, which is the exchange ratio under the Association Agreement (as defined herein).

(2)Pursuant to Rules 457(c), 457(f)(1) and 457(f)(3) promulgated under the Securities Act and solely for the purpose of calculating the registration fee, the proposed aggregate maximum offering price is (i) the product of (x) U.S.$6.47 (the average of the high and low prices of Linx common stock as reported on the B3 S.A. – Bolsa, Brasil, Balcão on August 31, 2020, calculated at the exchange rate of Brazilian reais per U.S. dollar of $5.4713 (as reported by the Brazilian Central Bank on August 31, 2020)) times (y) the estimated number of shares of Linx common stock to be acquired by the registrant, minus (ii) U.S.$1,032,860,554.63 (the estimated amount of cash to be paid by the registrant to Linx stockholders in the merger).

(3)Computed in accordance with Rule 457(f) under the Securities Act to be U.S.$16,205.93, which is equal to 0.0001298 multiplied by the proposed maximum aggregate offering price of U.S.$124,853,074.01.

 

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, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 

Information contained in this prospectus is subject to completion and may be changed. A registration statement relating to these securities has been filed with the U.S. Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This document shall not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

PRELIMINARY—SUBJECT TO COMPLETION—DATED SEPTEMBER 2, 2020

 


 

 

TRANSACTION PROPOSED

 

        , 2020

 

Dear Linx Shareholder:

 

There will be a special meeting (together with any adjournments or postponements thereof, the “Linx Special Meeting”) of shareholders of Linx, S.A., a corporation (sociedade anônima) incorporated under the laws of the Federative Republic of Brazil (“Linx”), on               , 2020, at                  (São Paulo time) at Linx headquarters.

 

As previously announced, on August 11, 2020, Linx and STNE Participações S.A. (“STNE”), a subsidiary of StoneCo Ltd., a Cayman Islands exempted company with limited liability (“StoneCo”), that holds the software investments of the group, entered into an Association and Other Covenants Agreement (the “Original Association Agreement”), outlining certain transactions (collectively, the “Transaction”), including a corporate reorganization as described herein. As announced on September 1, 2020, the parties amended and restated the Original Association Agreement to revise certain terms therein (such amended and restated agreement “the Association Agreement”). Nércio José Monteiro Fernandes, Alberto Menache and Alon Dayan (the “Linx Founding Shareholders”), StoneCo, DLP Capital LLC, a Delaware limited liability company and DLPPAR Participações S.A., a corporation (sociedade por ações) incorporated under the laws of the Federative Republic of Brazil (together with DLP Capital LLC, “DLP”) acted as intervening parties thereto.

 

Pursuant to the terms and subject to the conditions set forth in the Association Agreement, common shares of Linx (“Linx Common Shares”) and American Depositary Shares of Linx (“Linx ADSs,” representing shares of Linx and, together with the Linx Common Shares, the “Linx Shares”) issued and outstanding immediately prior to the consummation of the Transaction will be automatically contributed to STNE in exchange for one newly issued redeemable Class A preferred share of STNE (each a “STNE Class A Preferred Share”) and one newly issued redeemable Class B preferred share of STNE (each a “STNE Class B Preferred Share,” and, together with STNE Class A Preferred Shares, the “New STNE Shares”). Immediately thereafter, each STNE Class A Preferred Share will be redeemed for a cash payment of R$31.56 and each STNE Class B Preferred Share will be redeemed for 0.0126774 Class A common stock of StoneCo (“StoneCo Class A Common Shares”) (the “Base Exchange Ratio”).

 

The Base Exchange Ratio takes into account the following assumptions: (i) that no declaration, payment of dividends or interest on equity by STNE or Linx will take place until Closing; (ii) that on September 1, 2020, except for the disclosure of the quarterly results and for the material facts related to the Transaction, there were no material facts pending disclosure to the market by Linx and/or StoneCo; (iii) that on September 1, 2020, there were 14,125,991 shares issued by Linx in treasury; (iv) that the effect of the exercise or acceleration of the total of all of the options and restricted stock plans would result in 3,775,648 additional shares to the share capital of Linx; and (v) that on September 1, 2020, Linx’s corporate capital was represented by 189,408,960 common book-entry shares, nominative and with no par value, including treasury-held shares.

 

If the Transaction is completed, Linx will become a wholly owned subsidiary of STNE and Linx will no longer be an independent, publicly traded corporation incorporated under the laws of the Federative Republic of Brazil. Based on the exchange ratios, adjustments and limitations set forth in the Association Agreement, it is anticipated that, immediately following completion of the Transaction, former holders of Linx Common Shares will own approximately 0.7% of StoneCo on a fully diluted basis.

 

The Linx Common Shares are listed on the São Paulo Stock Exchange (B3 S.A. – Bolsa, Brasil, Balcão, the “B3”), under the symbol “LINX3” and the Linx ADSs are listed on the New York Stock Exchange (“NYSE”), under the symbol “LINX.” If the Transaction is completed, Linx will be deregistered under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”) and from the Brazilian Securities Commission (Comissão de Valores Mobiliários, referred to as the “CVM”) and the Linx Common Shares will be delisted from the B3. In addition, the Linx ADSs will be delisted from the NYSE.

 

 

 

 

The StoneCo Class A Common Shares are listed on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “STNE.”

 

In order to approve the Transaction Proposal (as defined herein), holders of at least the majority of Linx Shares must vote in favor of the Transaction. In addition to the approval by the shareholders of Linx, the Transaction must be approved by the Administrative Council for Economic Defense of Brazil (“CADE”), as further described herein. There can be no assurance that the requisite regulatory approval will be achieved or that all other conditions precedent to the completion of the Transaction will be met.

 

On August 11, 2020, StoneCo, STNE and DLP entered into that certain Voting Commitment and Assumption of Obligations (the “Voting Agreement”) with Linx and the Linx Founding Shareholders, whereby the parties to the Voting Agreement undertook, as limited by the Brazilian Law No. 6.404/76, as amended (the “Brazilian Corporation Law”), obligations to implement the Transaction, including by binding their shares to vote in favor of the corporate resolutions necessary for the approval, closing and implementation of the Transaction. Linx and STNE acted as intervening parties in the Voting Agreement. The Voting Agreement also indicates that if, at the Linx Special Meeting regarding the Transaction, a sufficient approval quorum is reached for the approval of matters related to the Transaction, considering the favorable vote of other Linx shareholders, Linx Founding Shareholders are free to vote in favor or abstain from voting, according to their convenience, to the extent that, in this case, the calculation of the Linx Founding Shareholders’ votes does not affect the effective approval of the Transaction. In any event, the voting obligations of Linx Founding Shareholders established in the Voting Agreement will be subject to legal impediments and may not violate CVM and Novo Mercado Rules. The Linx Founding Shareholders party to the Voting Agreement held, as of the date thereof, 13.92% of the issued share capital of Linx. In order to approve the Transaction Proposal (as defined herein), holders of at least the majority of Linx Shares must vote in favor of the Transaction.

 

Holders of Linx Common Shares who vote to approve the Transaction Proposal will not have appraisal or withdrawal rights under the Brazilian Corporation Law. Holders of Linx Shares who vote against the approval of the Transaction Proposal, or who do not vote on the approval of the Transaction Proposal, will have withdrawal rights under the Brazilian Corporation Law. If you hold Linx ADSs, you are not entitled to withdrawal rights. If you hold Linx ADSs and wish to exercise the withdrawal rights with respect to the Linx Common Shares represented thereby, you must surrender your Linx ADSs a sufficient amount of time prior to the Linx Special Meeting to enable you to receive delivery of the Linx Common Shares represented thereby in accordance with the terms of the deposit agreement governing the Linx ADSs prior to the date of the Linx Special Meeting.

 

The Original Association Agreement was approved by the board of directors of Linx on August 10, 2020 and the Association Agreement was approved by the independent members of the Linx board of directors on September 1, 2020. The Association Agreement was approved by the board of directors of StoneCo on August 9, 2020.

 

The accompanying disclosure documents (including the Association Agreement, which is filed as an exhibit to the registration statement of which this prospectus is a part) contain detailed information about the Transaction and the Linx Special Meeting. This document is a prospectus for the StoneCo Class A Common Shares that will be issued as part of the consideration upon completion of the Transaction. You should read this prospectus carefully. In particular, please read the section entitled “Risk Factors” beginning on page 27 for a discussion of risks that you should consider in evaluating the Transaction described in this prospectus.

 

WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED TO NOT SEND US A PROXY. Pursuant to provisions of the Deposit Agreement, dated as of June 25, 2019 (the “Linx Deposit Agreement”), among Linx, The Bank of New York Mellon, as the depositary (the “Linx Depositary”), and the owners and holders from time to time of ADSs issued thereunder, if you hold Linx ADSs, you will receive instructions from the Linx Depositary about how to instruct the Linx Depositary to vote the Linx Common Shares represented by your Linx ADSs. If the Linx Depositary does not receive instructions from an owner of Linx ADSs on or before the date established by the Linx Depositary for that purpose, the Linx Depositary shall deem that owner to have instructed the Linx Depositary to give a discretionary proxy to a person designated by Linx to vote the underlying Linx Common Shares.

 

 

 

  

None of the Securities and Exchange Commission (the “SEC”), the Brazilian Securities Commission (Comissão de Valores Mobiliários) (the “CVM”), nor any securities commission of any jurisdiction has approved or disapproved any of the transactions described in this prospectus or the securities to be issued under this document or passed upon the adequacy or accuracy of this document. Any representation to the contrary is a criminal offense. This prospectus does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell, any securities, or a solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. For the avoidance of doubt, this prospectus does not constitute an offer to buy or sell securities or a solicitation of an offer to buy or sell any securities in the Federative Republic of Brazil or a solicitation of a proxy under the laws the Federative Republic of Brazil, and it is not intended to be, and is not, a prospectus or an offer document within the meaning of Brazilian law and the rules of the CVM. You should inform yourself about and observe any such restrictions, and none of Linx, StoneCo or their respective subsidiaries accepts any liability in relation to any such restrictions.

 

This prospectus is dated         , 2020 and is expected to be mailed to holders of Linx Common Shares and Linx ADSs beginning on or about that date.

 

 

 

 

ABOUT THIS PROSPECTUS

 

This document, which forms part of a registration statement on Form F-4 filed with the U.S. Securities and Exchange Commission (the “SEC”) by StoneCo Ltd., a Cayman Islands exempted company with limited liability (“StoneCo”) (File No. 333-        ), constitutes a prospectus of StoneCo under Section 5 of the U.S. Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of Class A common stock of StoneCo to be issued to holders of common shares of Linx S.A., a corporation (sociedade anônima) incorporated under the laws of the Federative Republic of Brazil (“Linx”) and American Depositary Shares of Linx pursuant to the transactions contemplated by the Association and Other Covenants Agreement (the “Original Association Agreement”), dated as of August 11, 2020 and entered into by and among Linx and STNE Participações S.A., outlining certain transactions, including a corporate reorganization as described herein, as amended and restated on September 1, 2020 by the parties thereto (the “Association Agreement”). Nércio José Monteiro Fernandes, Alberto Menache and Alon Dayan, StoneCo, DLP Capital LLC, a Delaware limited liability company and DLPPAR Participações S.A., a corporation (sociedade por ações) incorporated under the laws of the Federative Republic of Brazil acted as intervening parties thereto.

 

You should rely only on the information contained in or incorporated by reference into this prospectus. No person has been authorized to provide you with information that is different from what is contained in, or incorporated by reference into, this prospectus, and, if given or made by any person, such information must not be relied upon as having been authorized. You should not assume that the information contained in this prospectus is accurate as of any date other than its date as specified on the cover unless otherwise specifically provided herein. Further, you should not assume that the information contained in or incorporated by reference into this prospectus is accurate as of any date other than the date of the incorporated document. Any reference to a website address does not constitute incorporation by reference of the information contained at or available through such website, and you should not consider it to be a part of this prospectus.

 

 

 

table of contents

 

 

Page

 

Forward-Looking Statements iii
Certain Defined Terms and Conventions Used in This Prospectus vi
Presentation of Financial and Other Information ix
Incorporation of Documents by Reference xi
Where You Can Find More Information xiii
Exchange Rates xiv
Questions and Answers About the Transaction and the Linx Special Meeting 1
Summary 11
The Parties 11
Risk Factors 12
The Transaction and the Association Agreement 12
The Linx Special Meeting 13
Consideration 14
Reasons for the Transaction 15
Regulatory Approval Required for the Transaction 15
Withdrawal Rights for Linx Shareholders 15
No Solicitation of Competing Transaction Proposals 15
Conditions Precedent That Must Be Satisfied or Waived for the Transaction to Occur 16
Termination of the Association Agreement 17
Break Fees 17
Material U.S. Tax Considerations 18
Brazilian Taxation 18
Accounting Treatment of the Transaction 18
Delisting and Deregistration of Linx Shares 18
Comparison of the Rights of Holders of StoneCo Shares and Linx Shares 18
Selected Financial Data of StoneCo 19
Selected Financial Data of Linx 22
Comparative per Share Market Data 25
Comparative Historical and Unaudited Pro Forma per Share Data 26
Risk Factors 27
Risks Relating to the Transaction 27
Risks Relating to the Combined Company Following Completion of the Transaction 31
Risks Related to Our Business and Industries in Which We Operate 33
Risks Relating to Brazil and the Other Countries in Which We Operate 34
Risks Relating to the StoneCo Class A Common Shares 34
Risks Related to Linx’s Business 36
The Linx Special Meeting 37
Date, Time and Place of the Linx Special Meeting 37
Purpose of the Linx Special Meeting 37
Quorum for Installation 38
Required Vote 38
Shareholders Entitled to Attend the Linx Special Meeting and to Vote 38
Manner of Voting 39
Withdrawal Rights 42
The Transaction 43
Overview 43
Background to the Transaction 44
StoneCo’s Reasons for the Transaction 45
Linx’s Reasons for the Transaction 46
Financing Obtained by StoneCo for the Transaction 46
Tax Withholding 47

 

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Table of Contents

 

Interests of Certain Persons in the Transaction 47
Accounting Treatment of the Transaction 47
Delisting and Deregistration of Linx Common Shares and Linx ADSs 48
Withdrawal Rights for Linx Shareholders 48
Restrictions on Resales of StoneCo Shares Received in the Transaction 49
Dividend Information 49
Past Contracts, Transactions, Negotiations and Agreements 49
Interests of Experts and Counsel 49
Litigation Related to the Transaction 49
Expenses 50
The Transaction Documents 51
The Association Agreement 51
Voting Agreement 58
Non-Compete Agreements 59
Executive Engagement Proposal 60
Material Tax Considerations 61
Information About the Companies 67
StoneCo 67
Linx 68
Management and Compensation of StoneCo 69
Share Ownership of Certain Beneficial Owners and Management 70
Comparison of the Rights of Holders of StoneCo and Linx Shares 75
Regulatory Matters 88
Experts 89
Legal Matters 89
Enforcement of Civil Liabilities 90
Part II Information Not Required in the Prospectus II-1

 

 

 

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Forward-Looking Statements

 

This prospectus and the documents incorporated by reference herein and therein contain estimates and forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, from time to time we or our representatives have made or may make forward-looking statements orally or in writing. Furthermore, such forward-looking statements may be included in various filings that we make with the SEC or press releases or oral statements made by or with the approval of one of our authorized executive officers. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements.

 

This prospectus includes estimates and forward-looking statements principally under the captions “Summary” and “Risk Factors.”

 

These estimates and forward-looking statements are based mainly on our current expectations and estimates of future events and trends that affect or may affect our business, financial condition, results of operations, cash flow, liquidity, prospects and the trading price of our Class A common shares. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to many significant risks, uncertainties and assumptions and are made in light of information currently available to us.

 

These statements appear throughout this prospectus, the accompanying prospectus and the documents incorporated herein or therein by reference and include statements regarding our intent, belief or current expectations in connection with:

 

·our expectations regarding revenues generated by transaction activities, subscription and equipment rental fees and other services;

 

·our expectations regarding our operating and net profit margins;

 

·our expectations regarding significant drivers of our future growth;

 

·our plans to continue to invest in research and development to develop technology for both existing and new products and services;

 

·our ability to differentiate ourselves from our competition by delivering a superior customer experience and through our network of hyper-local sales and services;

 

·our ability to attract and retain a qualified management team and other team members while controlling our labor costs;

 

·our ability to invest more and collect results in the short-term;

 

·our plans to expand our global footprint and explore opportunities in adjacent sectors;

 

·competition adversely affecting our profitability;

 

·the occurrence of a natural disaster, widespread health epidemic or pandemics, including the coronavirus (COVID-19) pandemic;

 

·fluctuations in interest, inflation and exchange rates in Brazil and any other countries we may serve in the future;

 

·the inherent risks related to the digital payments market, such as the interruption, failure or breach of our computer or information technology systems;

 

·our ability to anticipate market needs and develop and introduce new and enhanced products and service functionalities to adapt to changes in our industry;

 

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·our ability to innovate and respond to technological advances and changing market needs and customer demands;

 

·our ability to maintain, protect and enhance our brand and intellectual property;

 

·changes in consumer demands and preferences and technological advances, and our ability to innovate in order to respond to such changes;

 

·our failure to successfully maintain a relevant omnichannel experience for our clients, thereby adversely impacting our results of operations;

 

·our ability to implement technology initiatives successfully and to capture the anticipated benefits of such initiatives;

 

·our plans to pursue and successfully integrate strategic acquisitions, including the Transaction;

 

·the occurrence of any change, effect, event, occurrence, development, matter, state of facts, series of events or circumstances that could give rise to the termination of the Association Agreement, including a termination of the Association Agreement under circumstances that could require Linx to pay a break fee to StoneCo or StoneCo to pay a break fee to Linx;

 

·failure to obtain applicable regulatory or shareholder approvals in a timely manner or otherwise, or being required to accept conditions that could reduce the anticipated benefits of the Transaction as a condition to obtaining regulatory approval;

 

·failure to satisfy other closing conditions to the Transaction;

 

·the length of time necessary to complete the Transaction;

 

·risks associated with tax liabilities, or changes in U.S., Brazilian or other international tax treaties or laws or interpretations to which they are subject;

 

·events and risk perception in relation to corruption allegations involving Brazilian companies and politicians, as well as the impacts of the resulting investigation on the Brazilian economy and political outlook as a whole;

 

·risks that the new businesses will not be integrated successfully or that the cost, time and effort required to integrate the newly combined businesses may be greater than anticipated;

 

·failure to effectively manage the newly combined business, or that the combined company will not realize estimated cost savings, value of certain tax assets, synergies and growth or that such benefits may take longer to realize than expected;

 

·the inability to close the Transaction, the inability to achieve the anticipated benefits and synergies of the combined companies’ operations following the completion of the Transaction or the effects of the Transaction on the combined companies’ financial condition, operating results and cash flow;

 

·the inability of Linx and StoneCo to meet expectations regarding the timing, completion and accounting and tax treatments with respect to the Transaction;

 

·risks relating to unanticipated costs of integration;

 

·unanticipated changes relating to competitive factors in the industries in which the companies operate;

 

·diversion of the attention of Linx and StoneCo management from ongoing business concerns;

 

·pending consummation of the Transaction, limitations imposed on the ability of Linx to operate its businesses by the Association Agreement;

 

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·operating costs, customer loss or business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, distributors or suppliers) being greater than expected in anticipation of, or, if consummated, following, the Transaction;

 

·the outcome of any legal proceedings that have been or may be instituted against Linx, StoneCo and/or others relating to the Transaction;

 

·the potential impact of announcement or consummation of the Transaction on relationships with third parties, including customers, employees and competitors;

 

·ability to attract new customers and retain existing customers in the manner anticipated;

 

·the impact of acquisitions the companies have made or may make;

 

·reliance on and integration of information technology systems;

 

·changes in legislation or governmental regulations affecting the companies; international, national or local economic, social or political conditions that could adversely affect the companies or their clients;

 

·the market price for StoneCo Shares potentially being affected, following the Transaction, by factors that historically have not affected the market price for Linx Shares as shares of standalone companies;

 

·the uncertainty of the value of the Consideration that Linx shareholders will receive in the Transaction due to a fixed exchange ratio and fluctuations in the price of StoneCo Class A Common Shares;

 

·risks associated with assumptions the parties make in connection with the parties’ critical accounting estimates and legal proceedings; and

 

·other risk factors discussed under “Risk Factors” included in documents we file from time to time with the SEC that are incorporated by reference herein, including in the StoneCo 2019 20-F and Linx 2019 20-F (each as defined herein), which are each incorporated by reference herein.

 

The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other risks and uncertainties that affect the parties’ businesses, including those described in this prospectus, and information contained in or incorporated by reference into this prospectus. See the section of this prospectus entitled “Where You Can Find More Information.”

 

Nothing in this prospectus is intended, or is to be construed, as a profit projection or to be interpreted to mean that earnings per StoneCo Share or Linx Share for the current or any future financial years or those of the combined company, will necessarily match or exceed the historical published earnings per StoneCo Share or Linx Share, as applicable.

 

The words “believe,” “understand,” “may,” “will,” “aim,” “estimate,” “continue,” “anticipate,” “seek,” “intend,” “expect,” “should,” “could,” “forecast” and similar words are intended to identify forward-looking statements. You should not place undue reliance on such statements, which speak only as of the date they were made. We do not undertake any obligation to update publicly or to revise any forward-looking statements after we distribute this prospectus because of new information, future events or other factors. Our independent public auditors have neither examined nor compiled the forward-looking statements and, accordingly, do not provide any assurance with respect to such statements. In light of the risks and uncertainties described above, the future events and circumstances discussed in this prospectus might not occur and are not guarantees of future performance. Because of these uncertainties, you should not make any investment decision based upon these estimates and forward-looking statements.

 

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Certain Defined Terms and Conventions Used in This Prospectus

 

In this prospectus, “StoneCo,” the “Company,” “we,” “us” and “our” refer to StoneCo Ltd., as defined below, unless the context otherwise requires. References to the “Companies” refer to StoneCo and Linx and their respective consolidated subsidiaries collectively. All references herein to the “real,” “reais” or “R$” are to the Brazilian real, the official currency of the Federative Republic of Brazil. All references to “U.S. dollars,” “dollars” or “U.S.$” are to United States dollars, the official currency of the United States.

 

In addition, as used in this prospectus, the following defined terms have the following respective meanings:

 

“ADSs” means American Depositary Shares.

 

“Association Agreement” means the Amendment to the Association and Other Covenants outlining the Transaction, dated as of September 1, 2020.

 

“B3” means the B3 S.A. – Brasil, Bolsa, Balcão, or São Paulo Stock Exchange.

 

“Base Exchange Ratio” means each STNE Class A Preferred Share will be redeemed for a cash payment of R$31.56 and each STNE Class B Preferred Share will be redeemed for 0.0126774 StoneCo Class A Common Share.

 

“BNDES” means Banco Nacional de Desenvolvimento Economico e Social.

 

“Brazil” means the Federative Republic of Brazil and the phrase “Brazilian government” refers to the federal government of Brazil.

 

“Brazilian Central Bank” means the Central Bank of Brazil (Banco Central do Brasil).

 

“Brazilian Corporation Law” means the Brazilian Law No. 6.404/76, as amended.

 

“Brazilian Holder” means a holder who resides in Brazil for Brazilian tax purposes.

 

“CADE” means the Administrative Council for Economic Defense of Brazil.

 

“Closing” means the date of the closing of the Transaction.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Companies Law” means the Companies Law (2020 Revision) of the Cayman Islands, as may be amended from time to time.

 

“Competing Transaction” means any proposal with a third party related to any agreement, arrangement or operation that is a competitor to, or that has the effect of competing with, the Transaction or that may harm or make the Closing of the Transaction unfeasible, or that has the same or a similar purpose to the Transaction, including any corporate reorganization involving Linx, public offer for the purchase of shares for Linx shareholders or any operation that depends on the waiver or elimination of the poison pill provided for in Article 43 of Linx’s bylaws.

 

“Consideration” means the consideration received in exchange for redemption of each holder of STNE Class A Preferred Shares, together with the consideration received from redemptions of STNE Class B Preferred Shares.

 

“CVM” means the Comissão de Valores Mobiliários, or the Brazilian Securities Commission.

 

“DLP” means DLP Capital LLC, a Delaware limited liability company and DLPPAR Participações S.A., a corporation (sociedade por ações) incorporated under the laws of the Federative Republic of Brazil.

 

“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

 

“Executive Engagement Agreement” means the Amendment to the Executive Engagement Proposal, dated as of September 1, 2020, by and among STNE and Alberto Menache.

 

“Fine” means a compensatory break fee equal to R$453,750,000.

 

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“IASB” means the International Accounting Standards Board.

 

“IFRS” means International Financial Reporting Standards as issued by the IASB.

 

“Instruction Cutoff Date” means                     .

 

“Linx” means Linx S.A., a corporation (sociedade anônima) incorporated under the laws of the Federative Republic of Brazil.

 

“Linx 2019 20-F” means Linx’s Annual Report on Form 20-F for the fiscal year ended December 31, 2019, filed with the SEC on May 15, 2020, as amended on June 12, 2020 and any amendments thereto, if any.

 

“Linx ADSs” means the American Depository Shares of Linx.

 

“Linx ADS Owners” means registered holders of Linx ADSs.

 

“Linx Common Shares” means the common shares of Linx.

 

“Linx Deposit Agreement” means the Deposit Agreement, dated as of June 25, 2019, among Linx, the Linx Depositary and the owners and holders from time to time of ADSs issued thereunder.

 

“Linx Depositary” means The Bank of New York Mellon, as the depositary pursuant to the Linx Deposit Agreement.

 

“Linx Founding Shareholders” means Nércio José Monteiro Fernandes, Alberto Menache and Alon Dayan.

 

“Linx Shares” means the Linx Common Shares together with the Linx ADSs.

 

“Linx Special Meeting” means the special meeting (together with any adjournments or postponements thereof) of shareholders of Linx on         , 2020, at          (São Paulo time) at Linx headquarters.

 

“Material Fact” means notice to the market issued pursuant to CVM Instruction No. 358 and filed with the CVM disclosing any material acts or facts concerning publicly traded companies registered with the CVM.

 

“Merger of Shares Protocol” means the Protocolo e Justificação de Incorporação de Ações, a document pursuant to Articles 224 and 225 of the Brazilian Corporation Law, which the management of Linx and STNE will each submit for approval by their shareholders at their respective special meetings of shareholders, which provides the shareholders with information on the terms, conditions and reasoning for the approval of the corporate reorganization contemplated by the Transaction.

 

“MTO” means mandatory tender offer provided for in Article 43 of the bylaws of Linx.

 

“Novo Mercado Rules” means the listing rules of the Novo Mercado segment of the B3.

 

“Nasdaq” means the Nasdaq Global Select Market.

 

“New STNE Shares” means the STNE Class A Preferred Shares and the STNE Class B Preferred Shares.

 

“Non-Brazilian Holder” means a holder deemed to not be domiciled in Brazil for Brazilian tax purposes.

 

“Non-Compete Agreements” mean the amendments to the non-compete agreements, each dated September 1, 2020, by and among STNE, StoneCo and each of Alon Dayan, Nércio José Monteiro Fernandes and Alberto Menache.

 

“NYSE” means the New York Stock Exchange.

 

“Obligations Subject to Early Termination” means all of Linx’s agreements currently in force of an amount greater than R$50,000,000.00 that are subject to early termination resulting from the Transaction.

 

“Original Association Agreement” means the Association and Other Covenants Agreement outlining the Transaction, dated as of August 11, 2020.

 

“Original Non-Compete Agreements” mean the non-compete agreements, each dated August 11, 2020, by and among STNE, StoneCo and each of Alon Dayan, Nércio José Monteiro Fernandes and Alberto Menache.

 

“Original Executive Engagement Agreement” means the Executive Engagement Proposal, dated as of August 11, 2020, by and among STNE and Alberto Menache.

 

“SEC” means the United States Securities and Exchange Commission.

 

“Securities Act” means the U.S. Securities Act of 1933, as amended.

 

“StoneCo Articles of Association” means the Amended and Restated Articles of Association of StoneCo, adopted on October 11, 2018.

 

“STNE” means STNE Participações S.A., a subsidiary of StoneCo that holds certain StoneCo software investments.

 

“STNE Class A Preferred Shares” means the Class A preferred shares of STNE.

 

“STNE Class B Preferred Shares” means the Class B preferred shares of STNE.

 

“StoneCo” means StoneCo Ltd., a Cayman Islands exempted company with limited liability.

 

“StoneCo 2019 20-F” means StoneCo’s Annual Report on Form 20-F for the fiscal year ended December 31, 2019, filed with the SEC on April 29, 2020 and any amendments thereto, if any.

 

“StoneCo Class A Common Shares” means the Class A common shares of StoneCo.

 

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“StoneCo Class B Common Shares” means the Class B common shares of StoneCo.

 

“StoneCo Shares” means the StoneCo Class A Common Shares together with StoneCo Class B Common Shares.

 

“Transaction Proposal” means (i) the waiver of any obligations of STNE to carry out the public tender offer for the acquisition of the Linx Shares, pursuant to Article 43 of the bylaws of Linx, as a result of the Transaction; (ii) the waiver of STNE’s adhesion to the Novo Mercado segment of the B3, in case the Merger of Shares is consummated; (iii) the ratification of the appointment of the specialized company to be hired to conduct the valuation of Linx for purposes of the Merger of Shares; (iv) the approval of the Valuation Report prepared by such appraiser; (v) the approval of the Merger of Shares Protocol; and (vi) the approval of the Merger of Shares.

 

“Treasury Department” means the U.S. Department of the Treasury.

 

“Transaction” means the certain transactions outlined by the Association Agreement.

 

“United States” or “U.S.” means the United States of America.

 

“U.S. GAAP” means U.S. generally accepted accounting principles.

 

“U.S. Holder” means anyone who, if for U.S. federal income tax purposes, is a beneficial owner of Linx Shares or StoneCo Class A Common Shares and is a citizen or individual resident of the United States; a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.

 

“Valuation Report” means the valuation report to determine the economic value of the shares issued by Linx to be merged into STNE, which is to be prepared by an appraiser engaged by STNE management.

 

“Voting Agreement” means the Voting Commitment and Assumption of Obligations whereby the parties to the agreement undertook obligations to implement the Transaction, dated as of August 11, 2020.

 

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Presentation of Financial and Other Information

 

Financial Statements

 

StoneCo

 

StoneCo’s interim consolidated financial information as of June 30, 2020 and for the six months ended June 30, 2020 and 2019 has been derived from the unaudited interim consolidated financial statements of StoneCo appearing in StoneCo’s current report on Form 6-K furnished to the SEC on August 11, 2020, which is incorporated by reference in this prospectus.

 

StoneCo’s annual consolidated financial information for each of the years in the two year period ended December 31, 2019 and as of December 31, 2018 have been derived from the audited consolidated financial statements of StoneCo appearing in StoneCo’s Annual Report on Form 20-F for the fiscal year ended December 31, 2019, which is incorporated by reference in this prospectus.

 

The consolidated financial statements of StoneCo are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The unaudited condensed interim consolidated financial statements of StoneCo are prepared in accordance with IAS 34 – Interim Financial Reporting as issued by the IASB. In each case, such financial statements have been incorporated into this prospectus by reference.

 

StoneCo maintains its books and records in reais, which is its functional currency (the currency of the primary economic environment in which StoneCo operates), as well as its presentation currency.

 

Linx

 

The consolidated financial information of Linx presented in this prospectus has been derived from the following:

 

Linx’s interim consolidated financial information as of June 30, 2020 and for the six months ended June 30, 2020 and 2019 has been derived from the unaudited interim consolidated financial statements of Linx appearing in Linx’s current report on Form 6-K furnished to the SEC on August 11, 2020, which is incorporated by reference in this prospectus.

 

Linx’s annual consolidated financial information for each of the years in the two year period ended December 31, 2019 and as of December 31, 2018 have been derived from the audited consolidated financial statements of StoneCo appearing in Linx’s Annual Report on Form 20-F for the fiscal year ended December 31, 2019, which is incorporated by reference in this prospectus.

 

The consolidated financial statements of Linx are prepared in accordance with IFRS, as issued by the IASB. The unaudited condensed interim consolidated financial statements of Linx are prepared in accordance with IAS 34 – Interim Financial Reporting as issued by the IASB. In each case, such financial statements have been incorporated into this prospectus by reference.

 

Linx maintains its books and records in reais, which is its functional currency (the currency of the primary economic environment in which Linx operates), as well as its presentation currency.

 

Currency Conversions

 

On September 1, 2020, the exchange rate for reais into U.S. dollars was R$5.3732 to U.S.$1.00, based on the selling rate as reported by the Brazilian Central Bank. The selling rate was R$5.4760 to U.S.$1.00 as of June 30, 2020, R$4.0307 to U.S.$1.00 as of December 31, 2019, R$3.8748 to U.S.$1.00 as of December 31, 2018, R$3.3080 to U.S.$1.00 as of December 29, 2017, and R$3.2591 to U.S.$ 1.00 as of December 30, 2016, in each case, as reported by the Brazilian Central Bank. The real/U.S. dollar exchange rate fluctuates widely, and the selling rate as of September 1, 2020 may not be indicative of future exchange rates. See “Exchange Rates” for information regarding exchange rates for the Brazilian currency since January 1, 2015.

 

 

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Rounding

 

We have made rounding adjustments to reach some of the figures included in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.

 

Market Data

 

We obtained market and competitive position data, including market forecasts, used throughout this prospectus from market research, publicly available information and industry publications, as well as internal surveys. We have included data from reports prepared by the Brazilian Central Bank, B3 and Nasdaq. We believe that all market data in this prospectus is reliable, accurate and complete.

 

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Incorporation of Documents by Reference

 

The SEC allows us to “incorporate by reference” the information we file with it into this prospectus. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. This prospectus incorporates important business and financial information about us and Linx that is not included in or delivered with the prospectus. The information incorporated by reference is considered to be a part of this prospectus, except for any information superseded by information that is included directly in this document or incorporated by reference subsequent to the date of this document. You should read the information incorporated by reference because it is an important part of this prospectus. We incorporate by reference the following documents:

 

·StoneCo’s Annual Report on Form 20-F for the fiscal year ended December 31, 2019, filed with the SEC on April 29, 2020 and any amendments thereto, if any (the “StoneCo 2019 20-F”);

 

·StoneCo’s current report on Form 6-K furnished to the SEC on May 26, 2020 including the unaudited condensed consolidated interim financial statements at March 31, 2020 and for the three month period ended March 31, 2020;

 

·StoneCo’s current report on Form 6-K furnished to the SEC on May 27, 2020 relating to the appointment of Mrs. Luciana Ibiapina Lira Aguiar to the board of directors;

 

·StoneCo’s current report on Form 6-K furnished to the SEC on August 11, 2020 including the unaudited condensed consolidated interim financial statements at June 30, 2020 and for the three and six month period ended June 30, 2020;

 

·StoneCo’s current report on Form 6-K furnished to the SEC on August 11, 2020 relating to the Transaction (as defined herein) (solely with respect to Exhibit 99.1 of such Form 6-K);

 

·StoneCo’s current report on Form 6-K furnished to the SEC on August 12, 2020 relating to the Transaction documents;

 

·StoneCo’s current report on Form 6-K furnished to the SEC on August 17, 2020 relating to the closing of its follow-on offering of StoneCo Class A Common Shares (as defined herein);

 

·StoneCo’ current report on Form 6-K furnished to the SEC on September 1, 2020 relating to the revised terms of the Transaction;

 

·any documents filed by StoneCo with the SEC under Sections 31(a), 13(c) or 15(d) of the Exchange Act after the date of this prospectus and before the date of the Linx Special Meeting (as defined herein) shall be deemed incorporated by reference to this prospectus and made a part of this prospectus from the respective dates of filing;

 

·the description of StoneCo’s common shares contained in its Registration Statement on Form F-3 filed with the SEC on August 11, 2020, including any subsequent amendments or reports filed for the purpose of updating such description;

 

·Linx’s Annual Report on Form 20-F for the fiscal year ended December 31, 2019, filed with the SEC on May 15, 2020, as amended on June 12, 2020 and any amendments thereto, if any (the “Linx 2019 20-F”);

 

·Linx’s current report on Form 6-K furnished to the SEC on June 9, 2020 including the unaudited consolidated interim financial statements at March 31, 2020 and for the three month period ended March 31, 2020;

 

·Linx’s current report on Form 6-K furnished to the SEC on August 11, 2020 relating to negotiations concerning the Transaction;

 

·Linx’s current report on Form 6-K furnished to the SEC on August 12, 2020 relating to the Transaction;

 

·Linx’s current report on Form 6-K furnished to the SEC on August 12, 2020 including the unaudited interim financial statements at June 30, 2020 and for the three and six month period ended June 30, 2020;

 

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·Linx’s current report on Form 6-K furnished to the SEC on August 13, 2020 relating to the Transaction documents;

 

·Linx’s current report on Form 6-K furnished to the SEC on August 14, 2020 relating to the business combination proposal received from TOTVS S.A.;

 

·Linx’s current report on Form 6-K furnished to the SEC on August 17, 2020 relating to its disclosure of the business combination proposal received from TOTVS S.A.;

 

·Linx’s current report on Form 6-K furnished to the SEC on September 1, 2020 relating to the revised terms of the Transaction and Linx’s negotiations with TOTVS S.A.; and

 

·any documents filed by Linx with the SEC under Sections 31(a), 13(c) or 15(d) of the Exchange Act after the date of this prospectus and before the date of the Linx Special Meeting shall be deemed incorporated by reference into this prospectus and made a part of this prospectus from the respective dates of filing.

 

Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this prospectus.

 

All of the documents that are incorporated by reference are available at the website maintained by the SEC at http://www.sec.gov. The information contained on, or accessible through, such website is not incorporated by reference into this prospectus. In addition, we will provide at no cost to each person, including any beneficial owner, to whom this prospectus has been delivered, upon the written or oral request of any such person to us, a copy of any or all of the StoneCo documents referred to above that have been or may be incorporated into this prospectus by reference, including exhibits to such documents. Requests for such copies should be directed to: StoneCo Ltd., 4th Floor, Harbour Place 103 South Church Street, P.O. Box 10240, Grand Cayman, KY1-1002, Cayman Islands, phone: + 55 3038-8123, email: investors@stone.co.

 

StoneCo has not authorized anyone to give any information or make any representation about the Transaction, Linx or StoneCo that is different from, or in addition to, that contained in this prospectus or in any of the materials that have been incorporated by reference into this prospectus. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this prospectus is unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this prospectus does not extend to you. The information contained in this prospectus is accurate only as of the date of this prospectus unless the information specifically indicates that another date applies.

 

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Where You Can Find More Information

 

This prospectus is part of a registration statement that StoneCo has filed with the SEC on Form F-4 under the Securities Act. StoneCo may also file amendments to the registration statement. 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. 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. Each statement regarding a contract, agreement or other document is qualified in its entirety by reference to the actual document.

 

StoneCo and Linx each file annual reports on Form 20-F and make submissions on Form 6-K with the SEC under the rules and regulations that apply to foreign private issuers. As foreign private issuers, each of StoneCo and Linx and their respective shareholders are exempt from some of the reporting requirements of the Exchange Act. Linx is also subject to the informational requirements of the CVM and the B3 and file reports and other information relating to their respective businesses, financial condition and other matters with the CVM and the B3. Some filings of Linx with the CVM and the B3 are also available at the website maintained by the CVM at http://www.cvm.gov.br.

 

Information that we file with or furnish to the SEC after the date of this prospectus, and that is incorporated by reference herein, will automatically update and supersede the information in this prospectus. You should review the SEC filings and reports that we incorporate by reference to determine if any of the statements in this prospectus, or in any documents previously incorporated by reference, have been modified or superseded.

 

Documents incorporated by reference in this prospectus are available without charge. Each person to whom this prospectus is delivered may obtain documents incorporated by reference herein by requesting them either in writing or orally, by telephone or by e-mail, from us at our headquarters at 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman, KY1-1002, Cayman Islands. Our investor relations office can be reached at +55 (11) 3004-9680. In order for you to receive timely delivery of the documents in advance of the Linx Special Meeting, StoneCo should receive your request no later than                , 2020, which is five business days prior to the Linx Special Meeting.

 

StoneCo and Linx also file materials with the SEC electronically. The SEC maintains an Internet site that contains materials that StoneCo and Linx file electronically with the SEC. The address of the SEC’s website is http://www.sec.gov.

 

The information included on the websites of the SEC, StoneCo, Linx or any other entity or that might be accessed through such websites is not included in this prospectus or the registration statement and is not incorporated into this prospectus or the registration statement by reference unless otherwise specifically noted herein. We are providing the information about how you can obtain certain documents that are incorporated by reference into this prospectus at these websites only for your convenience.

 

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Exchange Rates

 

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 U.S.$1.00. Overall in 2015, the real depreciated 32.0%, reaching R$3.9048 per U.S.$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 U.S.$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 U.S.$1.00. The real/U.S. dollar exchange rate reported by the Brazilian Central Bank was R$3.8748 per U.S.$1.00 on December 31, 2018, which reflected a 14.6% depreciation in the real against the U.S. dollar during 2018, 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 results of the Brazilian presidential elections held in October 2018. The real/U.S. dollar exchange rate reported by the Brazilian Central Bank was R$4.0307 per U.S.$1.00 on December 31, 2019, which reflected a 3.9% depreciation in the real against the U.S. dollar since December 31, 2018. On April 15, 2020, the real/U.S. dollar exchange rate reported by the Brazilian Central Bank was R$5.2579, reflecting a depreciation of 23.3% from December 31, 2019, being strongly affected by the COVID-19 pandemic.

 

The Brazilian Central Bank has intervened in the foreign exchange market in the past to attempt to control instability in foreign exchange rates. We cannot predict whether the Brazilian 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. There can be no assurance that the real will not depreciate or appreciate further against the U.S. dollar and 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 such measures will not be taken by the Brazilian government in the future. See “Risk Factors—Risks Relating to Brazil and the Other Countries in Which We Operate.”

 

The following tables set forth the exchange rate, expressed in reais per U.S. dollar (R$/U.S.$) for the periods indicated, as reported by the Brazilian Central Bank.

 

Year 

Period-end 

Average(1) 

Low 

High 

2015 3.9048 3.3876 2.5754 4.1949
2016 3.2591 3.4500 3.1193 4.1558
2017 3.3080 3.1930 3.0510 3.3807
2018 3.8748 3.6558 3.1391 4.1879
2019 4.0307 3.9461 3.6519 4.2602

 

Six Month Period Ended June 30, 

Period-end 

Average(2) 

Low 

High 

2020 5.4760 4.9218 4.0213 5.9372

 

Month 

Period-end 

Average(3) 

Low 

High 

November 2019 4.2240 4.1553 3.9786 4.2602
December 2019 4.0307 4.1096 4.0307 4.2261
January 2020 4.2695 4.1495 4.0213 4.2695
February 2020 4.4987 4.3410 4.2381 4.4987
March 2020 5.1987 4.8839 4.4883 5.1987
April 2020 5.4270 5.3256 5.0779 5.6510
May 2020 5.4263 5.6434 5.2992 5.9372
June 2020 5.4760 5.1966 4.8894 5.4760
July 2020 5.2033 5.2802 5.1111 5.4288
August 2020 5.4713 5.4612 5.2760 5.6510

 

 

Source: Brazilian Central Bank.

 

(1)Represents the average of the exchange rates on the closing of each business day during the year.

 

(2)Represents the average of the exchange rates on the closing of each business day during the six month period.

 

(3)Represents the average of the exchange rates on the closing of each business day during the month.

 

 

 

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Questions and Answers About the Transaction and the Linx Special Meeting

 

The following questions and answers are intended to briefly address some commonly asked questions regarding the Association Agreement, the transactions contemplated thereby and the Linx Special Meeting. These questions and answers only highlight some of the information contained in this prospectus and may not contain all of the information that is important to you. Please further refer to the section of this prospectus entitled “Summary” and the more detailed information contained elsewhere in this prospectus, the Exhibits to this prospectus and the documents referred to in this prospectus, which you should read carefully and in their entirety. You may obtain the information incorporated by reference into this prospectus without charge by following the instructions under the section of this prospectus entitled “Where You Can Find More Information.”

 

Questions and Answers About the Transaction

 

What is the proposed transaction on which I am being asked to vote, why are StoneCo and Linx proposing it and what will happen to Linx as a result of the Transaction?

 

On August 11, 2020, Linx and STNE Participações S.A. (“STNE”), a subsidiary of StoneCo Ltd., a Cayman Islands exempted company with limited liability (“StoneCo”), that holds the software investments of the group, entered into an Association and Other Covenants Agreement (the “Original Association Agreement”), outlining certain transactions (collectively, the “Transaction”), including a corporate reorganization as described herein. As announced on September 1, 2020, the parties amended and restated the Original Association Agreement to revise certain terms therein (such amended and restated agreement “the Association Agreement”). Nércio José Monteiro Fernandes, Alberto Menache and Alon Dayan (the “Linx Founding Shareholders”), StoneCo, DLP Capital LLC, a Delaware limited liability company and DLPPAR Participações S.A., a corporation (sociedade por ações) incorporated under the laws of the Federative Republic of Brazil (together with DLP Capital LLC, “DLP”) acted as intervening parties thereto. Upon the consummation of the Transactions set forth in the Association Agreement, Linx will become a wholly owned subsidiary of STNE.

 

Pursuant to the terms and subject to the conditions set forth in the Association Agreement, if the Merger of Shares Protocol is approved by the shareholders of Linx and STNE, and subject to other conditions precedent as described herein, the Merger of Shares will be implemented through a merger of shares (incorporação de ações) under the Brazilian Corporation Law (the “Merger of Shares”). Upon the occurrence of the Merger of Shares, each Linx Share issued and outstanding immediately prior to the consummation of the Transaction will be automatically contributed to STNE in exchange for one newly issued redeemable Class A preferred share of STNE (each a “STNE Class A Preferred Share”) and one newly issued redeemable STNE Class B preferred share (each a “STNE Class B Preferred Share,” and, together with STNE Class A Preferred Shares, the “New STNE Shares”). Immediately thereafter, each STNE Class A Preferred Share will be redeemed for a cash payment of R$31.56 and each STNE Class B Preferred Share will be redeemed for 0.0126774 StoneCo Class A Common Share (the “Base Exchange Ratio”). The consideration received in exchange for redemption of STNE Class A Preferred Shares together with the consideration received from redemption of STNE Class B Preferred Shares are referred to herein as the “Consideration.”

 

The Base Exchange Ratio takes into account the following assumptions: (i) that no declaration, payment of dividends or interest on equity by STNE or Linx will take place until Closing; (ii) that on September 1, 2020, except for the disclosure of the quarterly results and for the material facts related to the Transaction, there were no material facts pending disclosure to the market by Linx and/or StoneCo; (iii) that on September 1, 2020, there were 14,125,991 shares issued by Linx in treasury; (iv) that the effect of the exercise or acceleration of the total of all of the options and restricted stock plans would result in 3,775,648 additional shares to the share capital of Linx; and (v) that on September 1, 2020, Linx’s corporate capital was represented by 189,408,960 common book-entry shares, nominative and with no par value, including treasury-held shares.

 

If the Transaction is completed, Linx will become a wholly owned subsidiary of STNE and Linx will no longer be an independent, publicly traded corporation incorporated under the laws of the Federative Republic of Brazil. Based on the exchange ratios, adjustments and limitations set forth in the Association Agreement, it is anticipated that, immediately following completion of the Transaction, former holders of Linx Common Shares will own approximately 0.7% of StoneCo on a fully diluted basis.

 

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All of the foregoing steps will occur substantially simultaneously and will be conditioned on the effectiveness of each of the other steps. Accordingly, the Consideration will be made available on the date of the closing of the Transaction (the “Closing”).

 

StoneCo intends to take the necessary measures to consummate the Transaction as set forth in the Association Agreement, in the shortest time possible, subject to receipt of requisite regulatory or other approvals and consents and completion of required procedures customary for such Transaction. No assurance can be given as to when or whether any of these approvals and consents will be obtained.

 

What shareholder approvals are needed for the Transaction?

 

Pursuant to the Merger of Shares Protocol, Linx shareholders must approve: (i) the waiver of any obligations of STNE to carry out the public tender offer for the acquisition of the Linx Shares, pursuant to Article 43 of the bylaws of Linx, as a result of the Transaction; (ii) the waiver of STNE’s adhesion to the Novo Mercado segment of the B3 in case of approval of the proposed Transaction; (iii) the ratification of the appointment of the specialized company hired to conduct the valuation of Linx; (iv) the approval of the valuation report to determine the economic value of the shares issued by Linx to be merged into STNE which is to be prepared by an appraiser engaged by STNE management (the “Valuation Report”); (v) the approval of the Merger of Shares Protocol; and (vi) the approval of the Merger of Shares.

 

STNE shareholders must approve, and have undertook to approve in the Voting Agreement (as defined herein): (i) the ratification of the appointment of the specialized company hired to conduct the valuation of Linx; (ii) the approval of the Valuation Report prepared by the engaged appraiser; (iii) the approval of the Merger of Shares Protocol; (iv) the approval of the Merger of Shares; and (v) the redemption of the New STNE Shares, upon payment of the corresponding Consideration.

 

What is this document and why am I receiving it?

 

This document is a prospectus of StoneCo relating to the StoneCo Class A Common Shares that will be issued as part of the Consideration upon completion of the Transaction. In connection with the Transaction, StoneCo is required by the Securities Act to deliver this document to all holders of Linx Common Shares and Linx ADSs that are U.S. residents. You should carefully review this document, because, as a holder of Linx Common Shares and/or Linx ADSs, you will be entitled to vote directly (in case of holders of Linx Common Shares) and/or indirectly (through giving voting instructions in case of holders of Linx ADSs) at the Linx Special Meeting (as defined herein) that has been called in order for the shareholders of Linx to approve the following corporate proposals: (i) the waiver of any obligations of STNE to carry out the public tender offer for the acquisition of the Linx Shares, pursuant to Article 43 of the bylaws of Linx, as a result of the Transaction; (ii) the waiver of STNE’s adhesion to the Novo Mercado segment of the B3, in case the Merger of Shares is consummated; (iii) the ratification of the appointment of the specialized company to be hired to conduct the valuation of Linx for purposes of the Merger of Shares; (iv) the approval of the Valuation Report prepared by such appraiser; (v) the approval of the Merger of Shares Protocol; and (vi) the approval of the Merger of Shares (collectively, the “Transaction Proposal”).

 

Who is StoneCo?

 

We are a leading provider of financial technology solutions that empower merchants and integrated partners to conduct electronic commerce seamlessly across in-store, online, and mobile channels in Brazil. We have developed a strong client-centric culture that seeks to delight our clients rather than simply providing them with a solution or service. To achieve this, we created a proprietary, go-to-market approach called the Stone Business Model, which enables us to control the client experience and ensure that interactions are provided by our people or our technology. The Stone Business Model combines our advanced, end-to-end, cloud-based technology platform; differentiated hyper-local and integrated distribution approach; white-glove, on-demand customer service; and client-centric culture, each of which is described below.

 

1.Advanced, End-to-End, Cloud-Based Technology Platform—We designed our cloud-based technology platform to (i) help our clients connect, get paid and grow their businesses, while meeting the complex and rapidly changing demands of omnichannel commerce; and (ii) overcome long-standing inefficiencies within the Brazilian payments market. Our platform enables us to develop, host and deploy our solutions very quickly. We also sell our solutions to integrated partners such as Payment Service Providers, or PSPs, which are firms that contract with a merchant to provide them with payment acceptance solutions, and marketplaces to empower merchants to conduct commerce more effectively in Brazil.

  

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2.Differentiated Hyper-Local and Integrated Distribution—We developed our distribution model to proactively reach and serve our clients in a more effective manner. In particular, we developed Stone Hubs, which are local operations close to our clients that include an integrated team of sales, service, and operations support staff to reach small-and medium-sized businesses or SMBs, locally and efficiently, and to build stronger relationships with them. We also have a specialized in-house sales team that serves online merchants and digital service providers with dedicated expertise. We also work with integrated partners, such as ISVs, to embed our solutions into their offerings and enable their merchants to accept payments seamlessly and easily.

 

3.White-Glove, On-Demand Customer Service—We created our on-demand customer service team to support our clients quickly, conveniently, and with high-quality service designed to strengthen our customer relationships and improve their lifetime value with us. Our customer service approach combines (i) a Human Connection, through which we seek to address our clients’ service needs in a single phone call using a qualified team of technically trained agents; (ii) Proximity, through our Green Angels team of local support personnel who can serve our clients in person within minutes or hours, instead of days or weeks; and (iii) Technology, through a range of self-service tools and proprietary artificial intelligence, or AI, that help our clients manage their operations more conveniently and enable our agents to proactively address merchant needs, sometimes before they are even aware of an issue.

 

4.Client-Centric Culture—We have proactively fostered and developed a highly-innovative, entrepreneurial, and mission-driven culture that we believe helps attract new talent, enables us to achieve our objectives, and provides a key competitive advantage. Our culture unites our team across numerous functions and focuses our collective efforts on passionately developing technology and implementing the Stone Business Model to disrupt legacy practices, older technologies, and incumbent vendors in order to provide solutions and a level of service that go beyond simply meeting the needs of our clients, and instead seeks to deliver an enhanced overall client experience.

 

StoneCo is incorporated as an exempted company with limited liability in the Cayman Islands. Our principal executive office is located at 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman, KY1-1002, Cayman Islands. Our investor relations office can be reached at investors@stone.com.br and our website address is www.stone.co. The information contained on, or accessible through, such website is not incorporated by reference into this prospectus and should not be considered a part of this prospectus.

 

See also the sections of this prospectus entitled “Selected Financial Data of StoneCo,” “Information about the CompaniesStoneCo” and “Management and Compensation of StoneCo.”

 

What is the status of the Transaction?

 

The Original Association Agreement was approved by the board of directors of Linx on August 10, 2020 and the Association Agreement was approved by the independent members of the Linx board of directors on September 1, 2020, in each case, pursuant to the laws of Brazil and the provisions of Linx’s bylaws. The Association Agreement was approved by the board of directors of StoneCo, pursuant to the laws of the Cayman Islands and the provisions of Stone’s bylaws, on August 9, 2020. On August 11, 2020, Linx and STNE entered into the Original Association Agreement, outlining the Transaction, including a corporate reorganization as described herein and amended and restated the Original Association Agreement on September 1, 2020 to revise certain terms therein. The Linx Founding Shareholders, StoneCo and DLP acted as intervening parties thereto.

 

STNE shareholders must approve, and have undertook to approve in the Voting Agreement: (i) the ratification of the appointment of the specialized company hired to conduct the valuation of Linx; (ii) the approval of the Valuation Report prepared by the engaged appraiser; (iii) the approval of the Merger of Shares Protocol; (iv) the approval of the Merger of Shares; and (v) the redemption of the New STNE Shares, upon payment of the corresponding Consideration.

 

The Linx shareholders must approve: (i) the waiver of any obligations of STNE to carry out the public tender offer for the acquisition of the Linx Shares, pursuant to Article 43 of the bylaws of Linx, as a result of the Transaction; (ii) the waiver of STNE’s adhesion to the Novo Mercado segment of the B3 in case of approval of the proposed Transaction; (iii) the ratification of the appointment of the specialized company hired to conduct the valuation of Linx; (iv) the approval of the Valuation Report prepared by the engaged appraiser; (v) the approval of the Merger of Shares Protocol; and (vi) the approval of the Merger of Shares. The board of directors of StoneCo has not made any recommendation for or against such approval by Linx’s shareholders. Shareholders of Linx are being asked to vote on the Transaction at the Linx Special Meeting, and if such approval is received, Linx and StoneCo will continue to seek completion of all formalities related to the Transaction, including obtaining the necessary antitrust and other regulatory approval if they were not obtained prior to the Linx Special Meeting. As decided at the meeting of the board of directors of Linx held on August 10, 2020, the Linx Special Meeting will be called after the effectiveness of the Form F-4. The Transaction will be consummated if and when the later of (i) the approval of the Transaction by the shareholders of Linx at the Linx Special Meeting, or (ii) the regulatory approval and satisfaction (or waiver, as the case may be) of other pending conditions precedent occur. Neither StoneCo nor Linx can predict the actual date on which the Transaction will be completed, or whether it will be completed. For a discussion of the conditions to the completion of the Transaction, see the section entitled “The Transaction DocumentsThe Association Agreement”.

 

 

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Are the Linx Shares and the StoneCo Class A Common Shares traded on any stock exchange?

 

The Linx Shares are listed on the B3 under the symbol “LINX3”. The Linx ADSs are listed on the NYSE under the symbol “LINX”. The StoneCo Class A Common Shares are listed on the Nasdaq under the symbol “STNE”.

 

Will the StoneCo Class A Common Shares to be issued to me (as applicable) at the completion of the Transaction be traded on an exchange?

 

If the Transaction is consummated, upon consummation of the Transaction, holders of Linx Common Shares shall, to the extent possible, receive the applicable number of StoneCo Class A Common Shares, in accordance with the Consideration.

 

The StoneCo Class A Common Shares are listed on the Nasdaq under the symbol “STNE”. StoneCo Class A Common Shares received by holders of Linx Shares in connection with the Transaction will be freely transferable, except for StoneCo Class A Common Shares issued to any holder of Linx Shares deemed to be an “affiliate” of StoneCo for purposes of U.S. federal securities law. For more information, see the section entitled “The Transaction—Restrictions on Resales of StoneCo Shares Received in the Transaction.”

 

If I hold Linx ADSs, will I have to pay ADS cancellation fees?

 

If you hold Linx ADSs, a Linx ADS cancellation fee of up to U.S.$0.05 per Linx ADS, as well as taxes or governmental charges payable in connection with your withdrawal of the Linx Common Shares from the Linx ADS program, among other fees, will be deducted from the cash component of the Consideration.

 

Will I have to pay any brokerage commission?

 

You will not have to pay brokerage commissions if your Linx Common Shares or Linx ADSs are registered in your name. If your Linx Common Shares or Linx ADSs are held through a bank or broker or a custodian linked to a stock exchange, you should consult with them as to whether or not they charge any transaction fee or service charges in connection with the Merger of Shares or the other elements of the Transaction.

 

Are any Linx shareholders already committed to vote in favor of the proposal to approve the Transaction?

 

Yes. On August 11, 2020, StoneCo, STNE and DLP entered into that certain Voting Commitment and Assumption of Obligations (the “Voting Agreement”) with Linx and the Linx Founding Shareholders, whereby the parties to the Voting Agreement undertook, as limited by the Brazilian Law No. 6.404/76, as amended (the “Brazilian Corporation Law”), obligations to implement the Transaction, including by binding their shares to vote in favor of the corporate resolutions necessary for the approval, closing and implementation of the Transaction. Linx and STNE acted as intervening parties in the Voting Agreement. The Voting Agreement also indicates that if, at the Linx Special Meeting regarding the Transaction, a sufficient approval quorum is reached for the approval of matters related to the Transaction, considering the favorable vote of other Linx shareholders, Linx Founding Shareholders are free to vote in favor or abstain from voting, according to their convenience, to the extent that, in this case, the calculation of the Linx Founding Shareholders’ votes does not affect the effective approval of the Transaction. In any event, the voting obligations of Linx Founding Shareholders established in the Voting Agreement will be subject to legal impediments and may not violate CVM and Novo Mercado Rules. The Linx Founding Shareholders party to the Voting Agreement held, as of the date thereof, 13.92% of the issued share capital of Linx. In order to approve the Transaction Proposal (as defined herein), holders of at least the majority of Linx Shares must vote in favor of the Transaction. For more information, see “The Transaction Documents—Voting Agreement”.

 

 

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Are there risks associated with the Transaction?

 

Yes. There are a number of risks related to the Transaction that are discussed in this prospectus and in the other documents incorporated by reference into this prospectus. In evaluating the Transaction, before making any decision on whether and how to vote, you are urged to read carefully and in its entirety this prospectus, in particular the section entitled “Risk Factors”.

 

Do I have withdrawal rights in connection with the Merger of Shares?

 

If you were the holder of record of Linx Common Shares at the close of trading on the date of the first publication of the call notice for the Linx Special Meeting, or on the date of communication of the material relevant object of the resolution, whichever occurs first, you may exercise withdrawal rights pursuant to Brazilian law and request that Linx purchase the Linx Common Shares that you held on that date. You cannot exercise these withdrawal rights if you vote in favor of the Merger of Shares. If you have withdrawal rights, your withdrawal rights will lapse 30 days after publication of the minutes of the Linx Special Meeting at which the Merger of Shares is approved.

 

If you have withdrawal rights and exercise these rights, you will receive from Linx an amount in cash equal to the net asset value of your Linx Common Shares, determined based on the book value of Linx assets and liabilities as of          . Based on this net asset value, the withdrawal value per Linx Common Share is R$           .

 

If you hold Linx ADSs, you are not entitled to withdrawal rights with respect to the Merger of Shares. If you hold Linx ADSs and wish to exercise the withdrawal rights with respect to the Linx Common Shares represented thereby, you must surrender your Linx ADSs a sufficient amount of time prior to the Linx Special Meeting to enable you to receive delivery of the Linx Common Shares represented thereby in accordance with the terms of the deposit agreement governing the Linx ADSs prior to the date of the Linx Special Meeting.

 

Can I sell my Linx Common Shares and Linx ADSs during the period for the exercise of withdrawal rights?

 

Subject to the observance of applicable legal requirements, during the period for the exercise of withdrawal rights, the Linx Common Shares will continue to be listed on B3 and be eligible for trading over the B3 under its existing ticker symbol, and the Linx ADSs will continue to be listed on the NYSE, and be eligible for trading over the NYSE under its existing ticker symbol. If you hold Linx Shares and exercise your withdrawal rights, you will not be allowed to trade your shares any longer as they will be cancelled or acquired by Linx upon payment of the corresponding withdrawal consideration.

 

What will happen to Linx following the Closing Date?

 

Following the completion of the Transaction, Linx will be a wholly owned subsidiary of STNE. After the Transaction, Linx will be deregistered under the Exchange Act, Linx will no longer file Annual Reports with the SEC on Form 20-F or make submissions to the SEC on Form 6-K and Linx will be deregistered from the CVM. In addition, the Linx ADSs will be delisted from the NYSE and the Linx Common Shares will be delisted from the B3.

 

The deregistration and delisting of Linx and the Linx Common Shares and Linx ADSs, respectively, will not affect holders of Linx Common Shares and Linx ADSs. At the time of deregistration and delisting following the completion of the Transaction, former holders of Linx Common Shares and Linx ADSs will have received StoneCo Class A Common Shares and/or cash (as applicable), and STNE will be the sole holder of Linx Shares. StoneCo is and will continue to be registered under the Exchange Act; it will continue to file Annual Reports with the SEC on Form 20-F and make submissions to the SEC on Form 6-K. In addition, StoneCo Class A Common Shares will continue to be listed on the Nasdaq. Therefore, holders of Linx Shares will hold shares in a company that is registered following the Transaction and will not be affected by the deregistration of Linx, in which they will no longer hold shares.

 

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Where and when will the STNE special meeting be held?

 

The STNE special meeting of shareholders will be held on the same date as the Linx Special Meeting and is scheduled to be held at STNE’s headquarters at Rua Gomes de Carvalho, No. 1609, 5th floor, Vila Olímpia, São Paulo, São Paulo, CEP 04547-006, Brazil.

 

Where and when will the Linx Special Meeting be held?

 

TIME AND DATE: The Linx Special Meeting to consider the Transaction is scheduled to be held on              , 2020 at            (São Paulo time). Linx has the right to delay the date of the Linx Special Meeting.
   
PLACE: The Linx Special Meeting to consider the Transaction is scheduled to be held at Linx headquarters at Avenida Doutora Ruth Cardoso, 7221, 7th floor, São Paulo, São Paulo, CEP 05425-902, Brazil.
   
ITEMS OF BUSINESS:

The Linx Special Meeting will consider and vote on:

 

·      the waiver of any obligations of STNE to carry out the public tender offer for the acquisition of the Linx Shares, pursuant to Article 43 of the bylaws of Linx, as a result of the Transaction;

 

·      the waiver of STNE’s adhesion to the Novo Mercado segment of the B3 in case of approval of the proposed Transaction;

 

·      the ratification of the appointment of the specialized company hired to conduct the valuation of Linx;

 

·      the approval of the Valuation Report prepared by the engaged appraiser;

 

·      the approval of the Merger of Shares Protocol; and

 

·      the approval of the Merger of Shares. 

 

For additional information about the Linx Special Meeting, see the section of this prospectus entitled “The Linx Special Meeting.”

 

Am I entitled to attend the Linx Special Meeting?

 

If you hold Linx Common Shares you may attend the Linx Special Meeting, provided that you present the appropriate documentation required by Linx for participation.

 

If you hold Linx ADSs and wish to attend the Linx Special Meeting, you must surrender your Linx ADSs and receive delivery of the Linx Common Shares represented thereby in accordance with the terms of the deposit agreement governing the Linx ADSs in sufficient time to allow your ownership of the Linx Common Shares to be reflected in the shareholder list that Linx will use to determine holders of Linx Common Shares that are permitted to attend the Linx Special Meeting.

 

May I vote at the Linx Special Meeting?

 

If you hold Linx Common Shares, you may vote at the Linx Special Meeting, provided that you present the appropriate documentation required by Linx for participation. If you hold Linx ADSs, you will receive instructions from the Linx Depositary about how to instruct the Linx Depositary to vote the Linx Common Shares represented by your Linx ADSs. If The Bank of New York Mellon, as the Linx Depositary, does not receive instructions from an owner on or before the date established by the Linx Depositary for that purpose, the Linx Depositary shall deem that owner to have instructed the Linx Depositary to give a discretionary proxy to a person designated by Linx to vote the underlying Linx Common Shares.

 

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What happens if I do not vote?

 

If you are a holder of Linx Shares and you do not vote, and if you do not act to exercise your withdrawal rights as a shareholder of Linx within 30 days of the publication by Linx of the minutes of the extraordinary general shareholders meeting at which the Merger of Shares is approved, you will automatically receive the Consideration applicable to the number of Linx Shares or Linx ADSs, as applicable, that you own, provided that you hold such Linx Shares or Linx ADSs through the record date selected by STNE in accordance with the Association Agreement.

 

Upon the written request of a Linx ADS Owner on the record date specified by the Linx Depositary that is received on or before the Instruction Cutoff Date, the Linx Depositary will endeavor, insofar as practicable and permitted under the applicable laws and provisions of Linx’s estatutos, to vote or cause to be voted the number of Linx Common Shares represented by the Linx ADSs held by the Linx ADS Owner in accordance with the instructions set forth in that request. The Linx Depositary may not itself vote or attempt to exercise the right to vote that attaches to the Linx Common Shares underlying the Linx ADSs other than in accordance with instructions given by Linx ADS Owners and received by the Linx Depositary or as provided in the following sentence. If (1) Linx instructed the Linx Depositary to disseminate a notice of the Linx Special Meeting as described above and gives the Linx Depositary notice of the Linx Special Meeting, details concerning the matters to be voted upon and copies of materials to be made available to holders of Linx Common Shares in connection with the Linx Special Meeting not less than 30 days prior to the date of the Linx Special Meeting, (2) no instructions are received by the Linx Depositary from a Linx ADS Owner with respect to a matter and any number of Linx ADSs owned by that Linx ADS Owner on or before the Instruction Cutoff Date, and (3) the Linx Depositary has received from Linx, by the business day following the Instruction Cutoff Date, a written confirmation that, as of the Instruction Cutoff Date, (x) Linx wishes a proxy to be given under this sentence, (y) Linx reasonably does not know of any substantial opposition to the matter, and (z) the matter is not materially adverse to the interests of holders of Linx Common Shares, then, the Linx Depositary shall deem that Linx ADS Owner to have instructed the Linx Depositary to give a discretionary proxy to a person designated by Linx with respect to that matter and the number of Linx Common Shares represented by number of Linx ADSs and the Linx Depositary shall give a discretionary proxy to a person designated by Linx to vote that number of Linx Common Shares as to that matter. Under Brazilian law, the Linx Depositary may vote the Linx Common Shares represented by Linx ADSs in accordance with the instructions of the Linx ADS Owners even if those instructions differ among those Linx ADS Owners.

 

What will happen if the proposals to be considered at the Linx Special Meeting are not approved?

 

Linx and StoneCo will not be able to complete the Transaction if the majority of Linx shareholders do not approve the Transaction Proposal.

 

What percentage ownership will former Linx shareholders hold in StoneCo following completion of the Transaction?

 

If the Transaction is completed, Linx will become a wholly owned subsidiary of STNE and Linx will no longer be an independent, publicly traded corporation incorporated under the laws of the Federative Republic of Brazil. Based on the exchange ratios, adjustments and limitations set forth in the Association Agreement, it is anticipated that, immediately following completion of the Transaction, former holders of Linx Common Shares will own approximately 0.7% of StoneCo on a fully diluted basis.

 

When do you expect the Transaction to be completed?

 

The Transaction is expected to close in the fourth quarter of 2020, subject to the approval of the Linx shareholders, regulatory approval and consents and other customary closing conditions.

 

What happens if I transfer or sell my Linx Shares or my Linx ADSs before the Linx Special Meeting or before completion of the Transaction?

 

You must hold Linx Common Shares and you must have timely provided the appropriate documentation required by Linx in order to be entitled to vote at the Linx Special Meeting. If you hold Linx ADSs on the specific record date to be established by the Linx Depositary, the Linx Depositary will endeavor to vote the Linx Common Shares underlying your Linx ADS in accordance with your instructions, provided that your instructions are received prior to the Instruction Cutoff Date (as defined herein). If you transfer or sell your Linx Common Shares or Linx ADSs after the Linx Special Meeting but prior to the completion of the Transaction, you will have transferred the right to receive the Consideration in the Transaction to such transferee and you will lose your right to receive the Consideration. For more information on the Linx Special Meeting, see the section of this prospectus entitled “The Linx Special Meeting.”

 

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Will StoneCo Class A Common Shares acquired in the Transaction receive a dividend?

 

Any future StoneCo dividends will remain subject to approval by the StoneCo board of directors and available distributable reserves of StoneCo.

 

After the closing of the Transaction, as a holder of StoneCo Class A Common Shares, former holders of Linx Common Shares that hold such StoneCo Class A Common Shares on the record date associated with a dividend distribution are expected to receive the same dividend per StoneCo Class A Common Shares as all other holders of StoneCo Class A Common Shares that hold StoneCo Class A Common Shares as of the record date associated with such dividend distribution. For further information on dividends, see the section of this prospectus entitled “The Transaction—Dividend Information.”

 

What happens if the Transaction is not completed?

 

If the majority of Linx shareholders do not approve the Transaction Proposal or if the Transaction is not completed for any other reason, StoneCo and Linx will remain independent public companies and StoneCo Class A Common Shares, Linx Common Shares and Linx ADSs will continue to be listed and traded on the Nasdaq, B3 and the NYSE, respectively. Linx will continue to be registered under the Exchange Act and file periodic reports with the SEC.

 

A compensatory break fee equal to R$453,750,000 (the “Fine”) will be payable (or in the case of prong (ii) below, partially payable) in the following circumstances:

 

(i) Linx will pay the Fine to STNE if (a) Linx fails to comply with its exclusivity obligations under the Association Agreement; (b) a Competing Transaction (as defined herein) is approved, executed or accepted by Linx or its shareholders, in any form; or (c) Linx or the Linx Founding Shareholders breach any of their respective obligations under the Association Agreement in such a manner that causes a termination of the Association Agreement;

 

(ii) As long as certain conditions are fulfilled, Linx will be obligated to pay StoneCo an amount equal to R$112,500,000 if the Linx Special Meeting is not held or if any item is not approved and such non-approval prevents the consummation of the Transaction; provided that in such case, if a Competing Transaction is announced or contracted into by Linx prior to the date of the Linx Special Meeting (or prior to the date of the event which causes the Linx Special Meeting to not be held), and such Competing Transaction is approved or entered into by Linx during the 12 month period after the Linx Special Meeting (or prior to the date of the event which causes the Linx Special Meeting to not be held), Linx shall pay to StoneCo an additional amount equal to the remainder of the Fine (R$341,250,000); and

 

(iii) STNE must pay the Fine to Linx if (a) StoneCo, STNE or DLP breach any of their respective obligations under the Association Agreement in such a manner that causes a termination of the Association Agreement; (b) Linx terminates the Association Agreement because the CADE imposes restrictions as a condition for CADE approval, and StoneCo, STNE and Linx, after using best efforts, fail to meet such restrictions; or (c) the CADE does not approve the Transaction.

 

For more information on break fees, see the section of this prospectus entitled “The Transaction Documents—The Association Agreement—Break Fees.”

 

What regulatory approval is needed to complete the Transaction?

 

Closing of the Transaction is subject to regulatory approval by the CADE, as required under the terms of the Association Agreement, having been obtained or received.

 

For further details on regulatory approval, see the section of this prospectus entitled “Regulatory Matters.”

 

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What other conditions must be satisfied to complete the Transaction?

 

In addition to obtaining certain required regulatory approval, Closing of the Transaction is subject to certain additional conditions, including, among others, the following customary conditions.

 

Conditions applicable to the parties to the Association Agreement

 

The performance of the obligations of parties to the Association Agreement is subject to the absence of any injunction or order prohibiting or enjoining the consummation of the transactions.

 

Conditions applicable to Linx and the Linx Shareholders

 

The performance of the obligations of Linx and the Linx Shareholders is subject to satisfaction of, or waiver by Linx of, the following conditions:

 

·representations and warranties made by STNE, StoneCo and DLP shall be true and correct in all respects until Closing (except where the representations and warranties refer to a previous date, in which case they must be true and correct in all respects as of such date);

 

·compliance with all applicable obligations under the Association Agreement;

 

·StoneCo’s registration statement on Form F-4 to effect the registration under the Securities Act of the StoneCo Class A Common Shares to be issued to Linx shareholders shall have become effective, no stop order suspending the effectiveness of the Form F-4 shall have been issued, and no proceedings for that purpose shall have been initiated or be threatened, by the SEC; and

 

·obtain the necessary approvals of the STNE shareholders to take such actions as are contemplated by the Association Agreement.

 

Conditions applicable to STNE, StoneCo and DLP

 

The performance of the obligations of STNE, StoneCo and DLP is subject to satisfaction of, or waiver by STNE of, the following conditions:

 

·representations and warranties made by Linx and the Linx Shareholders shall be true and correct in all respects until Closing (except where the representations and warranties refer to a previous date, in which case they must be true and correct in all respects as of such date);

 

·compliance with all applicable obligations under the Association Agreement;

 

·Linx obtaining certain third party consents or maintaining cash reserves in lieu thereof;

 

·obtain the necessary approvals of the Linx shareholders to take such actions as are contemplated by the Association Agreement; and

 

·the absence of a material adverse change.

 

For further details on closing conditions, see the section of this prospectus entitled “The Transaction Documents—The Association Agreement.”

 

What are the U.S. federal income tax consequences of the Transaction to holders of Linx Shares?

 

The exchange of Linx Shares for the Consideration in the Transaction will be a taxable transaction for U.S. federal income tax purposes. Gain or loss realized by a U.S. Holder (as defined herein) on the exchange generally will be capital gain or loss and generally will be long-term capital gain or loss if the U.S. Holder’s Linx Shares have been held for more than one year.

 

You should read the section entitled “Material Tax Considerations—Material U.S. Federal Income Tax Considerations” for more information on the U.S. federal income tax consequences of the Transaction and you should consult your own tax advisors regarding the tax consequences of the Transaction in your particular circumstances.

 

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What are the Brazilian income tax consequences of the Transaction to holders of Linx Common Shares?

 

According to Brazilian tax rules, gains on the disposition of assets located in Brazil by a holder who resides in Brazil (a “Brazilian Holder”) or by a holder deemed to not be domiciled in Brazil for Brazilian tax purposes (a “Non-Brazilian Holder”) are subject to Brazilian taxation.

 

Notwithstanding the analysis of the tax treatment applicable to the contribution (incorporação de ações) of Linx Common Shares into STNE, as a result of the subsequent redemption of New STNE Shares, gains recognized by holders of Linx Common Shares are expected to be subject to Brazilian income tax at different rates, depending on the nature, domicile and regime of the corresponding holder. The rate for a Non-Brazilian Holder may generally vary from 15% to 22.5%, or may be a flat rate of 25% in case of a Non-Brazilian Holder resident of or domiciled in a “No Taxation or Low Taxation Jurisdiction.” The rate for a Brazilian Holder may vary widely, for example, from 15% to 22.5% for individuals, or 34% for Brazilian companies.

 

Although there is no clear rule regarding how a disposition of ADSs will be treated under Brazilian tax law, holders of Linx ADSs are expected to be subject to the same tax treatment applicable to holders of Linx Common Shares.

 

What will be the accounting treatment of the Transaction?

 

Under IFRS as issued by the IASB, the acquisition of Linx S.A. by StoneCo Ltd. will be accounted for under the acquisition method of accounting for business combinations. Under the acquisition method of accounting, the total consideration paid is allocated to an acquired company’s tangible and intangible assets, liabilities and any noncontrolling interest based on their estimated fair values as of the acquisition date.

 

Could the Transaction be unwound?

 

The Transaction itself will not be unwound once all conditions precedent have been satisfied and Closing has occurred.

 

Who can help answer my questions?

 

The information provided above in the question-and-answer format is for your convenience only and is merely a summary of some of the information contained in this prospectus. You should read carefully the entire prospectus, including the information in the exhibits to the registration statement of which this prospectus is a part. See the section of prospectus entitled “Where You Can Find More Information.”

 

If you have any questions about the proposed Transaction, StoneCo’s investor relations office can be reached at: StoneCo Ltd., 4th Floor, Harbour Place 103 South Church Street, P.O. Box 10240, Grand Cayman, KY1-1002, Cayman Islands, phone: + 55 3038-8123, email: investors@stone.co.

 

Where can I find more information about StoneCo and Linx?

 

You can find out more information about StoneCo and Linx from the various sources described in the section entitled “Where You Can Find More Information”.

 

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Summary

 

The following is a summary that highlights information contained in this prospectus. This summary may not contain all the information that is important to you. For a more complete description of the Transaction and the Association Agreement, we encourage you to read carefully this entire prospectus, including the exhibits to the registration statement of which this prospectus is a part. In addition, we encourage you to read the information incorporated by reference into this prospectus, which includes important business and financial information about StoneCo and Linx that has been filed with the SEC. You may obtain the information incorporated by reference into this prospectus without charge by following the instructions in the section of this prospectus entitled “Where You Can Find More Information.”

 

The Parties

 

StoneCo

 

We are a leading provider of financial technology solutions that empower merchants and integrated partners to conduct electronic commerce seamlessly across in-store, online, and mobile channels in Brazil. We have developed a strong client-centric culture that seeks to delight our clients rather than simply providing them with a solution or service. To achieve this, we created a proprietary, go-to-market approach called the Stone Business Model, which enables us to control the client experience and ensure that interactions are provided by our people or our technology. The Stone Business Model combines our advanced, end-to-end, cloud-based technology platform; differentiated hyper-local and integrated distribution approach; white-glove, on-demand customer service; and client-centric culture, each of which is described below.

 

1.Advanced, End-to-End, Cloud-Based Technology Platform—We designed our cloud-based technology platform to (i) help our clients connect, get paid and grow their businesses, while meeting the complex and rapidly changing demands of omnichannel commerce; and (ii) overcome long-standing inefficiencies within the Brazilian payments market. Our platform enables us to develop, host and deploy our solutions very quickly. We also sell our solutions to integrated partners such as Payment Service Providers, or PSPs, which are firms that contract with a merchant to provide them with payment acceptance solutions, and marketplaces to empower merchants to conduct commerce more effectively in Brazil.

 

2.Differentiated Hyper-Local and Integrated Distribution—We developed our distribution model to proactively reach and serve our clients in a more effective manner. In particular, we developed Stone Hubs, which are local operations close to our clients that include an integrated team of sales, service, and operations support staff to reach small-and medium-sized businesses or SMBs, locally and efficiently, and to build stronger relationships with them. We also have a specialized in-house sales team that serves online merchants and digital service providers with dedicated expertise. We also work with integrated partners, such as ISVs, to embed our solutions into their offerings and enable their merchants to accept payments seamlessly and easily.

 

3.White-Glove, On-Demand Customer Service—We created our on-demand customer service team to support our clients quickly, conveniently, and with high-quality service designed to strengthen our customer relationships and improve their lifetime value with us. Our customer service approach combines (i) a Human Connection, through which we seek to address our clients’ service needs in a single phone call using a qualified team of technically trained agents; (ii) Proximity, through our Green Angels team of local support personnel who can serve our clients in person within minutes or hours, instead of days or weeks; and (iii) Technology, through a range of self-service tools and proprietary artificial intelligence, or AI, that help our clients manage their operations more conveniently and enable our agents to proactively address merchant needs, sometimes before they are even aware of an issue.

 

4.Client-Centric Culture—We have proactively fostered and developed a highly-innovative, entrepreneurial, and mission-driven culture that we believe helps attract new talent, enables us to achieve our objectives, and provides a key competitive advantage. Our culture unites our team across numerous functions and focuses our collective efforts on passionately developing technology and implementing the Stone Business Model to disrupt legacy practices, older technologies, and incumbent vendors in order to provide solutions and a level of service that go beyond simply meeting the needs of our clients, and instead seeks to deliver an enhanced overall client experience.

 

 

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StoneCo is incorporated as an exempted company with limited liability in the Cayman Islands. Our principal executive office is located at 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman, KY1-1002, Cayman Islands. Our investor relations office can be reached at investors@stone.com.br and our website address is www.stone.co. The information contained on, or accessible through, such website is not incorporated by reference into this prospectus and should not be considered a part of this prospectus.

 

Linx

 

Linx is a leading cloud-based technology company that develops and provides affordable, easy-to-use, reliable and integrated software solutions to over 70,000 retail clients across more than 100,000 storefronts with approximately R$300 billion of gross transaction volume (GTV), through a software-as-a-service (SaaS) business model. The company is a leading player in the retail management software market and has a strong presence in e-commerce software solutions in Brazil. It serves its clients through an end-to-end platform comprised of three product lines, including:

 

·Linx Core – which provides integrated business management software, such as ERP and POS management solutions, across various industry verticals including auto parts stores, clothing stores, department stores, electronic goods stores, fast food chains, gas stations, home improvement stores, household appliances stores, pharmacies, service retail, and vehicle dealerships.

 

·Linx Digital – which provides an e-commerce platform designed to improve the omnichannel shopping experience, enabling retailers to engage, interact and transact with their clients and manage their inventories across physical stores, mobile applications, and online channels in an integrated manner.

 

·Linx Pay Hub – which provides payment processing solutions integrated with its Core and Digital product lines and provides Electronic Funds Transfer (EFT) services.

 

Linx is a Brazilian corporation (sociedade anônima) incorporated under the Federative Republic of Brazil. Linx’s corporate headquarters are located at Avenida Doutora Ruth Cardoso, 7221, 7th floor, São Paulo, São Paulo, CEP 05425-902, Brazil, and its telephone number at this address is +55-11-2103-1531. Linx’s website is www.linx.com.br. The information contained on, or accessible through, such website is not incorporated by reference into this prospectus and should not be considered a part of this prospectus.

 

Risk Factors

 

The transactions contemplated by the Association Agreement involve risks, some of which are related to such transactions themselves and others of which are related to StoneCo’s and Linx’s respective businesses and to investing in and ownership of StoneCo’s Class A Common Shares following the consummation of such transactions, assuming they are completed. In considering the Transaction, you should carefully consider the information about these risks set forth under the section of this prospectus entitled “Risk Factors” beginning on page 27 of this prospectus together with the other information included in or incorporated by reference into this prospectus.

 

The Transaction and the Association Agreement

 

On August 11, 2020, Linx and STNE entered into the Original Association Agreement, outlining the Transaction, including a corporate reorganization as described herein and amended and restated the Original Association Agreement on September 1, 2020 to revise certain terms therein. The Linx Founding Shareholders, StoneCo and DLP acted as intervening parties thereto.

 

 

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Pursuant to the terms and subject to the conditions set forth in the Association Agreement, if the Merger of Shares Protocol is approved by the shareholders of Linx and STNE, and subject to other conditions precedent as described herein, the Merger of Shares will be implemented through the Merger of Shares. Immediately thereafter, each STNE Class A Preferred Share will be redeemed for a cash payment of R$31.56 and each STNE Class B Preferred Share will be redeemed for 0.0126774 StoneCo Class A Common Share.

 

The Base Exchange Ratio takes into account the following assumptions: (i) that no declaration, payment of dividends or interest on equity by STNE or Linx will take place until Closing; (ii) that on September 1, 2020, except for the disclosure of the quarterly results and for the material facts related to the Transaction, there were no material facts pending disclosure to the market by Linx and/or StoneCo; (iii) that on September 1, 2020, there were 14,125,991 shares issued by Linx in treasury; (iv) that the effect of the exercise or acceleration of the total of all of the options and restricted stock plans would result in 3,775,648 additional shares to the share capital of Linx; and (v) that on September 1, 2020, Linx’s corporate capital was represented by 189,408,960 common book-entry shares, nominative and with no par value, including treasury-held shares.

 

If the Transaction is completed, Linx will become a wholly owned subsidiary of STNE and Linx will no longer be an independent, publicly traded corporation incorporated under the laws of the Federative Republic of Brazil. Based on the exchange ratios, adjustments and limitations set forth in the Association Agreement, it is anticipated that, immediately following completion of the Transaction, former holders of Linx Common Shares will own approximately 0.7% of StoneCo on a fully diluted basis.

 

The terms and conditions of the Transaction are contained in the Association Agreement, which is described in this prospectus and a free translation of which is incorporated into this prospectus by reference in its entirety. You are encouraged to read the Association Agreement carefully, as it is the legal document that governs the Transaction. All descriptions in this summary and in this prospectus of the terms and conditions of the Transaction are qualified in their entirety by reference to the Association Agreement.

 

The Linx Special Meeting

 

Date, Time and Place of the Linx Special Meeting

 

The Linx Special Meeting (as defined herein) to consider the Merger of Shares is scheduled to be held on                  , 2020 at                   (São Paulo time) at Linx headquarters at Avenida Doutora Ruth Cardoso, 7221, 7th floor, São Paulo, São Paulo, CEP 05425-902, Brazil.

 

Purpose of the Linx Special Meeting

 

Pursuant to the Merger of Shares Protocol, Linx shareholders must approve: (i) the waiver of any obligations of STNE to carry out the public tender offer for the acquisition of the Linx Shares, pursuant to Article 43 of the bylaws of Linx, as a result of the Transaction; (ii) the waiver of STNE’s adhesion to the Novo Mercado segment of the B3 in case of approval of the proposed Transaction; (iii) the ratification of the appointment of the specialized company hired to conduct the valuation of Linx; (iv) the approval of the valuation report to determine the economic value of the shares issued by Linx to be merged into STNE which is to be prepared by an appraiser engaged by STNE management (the “Valuation Report”); (v) the approval of the Merger of Shares Protocol; and (vi) the approval of the Merger of Shares.

 

Quorum for Installation

 

The Linx Special Meeting will be installed on first call if the requirement of attendance by 25% of the issued and outstanding Linx Common Shares are present, in person or by proxy.

 

If the attendance requirement is not met for the Linx Special Meeting on first call, the Linx Special Meeting will be reconvened at a date and time, at least eight calendar days after the date and time scheduled for the Linx Special Meeting on first call. The Linx Special Meeting will be installed on second call with any percentage of holders present at the meeting following second call, in person or by proxy.

  

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Required Vote

 

At the Linx Special Meeting (i) the waiver of any obligations of STNE to carry out the public tender offer for the acquisition of the Linx Shares, pursuant to Article 43 of the bylaws of Linx, requires the affirmative vote of holders representing a majority of Linx Common Shares at the relevant meeting; (ii) the waiver of the adhesion of STNE to the Novo Mercado listing level of B3 requires the affirmative vote of holders representing a majority of the “free float” of Linx Common Shares (i.e., the total number of issued and outstanding Linx Common Shares excluding Linx Common Shares held by controlling shareholders, its related persons, directors and officers and treasury stock, as defined in the Novo Mercado Rules) attending the meeting, under applicable Novo Mercado Rules; and (iii) the ratification of the appointment of the specialized company hired to conduct the valuation of Linx, the approval of the Valuation Report prepared by the engaged appraiser, the approval of the Merger of Shares Protocol; and the approval of the Merger of Shares requires the affirmative vote of holders representing a majority of Linx Common Shares. Approval of each of the items on the agenda for the Linx Special Meeting requires the affirmative vote of holders representing a majority of Linx Common Shares at the relevant meeting, except for the waiver of the adhesion of STNE to the Novo Mercado listing level of B3, as mentioned above. Abstentions will be counted for purposes of establishing quorum at the Linx Special Meeting but will not be counted as votes for or against any matter voted on at the Linx Special Meeting.

 

For additional information, see the section of this prospectus entitled “The Linx Special Meeting.”

 

Voting by Directors and Executive Officers and Affiliates

 

As of August 18, 2020, the directors and executive officers of Linx and its affiliates have the right to vote 27,363,284 Linx Common Shares, representing approximately 15.61% of the Linx Common Shares then outstanding and entitled to vote (including outstanding options exercisable within 60 days). The Linx Founding Shareholders party to the Voting Agreement (as defined herein) are all members of the Linx board of directors and held, as of August 18, 2020, 15.22% of the outstanding Linx Common Shares (including outstanding options exercisable within 60 days). In order to approve the Transaction Proposal (as defined herein), holders of at least the majority of Linx Common Shares must vote in favor of the Transaction. For more information, see “The Transaction Documents—Voting Agreement”. For more information on the shareholdings of the directors and executive officers of Linx please see “Share Ownership of Certain Beneficial Owners and Management—Major Shareholders and Directors and Officers of Linx”.

 

Consideration

 

Pursuant to the terms and subject to the conditions set forth in the Association Agreement, each Linx Share issued and outstanding immediately prior to the consummation of the Transaction will be automatically contributed to STNE in exchange for one newly issued redeemable STNE Class A Preferred Share and one newly issued redeemable STNE Class B Preferred Share. Immediately thereafter, each STNE Class A Preferred Share will be redeemed for a cash payment of R$31.56 and each STNE Class B Preferred Share will be redeemed for 0.0126774 StoneCo Class A Common Share (the “Base Exchange Ratio”). The Base Exchange Ratio is calculated on a fully diluted basis, assuming a number of fully-diluted shares of Linx of 179,058,617, and represents a total consideration of R$35.10 for each Linx Share, considering the share price of the StoneCo Shares as of August 31, 2020.

 

The Base Exchange Ratio takes into account the following assumptions: (i) that no declaration, payment of dividends or interest on equity by STNE or Linx will take place until Closing; (ii) that on September 1, 2020, except for the disclosure of the quarterly results and for the material facts related to the Transaction, there were no material facts pending disclosure to the market by Linx and/or StoneCo; (iii) that on September 1, 2020, there were 14,125,991 shares issued by Linx in treasury; (iv) that the effect of the exercise or acceleration of the total of all of the options and restricted stock plans would result in 3,775,648 additional shares to the share capital of Linx; and (v) that on September 1, 2020, Linx’s corporate capital was represented by 189,408,960 common book-entry shares, nominative and with no par value, including treasury-held shares.

 

For more information on the Consideration, see the section of this prospectus entitled “The Transaction Documents—The Association Agreement—Consideration.”

 

 

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Reasons for the Transaction

 

The board of directors of StoneCo considered a number of factors in making its determination that the Association Agreement and the Transaction are in the best interests of StoneCo. After due consideration and discussion of such factors, the board of directors of StoneCo approved the execution of the Association Agreement and the authorization for its executive officers to implement the Transaction.

 

The board of directors of Linx, and separately the independent members of the board of directors of Linx (the “Linx Independent Board Members”) considered a number of factors in making its determination that the Association Agreement and the Transaction are in the best interests of Linx. After due consideration, the Linx board of directors, and separately the Linx Independent Board Members, have (i) approved, adopted and declared advisable the Association Agreement and the Transaction, (ii) declared that it is in the best interests of Linx that Linx enter into the Association Agreement and consummate the Transaction.

 

For more information on the reasons underlying the decision by the board of directors of Linx and StoneCo, respectively, to approve the Transaction, see the sections of this prospectus entitled “The Transaction—Linx’s Reasons for the Transaction” and “The Transaction— StoneCo’s Reasons for the Transaction.”

 

Regulatory Approval Required for the Transaction

 

Closing of the Transaction is subject to regulatory approval by the CADE, as required under the terms of the Association Agreement, having been obtained or received. Linx and StoneCo are in the process of completing the filing with the CADE to obtain the required approval. The Transaction cannot be consummated until the closing condition relating to the CADE approval has been satisfied.

 

For a description of the required antitrust filings and clearances, see the section of this prospectus entitled “Regulatory Matters.”

 

Withdrawal Rights for Linx Shareholders

 

Under Article 137 of the Brazilian Corporation Law, the holders of Linx Common Shares that dissent from the vote in favor of the Merger of Shares have the right to withdraw the Linx Common Shares of which they were record holders at the close of trading on the date of the first publication of the call notice for the Linx Special Meeting, or on the date of communication of the material relevant object of the resolution, whichever occurs first, and request that Linx reimburse the value of those Linx Common Shares. You cannot exercise these withdrawal rights if you vote in favor of the Merger of Shares. The failure to vote on the Merger of Shares at the Linx Special Meeting by a shareholder who would otherwise be entitled to exercise withdrawal rights will not constitute a waiver of that shareholder’s withdrawal rights.

 

If you hold Linx ADSs, you are not entitled to withdrawal rights with respect to the Merger of Shares. If you hold Linx ADSs and wish to exercise the withdrawal rights with respect to the Linx Common Shares represented thereby, you must surrender your Linx ADSs a sufficient amount of time prior to the Linx Special Meeting held to approve the Merger of Shares to enable you to receive delivery of the Linx Common Shares represented thereby in accordance with the terms of the deposit agreement governing the Linx ADSs prior to the date of the Linx Special Meeting. For more information on withdrawal rights, see the section of this prospectus entitled “The Transaction—Withdrawal Rights for Linx Shareholders.”

 

No Solicitation of Competing Transaction Proposals

 

As more fully described in this prospectus and as set forth in the Association Agreement, and subject to certain exceptions, Linx has agreed to ensure exclusivity to negotiate the Transaction with STNE and has agreed not to: request, seek or initiate any proposals from any third parties in connection with any similar or Competing Transaction (as defined herein). However, the Linx Independent Board Members may consider and recommend an unsolicited binding offer not subject to due diligence or financing conditions without violating the exclusivity obligations. For more information on the provisions in the Association Agreement relating to non-solicitation of Competing Transactions (as defined herein), see the section of this prospectus entitled “The Transaction Documents—The Association Agreement—Exclusivity.”

 

 

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Conditions Precedent That Must Be Satisfied or Waived for the Transaction to Occur

 

As more fully described in this prospectus and as set forth in the Association Agreement, in addition to obtaining regulatory approval by the CADE, closing of the Transaction is subject to certain additional conditions, including, among others, the following customary conditions.

 

Conditions applicable to the parties to the Association Agreement

 

The performance of the obligations of parties to the Association Agreement is subject to the absence of any injunction or order prohibiting or enjoining the consummation of the Transaction and CADE approval.

 

Conditions applicable to Linx and the Linx Founding Shareholders

 

The performance of the obligations of Linx and the Linx Founding Shareholders is subject to satisfaction of, or waiver by Linx of, the following conditions:

 

·representations and warranties made by STNE, StoneCo and DLP shall be true and correct in all respects until Closing (except where the representations and warranties refer to a previous date, in which case they must be true and correct in all respects as of such date);

 

·compliance with all applicable obligations under the Association Agreement;

 

·StoneCo’s registration statement on Form F-4 to effect the registration under the Securities Act of the StoneCo Class A Common Shares to be issued to Linx shareholders shall have become effective, no stop order suspending the effectiveness of the Form F-4 shall have been issued, and no proceedings for that purpose shall have been initiated or be threatened, by the SEC; and

 

·obtain the necessary approvals of the STNE shareholders to take such actions as are contemplated by the Association Agreement.

 

Conditions applicable to STNE, StoneCo and DLP

 

The performance of the obligations of STNE, StoneCo and DLP is subject to satisfaction of, or waiver by STNE of, the following conditions:

 

·representations and warranties made by Linx and the Linx Founding Shareholders shall be true and correct in all respects until Closing (except where the representations and warranties refer to a previous date, in which case they must be true and correct in all respects as of such date);

 

·compliance with all applicable obligations under the Association Agreement;

 

·Linx obtaining certain third party consents or maintaining cash reserves in lieu thereof;

 

·obtain the necessary approvals of the Linx shareholders to take such actions as are contemplated by the Association Agreement; and

 

·the absence of a material adverse change.

 

For more information on the conditions precedent that must be satisfied or waived for the Transaction to occur, see the section of this prospectus entitled “The Transaction Documents—The Association Agreement—Conditions to the Transaction.”

 

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Termination of the Association Agreement

 

In addition to the termination events mentioned in the “Break Fees” section below, the Association Agreement provides for certain termination rights of Linx and StoneCo:

 

(i) by either party at any time prior to Closing upon the later of the following to occur: (a) the date that is 12 months from the date of execution of the Association Agreement, (b) the date that is three months from the date of the CADE approval or (c) the date that is three months from the effectiveness of the registration of Form F-4; but in no circumstances can it exceed 18 months as from the date of execution of the Association Agreement, except if such delay is due to the fault or intent of one of the parties, in which case the other party may choose to extend the term of the Association Agreement until Closing occurs;

 

(ii) at any time prior to Closing by written agreement between Linx and STNE;

 

(iii) by STNE if any part of the Transaction Proposal is not approved at the Linx Special Meeting;

 

(iv) by Linx if (a) the CADE imposes restrictions as a condition for CADE approval, and StoneCo, STNE and Linx, after using best efforts, fail to meet such restrictions; or (b) the CADE does not approve the Transaction;

 

(v) by a non-breaching party to the Association Agreement at any time before the Closing, if another party fails to fulfill any obligation of the Association Agreement and such non-compliance is not remedied within 30 days from receipt of notice of such non-compliance by the non-breaching party, subject to certain exceptions; or

 

(vi) by STNE, StoneCo and DLP if, prior to the date on which the Linx shareholders approve the Transaction at the Linx Special Meeting, STNE, StoneCo or a subsidiary of StoneCo publishes a public tender offer for the acquisition or exchange of Linx Shares at a launched price per share equal to or greater than R$35.10.

 

For more information on termination of the Association Agreement, see the section of this prospectus entitled “The Transaction Documents—The Association Agreement—Termination of the Association Agreement.”

 

Break Fees

 

A compensatory break fee equal to R$453,750,000 (the “Fine”) will be payable (or in the case of prong (ii) below, partially payable) for the following events:

 

(i) Linx will pay the Fine to STNE if (a) Linx fails to comply with its exclusivity obligations under the Association Agreement; (b) a Competing Transaction is approved, executed or accepted by Linx or its shareholders, in any form; or (c) Linx or the Linx Founding Shareholders breach any of their respective obligations under the Association Agreement in such a manner that causes a termination of the Association Agreement;

 

(ii) As long as certain conditions are fulfilled, Linx will be obligated to pay StoneCo an amount equal to R$112,500,000 if the Linx Special Meeting is not held or if any item is not approved and such non-approval prevents the consummation of the Transaction; provided that in such case, if a Competing Transaction is announced or contracted into by Linx prior to the date of the Linx Special Meeting (or prior to the date of the event which causes the Linx Special Meeting to not be held), and such Competing Transaction is approved or entered into by Linx during the 12 month period after the Linx Special Meeting (or prior to the date of the event which causes the Linx Special Meeting to not be held), Linx shall pay to StoneCo an additional amount equal to the remainder of the Fine (R$341,250,000); and

 

(iii) STNE must pay the Fine to Linx if (a) StoneCo, STNE or DLP breach any of their respective obligations under the Association Agreement in such a manner that causes a termination of the Association Agreement; (b) Linx terminates the Association Agreement because the CADE imposes restrictions as a condition for CADE approval, and StoneCo, STNE and Linx, after using best efforts, fail to meet such restrictions; or (c) the CADE does not approve the Transaction.

 

For more information on break fees, see the section of this prospectus entitled “The Transaction Documents—The Association Agreement—Break Fees.”

 

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Material U.S. Tax Considerations

 

The exchange of Linx Shares for the Consideration in the Transaction will be a taxable transaction for U.S. federal income tax purposes. Gain or loss realized by a U.S. Holder (as defined herein) on the exchange generally will be capital gain or loss and generally will be long-term capital gain or loss if the U.S. Holder’s Linx Shares have been held for more than one year.

 

For more information on U.S. federal income tax considerations, see the section of this prospectus entitled “Material Tax Considerations—Material U.S. Federal Income Tax Considerations.”

 

Brazilian Taxation

 

According to Brazilian tax rules, gains on the disposition of assets located in Brazil by a Brazilian Holder or by a Non-Brazilian Holder are subject to Brazilian taxation.

 

Notwithstanding the analysis of the tax treatment applicable to the contribution (incorporação de ações) of Linx Common Shares into STNE, as a result of the subsequent redemption of New STNE Shares, gains recognized by holders of Linx Common Shares are expected to be subject to Brazilian income tax at different rates, depending on the nature, domicile and regime of the corresponding holder. The rate for a Non-Brazilian Holder may generally vary from 15% to 22.5%, or may be a flat rate of 25% in case of a Non-Brazilian Holder resident of or domiciled in a “No Taxation or Low Taxation Jurisdiction.” The rate for a Brazilian Holder may vary widely, for example, from 15% to 22.5% for individuals, or 34% for Brazilian companies.

 

Although there is no clear rule regarding how a disposition of ADSs will be treated under Brazilian tax law, holders of Linx ADSs are expected to be subject to the same tax treatment applicable to holders of Linx Common Shares.

 

For more information on Brazilian taxation considerations, see the section of this prospectus entitled “Material Tax Considerations—Material Brazilian Tax Considerations.”

 

Accounting Treatment of the Transaction

 

The Transaction will be accounted for by StoneCo in accordance with the requirements of IFRS 3 – Business Combinations. For a more detailed discussion of the accounting treatment of the Transaction, see the section of this prospectus entitled “The Transaction—Accounting Treatment of the Transaction.”

 

Delisting and Deregistration of Linx Shares

 

After the Transaction is completed, Linx will be deregistered under the Exchange Act, Linx will no longer file Annual Reports on Form 20-F or make submissions on Form 6-K with the SEC and Linx will be deregistered from the CVM. In addition, the Linx ADSs will be delisted from the NYSE and the Linx Common Shares will be delisted from the B3.

 

Comparison of the Rights of Holders of StoneCo Shares and Linx Shares

 

As a result of the Transaction, the holders of Linx Shares will become holders of StoneCo Class A Common Shares, and their rights will be governed by the laws of the Cayman Islands and the Amended and Restated Articles of Association of StoneCo (the “StoneCo Articles of Association”). Following the closing of the Transaction, former Linx shareholders will have different rights as StoneCo shareholders than they did as Linx shareholders. For a summary of the material differences between the rights of Linx shareholders and StoneCo shareholders, see the section of this prospectus entitled “Comparison of The Rights of Holders of StoneCo Shares and Linx Shares.”

 

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Selected Financial Data of StoneCo

 

The summary statement of profit or loss and statement of financial position data as of and for the years ended December 31, 2019, 2018 and 2017 have been derived from our audited consolidated financial statements prepared in accordance with IFRS as issued by the IASB appearing in StoneCo’s 2019 Form 20-F, which is incorporated by reference in this prospectus.

 

The summary statement of profit or loss data and statement of financial position data as of and for the six months ended June 30, 2020 and 2019 have been derived from our unaudited condensed consolidated financial statements prepared in accordance with IAS 34—Interim Financial Reporting, which include, in the opinion management, all adjustments considered necessary to present fairly the results of operations and financial position of the Company for the periods and dates presented. The results of operations for an interim period are not necessarily indicative of the results for the year ending December 31, 2020 or for any other period.

 

   For the Six Months Ended June 30,  For the Year Ended
December 31,
   2020  2020  2019  2019  2019  2018  2017
   (US$)(1)    (R$)  (US$)(1)  (R$)
   (in millions, except amounts per share)
Net revenue from transaction activities and other services   83.0    454.8    346.0    140.7    770.3    514.6    224.2 
Net revenue from subscription services and equipment rental   31.7    173.6    145.8    60.5    331.6    213.7    105.0 
Financial income   125.3    685.9    548.6    235.2    1,287.8    801.3    412.2 
Other financial income   12.8    69.9    81.5    34.0    186.4    49.6    25.3 
Total revenue and income   252.8    1,384.1    1,122.0    470.4    2,576.0    1,579.2    766.6 
Cost of services   (63.7)   (348.7)   (186.2)   (78.0)   (427.0)   (323.0)   (224.1)
Administrative expenses   (29.9)   (163.9)   (142.1)   (52.2)   (285.8)   (252.9)   (174.6)
Selling expenses   (41.4)   (226.5)   (150.0)   (65.9)   (360.6)   (190.2)   (92.0)
Financial expenses, net   (38.5)   (211.0)   (145.4)   (64.5)   (353.5)   (301.1)   (237.1)
Other operating expenses, net   (8.0)   (43.6)   (43.8)   (10.5)   (57.7)   (69.3)   (134.2)
Loss on investment in associates   (0.5)   (2.8)   (0.5)   (0.1)   (0.8)   (0.4)   (0.3)
Profit before income taxes   70.8    387.8    454.0    199.2    1,090.7    442.3    (95.7)
Income tax and social contribution   (19.3)   (105.5)   (105.1)   (52.3)   (286.5)   (137.1)   (9.3)
Net income for the period   51.5    282.2    348.9    146.9    804.2    305.2    (105.0)
Net income (loss) attributable to non-controlling interests   (0.6)   (3.2)   (0.2)   0.2    1.0    4.0    3.8 
Net income (loss) attributable to owners of the parent   52.1    285.4    349.1    146.7    803.2    301.2    (108.7)
Basic earnings (loss) per share(2)   US$ 0.19    R$ 1.03    R$ 1.26    US$ 0.53    R$ 2.90    R$ 1.30    (R$ 0.49)
Diluted earnings (loss) per share(2)   US$ 0.18    R$ 1.01    R$ 1.24    US$ 0.52    R$ 2.85    R$ 1.29    (R$ 0.49)
Other data:                                   
Adjusted net income (in millions)(3)   57.1    312.6    380.3    156.5    857.1    342.8    45.1 
TPV (in billions)   13.8    75.7    56.2    23.6    129.1    83.4    48.5 
Active clients (in thousands)(4)    n/a     519.4    349.5     n/a     495.1    269.1    131.2 
Take rate(5)    n/a     1.74%   1.85%    n/a     1.85%   1.83%   1.53%

 

(1)For convenience purposes only, amounts in reais for the six months ended June 30, 2020 and the year ended December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.4760 to U.S.$1.00, the commercial selling rate for U.S. dollars as of June 30, 2020 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.

 

 

 

 

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(2)Calculated by dividing net income or loss for the year attributed to the owners of the parent, adjusted for losses allocated to contractual rights and participating instruments, by the weighted average number of ordinary shares outstanding during the year.

 

(3)In the table below, we have provided a reconciliation of adjusted net income (loss) to our net income (loss) for the year, the most directly comparable financial measure calculated and presented in accordance with IFRS.

 

(4)Does not include micromerchants from the Stone Mais (previous) / TON product (partnership with Grupo Globo targeting the micromerchant space).

 

(5)Total revenue and income excluding other financial income, divided by TPV.

 

   For the Six Months Ended June 30,  For the Year Ended
December 31,
   2020  2020  2019  2019  2019  2018  2017
   (US$)(1)    (R$)  (US$)(1)  (R$)
   (in millions)
Net income (loss) for the year   51.5    282.2    348.9    146.9    804.2    305.2    (105.0)
Share-based compensation expenses(2)   7.3    39.9    38.5    11.7    64.3    60.8    138.9 
Amortization of fair value adjustment on intangibles related to acquisitions(3)   1.3    6.9    8.1    3.1    17.2    12.6    14.8 
Fair value adjustments of assets whose control was acquired(4)   (0.5)   (3.0)   -      -      -      (21.4)   -   
One-time impairment charges(5)   -      -      -      -      -      8.4    -   
Other income/expenses (6)   0.3    1.7    -      (0.3)   (1.7)   -      -   
Pre-tax subtotal   59.8    327.7    395.5    161.4    884.0    365.6    48.7 
Tax effect on adjustments(7)   (2.8)   (15.1)   (15.2)   (4.9)   (26.8)   (22.8)   (3.6)
Adjusted net income (loss)   57.1    312.6    380.3    156.5    857.1    342.8    45.1 

 

(1)For convenience purposes only, amounts in reais for the six months ended June 30, 2020 and the year ended December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.4760 to U.S.$1.00, the commercial selling rate for U.S. dollars as of June 30, 2020 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.

 

(2)Consists of expenses related to the grant of share-based compensation, as well as fair value (mark-to-market) adjustments for share-based compensation expense classified as a liability in our consolidated financial statements.

 

(3)Consists of expenses resulting from the amortization of the fair value adjustment on intangible assets and property and equipment as a result of the application of the acquisition method, a significant portion of which relate to the Elavon do Brasil (“EdB”) and Equals acquisitions.

 

(4)Consists of the gain on re-measurement of our previously held equity interest in Linked (2020) and Equals (2018) to fair value upon the date control was acquired.

 

(5)Consists of (1) impairment charges associated with certain processing system intangible assets acquired in the EdB acquisition that we no longer use, in an amount of R$6.4 million for the year ended December 31, 2018 and (2) impairment associated with improvements made to certain leased office space upon the termination of the lease, in an amount of R$2.0 million for the year ended December 31, 2018.

 

(6)Consists of the fair value adjustment related to associates call option.

 

(7)Represents the tax effect of pre-tax items excluded from adjusted net income (loss). The tax effect of pre-tax items excluded from adjusted net income (loss) is computed using the statutory rate related to the jurisdiction that was impacted by the adjustment after taking into account the impact of permanent differences and valuation allowances.

 

   As of June 30,  As of December 31,
   2020  2020  2019  2019  2018  2017
   (US$ millions)(1)  (R$ millions)  (US$ millions)(1)  (R$ millions)
Statement of financial position data:                  
Assets                  
Current assets                  
Cash and cash equivalents and short-term investments   651.1    3,565.5    713.2    3,905.4    3,068.5    843.7 
Accounts receivable from card issuers   2,359.6    12,921.0    2,568.8    14,066.8    9,244.6    5,078.4 
Other current assets   221.5    1,212.8    79.0    432.7    124.7    77.4 
Total current assets   3,232.2    17,699.3    3,361.0    18,404.9    12,437.8    5,999.5 
Total non-current assets   285.0    1,560.9    219.3    1,200.9    855.4    636.2 
Total assets   3,517.2    19,260.2    3,580.3    19,605.7    13,293.2    6,635.7 
Liabilities and Equity                              
Current liabilities                              
Accounts payable to merchants   1,267.4    6,940.2    1,187.0    6,500.1    4,996.1    3,637.5 
Other current liabilities   793.7    4,346.2    981.1    5,372.5    1,058.7    186.1 
Total current liabilities   2,061.1    11,286.4    2,168.1    11,872.5    6,054.8    3,823.6 

 

 

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   As of June 30,  As of December 31,
   2020  2020  2019  2019  2018  2017
   (US$ millions)(1)  (R$ millions)  (US$ millions)(1)  (R$ millions)

Non-current liabilities

 

                  
Obligations to FIDC quota holders   -      -      295.8    1,620.0    2,057.9    2,056.3 
Other non-current liabilities   272.8    1,494.0    25.6    140.2    87.6    273.3 
Total non-current liabilities   272.8    1,494.0    321.4    1,760.2    2,145.5    2,329.6 
Total liabilities   2,333.9    12,780.4    2,489.5    13,632.7    8,200.2    6,153.2 
Total equity   1,183.3    6,479.8    1,090.8    5,973.0    5,093.0    482.6 
Total liabilities and equity   3,517.2    19,260.2    3,580.3    19,605.7    13,293.2    6,635.7 

 

(1)For convenience purposes only, amounts in reais for the six months ended June 30, 2020 and the year ended December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.4760 to U.S.$1.00, the commercial selling rate for U.S. dollars as of June 30, 2020 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.

 

 

 

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Selected Financial Data of Linx

 

The summary statement of profit or loss and statement of financial position data as of and for the years ended December 31, 2019, 2018 and 2017 have been derived from the Linx audited consolidated financial statements prepared in accordance with IFRS as issued by the IASB appearing in Linx’s 2019 Form 20-F, which is incorporated by reference in this prospectus.

 

The summary statement of profit or loss data and statement of financial position data as of and for the six months ended June 30, 2020 and 2019 have been derived from our unaudited condensed consolidated financial statements prepared in accordance with IAS 34—Interim Financial Reporting. The results of operations for an interim period are not necessarily indicative of the results for the year ending December 31, 2020 or for any other period.

 

   For the six months Ended June 30,  For the Year Ended December 31,
   2020  2020  2019  2019  2019  2018  2017
   (US$) (1)  (R$)  (US$) (1)  (R$)
   (in millions, except per share/ADS data)
Income Statement Data:                     
Net operating revenue   77.1    422.0    369.5    143.9    788.2    685.6    571.6 
Cost of services rendered   (25.3)   (138.6)   (123.4)   (49.7)   (272.1)   (245.6)   (211.6)
General and administrative   (24.5)   (134.1)   (99.0)   (40.2)   (219.9)   (168.6)   (148.1)
Research and development   (13.8)   (75.8)   (71.4)   (17.0)   (93.1)   (73.5)   (64.3)
Selling   (10.0)   (54.7)   (38.5)   (26.4)   (144.7)   (111.0)   (72.4)
Other operating income   -      -      -      6.8    37.4    8.4    4.3 
Other operating expenses   (1.3)   (7.2)   12.6    (2.7)   (14.6)   (5.1)   (5.1)
Total operating expenses   (75.0)   (410.4)   (319.7)   (129.1)   (707.0)   (595.4)   (497.2)
Operating income   2.1    11.6    49.7    14.8    81.1    90.1    74.4 
Financial income   3.9    21.6    20.5    12.8    70.1    50.3    58.4 
Financial expenses   (6.4)   (34.8)   (31.0)   (15.9)   (87.3)   (48.2)   (24.0)
Net financial income (expenses)   (2.4)   (13.2)   (10.5)   (3.1)   (17.2)   2.1    34.4 
Income before income tax and social contribution   (0.3)   (1.6)   39.3    11.7    63.9    92.1    108.8 
Income tax and social contribution - current   (1.1)   (6.1)   (4.6)   (2.1)   (11.4)   (10.0)   (9.2)
Income tax and social contribution - deferred   0.3    1.5    (5.0)   (2.5)   (13.7)   (11.1)   (14.7)
Net income   (1.1)   (6.3)   29.6    7.1    38.9    71.1    84.8 
                                    
Net income (loss) per share                                   
Basic:                                   
Common Shares   (US$ 0.0064)    (R$ 0.0351)    R$ 0.1849    US$ 0.0417    R$ 0.2281    R$ 0.4358    R$ 0.5155 
ADS   (US$ 0.0064)    -      -      US$ 0.0417    -      -      -   
                                    
Diluted:                                   
Common Shares   (US$ 0.0063)    (R$ 0.0343)    R$ 0.1738    US$ 0.0407    R$ 0.2228    R$ 0.4301    R$ 0.5111 
ADS   (US$ 0.0063)    -      -      US$ 0.0407    -      -      -   

 

 

 

 

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(1)For convenience purposes only, amounts in reais for the six months ended June 30, 2020 and the year ended December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.4760 to U.S.$1.00, the commercial selling rate for U.S. dollars as of June 30, 2020 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.

 

   As of June 30,  As of December 31,
   2020  2020  2019  2019  2018  2017
   (US$)(1)  (R$)  (US$)(1)  (R$)
   (in millions)
Balance Sheet Data:                  
Current Assets:                  
Cash and cash equivalents   7.9    43.1    13.9    75.9    49.9    42.9 
Financial assets   104.4    571.7    164.8    902.3    413.4    487.8 
Trade accounts receivable   58.9    322.3    50.5    276.6    167.1    128.2 
Recoverable taxes   5.8    31.8    4.1    22.6    35.1    33.1 
Other assets   7.6    41.7    4.1    22.5    33.1    28.1 
Total current assets   184.6    1,010.6    237.4    1,299.9    698.5    720.1 
                               
Non-Current Assets:                              
Financial assets   2.8    15.4    0.4    2.1    -      21.0 
Trade accounts receivable   2.7    14.5    2.1    11.5    3.3    3.0 
Other assets   4.2    22.9    4.8    26.3    17.5    1.5 
Recoverable taxes   1.0    5.5    0.9    5.2    -      -   
Deferred taxes   0.6    3.2    0.6    3.4    4.4    4.3 
Property, plant and equipment, net   19.1    104.6    15.0    82.2    74.3    62.3 
Intangible assets, net   218.6    1,197.0    184.3    1,009.3    849.6    751.9 
Right of use   20.2    110.4    22.6    124.0    -      -   
Total non-current assets   269.1    1,473.5    230.8    1,264.0    949.2    843.9 
Total assets   453.6    2,484.1    468.2    2,563.9    1,647.7    1,564.0 
                               
Current Liabilities:                              
Suppliers   5.4    29.7    4.4    24.0    13.6    8.5 
Loans and financing   10.0    54.6    7.5    41.2    40.7    31.8 
Lease payable   7.4    40.7    8.7    47.5    -      -   
Labor liabilities   14.4    78.8    9.3    51.1    43.8    38.9 
Taxes and contributions payable   3.6    19.9    4.2    23.1    13.5    13.2 
Income tax and social contribution   0.9    4.7    0.7    3.8    1.2    0.5 
Accounts payable from acquisition of subsidiaries   12.6    69.1    7.9    43.4    57.1    56.1 
Deferred revenue   5.3    28.9    6.6    36.4    40.1    8.5 
Dividends payable   0.0    0.1    1.8    9.7    2.8    4.2 
Other liabilities   20.7    113.4    16.4    89.6    8.0    7.6 
Total current liabilities   80.3    439.9    67.5    369.8    220.7    169.2 
                               
Non-Current Liabilities:                              
Loans and financing   26.9    147.1    30.8    168.9    209.3    65.5 
Lease payable   12.5    68.5    14.4    78.6    -      -   
Labor liabilities   0.3    1.8    0.4    2.0    -      -   
Accounts payable from acquisition of subsidiaries   6.8    37.4    7.2    39.6    55.4    74.7 
Deferred taxes   15.2    83.1    15.4    84.2    72.6    80.3 
Deferred revenue   0.7    4.0    1.2    6.4    19.2    -   
Other liabilities   0.4    2.0    0.9    4.9    2.3    1.0 
Provision for contingencies   3.7    20.2    3.6    19.6    11.0    2.8 
Total non-current liabilities   66.5    364.4    73.8    404.3    369.8    224.3 
Total liabilities   146.9    804.3    141.4    774.1    590.5    393.5 
Net assets   306.8    1,679.9    326.8    1,789.8    1,057.2    1,170.5 
                               
Shareholders’ Equity:                              
Capital   117.9    645.4    117.9    645.4    488.5    486.0 
Capital reserves   210.2    1,151.1    212.9    1,165.6    518.3    479.8 

 

 

 

 

 

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    As of June 30,   As of December 31,
    2020   2020   2019   2019   2018   2017
    (US$)(1)   (R$)   (US$)(1)   (R$)
    (in millions)
                       
Treasury shares   (57.1)   (312.5)   (41.3)   (226.0)   (148.4)   -   
Profit reserves   36.9    201.8    36.6    200.6    179.5    186.1 
Loss for the period   -1.1    -6.3    -      -      -      -   
Additional dividends proposed   -      -      1.9    10.3    22.2    18.8 
Other comprehensive income (loss)   0.0    0.2    (1.1)   (6.1)   (2.8)   (0.2)
Total shareholders’ equity   306.8    1,679.9    326.8    1,789.8    1,057.2    1,170.5 
Total liabilities and shareholders’ equity   453.6    2,484.1    468.2    2,563.9    1,647.7    1,564.0 
                               

 

(1)For convenience purposes only, amounts in reais for the six months ended June 30, 2020 and the year ended December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.4760 to U.S.$1.00, the commercial selling rate for U.S. dollars as of June 30, 2020 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. See “Exchange Rates” for further information about recent fluctuations in exchange rates.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Comparative per Share Market Data

 

The following table presents the closing price per each StoneCo Class A Common Share on the Nasdaq and per each Linx ADS on the NYSE, respectively, on (a) August 10, 2020, the last trading day prior to the date of public announcement of StoneCo and Linx of the execution of the Original Association Agreement and (b)             , 2020, the last practicable trading day prior to the mailing of this prospectus.

 

Date  StoneCo Class A Common Share Closing Price (Nasdaq)  Linx Shares Closing Price (B3)  Linx Shares Closing Price (B3)  Linx ADS Closing
Price (NYSE)
  Implied Per Share Value of Consideration
   In U.S.$  In reais  In U.S.$(1)  In U.S.$  In U.S.$
 August 10, 2020   47.18   26.16    4.85  4.64   6.23 
 August 10, 2020                      
                        

 

 

  

(1)Solely for the convenience of the reader, we have translated certain amounts included in this prospectus from reais into U.S. dollars using the exchange rate as reported by the Brazilian Central Bank. As of August 10, 2020, the exchange rate as reported by the Brazilian Central Bank for reais into U.S. dollars was R$5.3933 per U.S.$1.00. 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 any other rate. See “Exchange Rates.”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Comparative Historical and Unaudited Pro Forma per Share Data

 

The following tables include historical and unaudited pro forma per share data.

 

StoneCo Per Share Data

 

   As of and for the Six Months Ended June 30,  As of and for the Fiscal Year Ended December 31,
   2020  2019  2018  2017  2016
   (in reais)
Book value per share    22.99    21.53    18.38    2.09    2.58 
Basic earnings per share    1.03    2.90    1.30    (0.49)   (0.61)
Diluted earnings per share    1.01    2.85    1.29    (0.49)   (0.61)
Cash dividends per share    -      -      -      -      -   

 

 

Linx Per Share Data

 

   As of and for the Six Months Ended June 30,  As of and for the Fiscal Year Ended December 31,
   2020  2019  2018  2017  2016
   (in reais)
Book value per share   8.87    9.45    6.36    7.05    6.96 
Basic earnings per share   (0.0351)   0.2281    0.4358    0.5155    0.4590 
Diluted earnings per share   (0.0343)   0.2228    0.4301    0.5111    0.4573 
Dividends declared per share   -      0.0603    0.2519    0.2437    0.2173 

 

 

Pro Forma Per Share Data

 

 

As of and for the Six Months Ended June
30,

 

As of and for the Fiscal Year Ended December 31,

 

2020

 

2019

  (in U.S. dollars)(3)
Book value per share(1) 4.48   4.21
Basic earnings per share(2) 0.18   0.55
Diluted earnings per share(2) 0.18   0.54
Dividends declared per share -   0.0110

 

 

 

(1) Pro forma book value per share assumes that the Transaction was completed on June 30, 2020. Pro forma book value per share is calculated by dividing total pro forma equity attributable to the owners after the Transaction of Linx by the number of pro forma shares outstanding as of June 30, 2020.

 

(2) Pro forma basic and diluted earnings per share and assume that the Transaction was consummated on January 1, 2019.

 

(3) For convenience purposes only, amounts in reais for the six months ended June 30, 2020 and the year ended December 31, 2019 have been translated to U.S. dollars using an exchange rate of R$5.4760 to U.S.$1.00, the commercial selling rate for U.S. dollars as of June 30, 2020 as reported by the Brazilian Central Bank. These translations should not be considered representations that any such amounts have been, could have been or could be converted at that or any other exchange rate. See "Exchange Rates" for further information about recent fluctuations in exchange rates.

 

 

  

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Risk Factors

 

By voting in favor of the Transaction, Linx shareholders will be choosing to invest in StoneCo Class A Common Shares. Investing in StoneCo Class A Common Shares involves risks, some of which are related to the Transaction. In considering whether to vote for the Transaction, you should carefully consider the risks described below, as well as the other information included in or incorporated by reference into this prospectus, including the matters addressed in the section of this prospectus entitled “Forward-Looking Statements,” the risk factors described in Item 3D of StoneCo’s 2019 Form 20-F, as such risks may be updated or supplemented in StoneCo’s subsequently filed current reports on Form 6-K, and the risk factors described in Item 3D of Linx’s 2019 Form 20-F, as such risks may be updated or supplemented in Linx’s subsequently filed current reports on Form 6-K. The business of the combined company, as well as the respective businesses of StoneCo and Linx, as well as their respective financial condition or results of operations, could be materially adversely affected by any of these risks. In general, investing in the securities of issuers whose operations are located in emerging market countries such as Brazil involves a higher degree of risk than investing in the securities of U.S. companies and companies located in other countries with more developed capital markets.

 

If any of the risks discussed in or incorporated by reference in this prospectus actually occur, alone or together with additional risks and uncertainties that we are not currently aware of or do not currently deem material, our business, financial condition, results of operations and prospects may be seriously harmed. If this were to occur, the value of our StoneCo Class A Common Shares may decline and you may lose all or part of your investment. For information on where you can find the documents that StoneCo and Linx have filed with the SEC, respectively, and which are incorporated into this prospectus by reference, please see the sections of this prospectus entitled “Incorporation of Certain Documents by Reference” and “Where You Can Find More Information.”

 

Risks Relating to the Transaction

 

If we are unable to complete the Transaction, in a timely manner or at all, our business and our stock price may be adversely affected.

 

Our and Linx’s obligations to consummate the Transaction are subject to the satisfaction or waiver of the following customary conditions, including, among others: (i) obtaining the approval of the Linx shareholders, (ii) obtaining the approval of the CADE, (iii) the absence of any injunction or order prohibiting or enjoining the consummation of the Transaction, and (iv) our registration statement on Form F-4 to effect the registration under the Securities Act of the StoneCo Class A Common Shares to be issued to Linx shareholders shall have become effective, no stop order suspending the effectiveness of the Form F-4 shall have been issued, and no proceedings for that purpose shall have been initiated or be threatened, by the SEC. For more information, see the section of this prospectus entitled “The Transaction Documents—The Association Agreement—Conditions to the Transaction.” As many of these conditions are outside of our control, we cannot assure you if the conditions to the completion of the Transaction will be satisfied in a timely manner or whether they will be satisfied at all which may affect when and whether the Transaction will occur. In addition, there can be no assurance that prior to the Closing of the Transaction another party does not bring a competing bid for Linx and such bid is accepted by the shareholders of Linx. Moreover, if Linx breaches the Association Agreement, we will not have specific enforcement or other remedies allowing us to force Closing, and our only remedy would be to receive the Fine. If the Transaction is not completed, our share price could fall to the extent that our current price reflects an assumption that we will complete the Transaction. Furthermore, if the Transaction is not completed and the Association Agreement is terminated, we may suffer other consequences that could adversely affect our business, results of operations and share price, including the following:

 

    we have incurred and will continue to incur costs relating to the Transaction (including significant legal and financial advisory fees) and many of these costs are payable by us whether or not the Transaction is completed;

 

    matters relating to the Transaction (including integration planning) may require substantial commitments of time and resources by our management team, which could otherwise have been devoted to our historical core businesses or other opportunities that may have been beneficial to us;

 

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    we may be subject to legal proceedings related to the Transaction or the failure to complete the Transaction;

 

    the failure to consummate the Transaction may result in negative publicity and a negative impression of us in the investment community; and

 

    any disruptions to our business resulting from the announcement and pendency of the Transaction, including any adverse changes in our relationships with our customers, suppliers and employees, may continue or intensify in the event the Transaction is not consummated.

 

Uncertainty about the Transaction may adversely affect our relationships with customers and employees, which could negatively affect our business, whether or not the Transaction is completed.

 

The announcement of the Transaction on August 11, 2020, whether or not completed, may cause uncertainties in our relationships with our clients which could impair our ability to or expand our historical growth. Furthermore, uncertainties about the Transaction may cause our current and prospective employees to experience uncertainty about their future with us. These uncertainties may impair our ability to retain, recruit or motivate key employees which could affect our business.

 

The regulatory approval required in connection with the Transaction may not be obtained or may contain materially burdensome conditions.

 

Completion of the Transaction is conditioned upon obtaining regulatory approval by the CADE, and we cannot provide assurance that this approval will be obtained. If any conditions or changes to the proposed structure of the Transaction are required to obtain this regulatory approval, they may have the effect of jeopardizing or delaying completion of the Transaction or reducing the anticipated benefits of the Transaction. If we agree to any material conditions in order to obtain approval by the CADE, the business and results of operations of the combined company may be adversely affected. For more information, see the section of this prospectus entitled “The Transaction Documents—The Association Agreement.”

 

The Association Agreement subjects STNE and Linx to restrictions on their respective business activities prior to completion of the Transaction.

 

The Association Agreement subjects STNE and Linx to restrictions on their respective business activities and obligates each of Linx and STNE to conduct its operations in the ordinary course of business and/or in the best interest of its business in view of the market circumstances. Linx and STNE agree to refrain from committing acts that may materially affect their businesses or operations. Linx is additionally subject to an enumerated list of further restrictions, as set forth in greater detail in “The Transaction Documents—The Association Agreement.” These restrictions could prevent STNE and Linx from pursuing attractive business opportunities that arise prior to the completion of the Transaction and are outside the ordinary course of business, or otherwise have an adverse effect on StoneCo and Linx results of operations, cash flows and financial position.

 

Third parties may terminate or alter existing contracts or relationships with Linx or StoneCo as a result of the announcement, pendency or completion of the Transaction.

 

Each of StoneCo and Linx has contracts with customers, employees, suppliers, vendors, landlords, lenders, and other business partners, and these contracts may require StoneCo or Linx, as applicable, to obtain consent from these other parties in connection with the Transaction. If these consents cannot be obtained, the counterparties to these contracts may seek to terminate or otherwise materially adversely alter the terms of such contracts with either or both parties following the Transaction, which in turn may result in StoneCo or Linx suffering a loss of potential future revenue, incurring contractual liabilities or losing rights that are material to their respective businesses. Further, parties with which StoneCo or Linx have business and operational relationships may experience uncertainty as to the future of such relationships and may delay or defer certain business decisions, seek alternative relationships with third parties or seek to alter their present business relationships with StoneCo or Linx, as applicable. Parties with whom StoneCo or Linx otherwise may have sought to establish business relationships may seek alternative relationships with third parties.

 

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In addition, current and prospective employees may experience uncertainty about their roles following the Transactions and such uncertainty may have an effect on the corporate culture of StoneCo or Linx, respectively. There can be no assurance StoneCo or Linx will be able to attract and retain key talent, including senior leaders, to the same extent that each of StoneCo or Linx have previously been able to attract and retain employees. Any loss or distraction of StoneCo’s or Linx’s customers, employees, suppliers, vendors, landlords, lenders and other business partners, could have a material adverse effect on the business, financial condition, operating results and cash flows of StoneCo and Linx and could limit StoneCo’s and Linx’s ability to achieve the anticipated benefits of the Transaction. The adverse effect of such disruptions could also be exacerbated by a delay in the completion of the Transaction or the termination of the Association Agreement.

 

Your ownership percentage in StoneCo will be less than the ownership percentage you currently hold in Linx.

 

Your ownership percentage in StoneCo following the Transaction will be less than your existing ownership percentage in Linx as a result of dilution attributable to the relative equity values of the companies involved in the Transaction. Based on the exchange ratios, adjustments and limitations set forth in the Association Agreement, it is anticipated that, immediately following completion of the Transaction, former holders of Linx Common Shares will own approximately 0.7% of StoneCo on a fully diluted basis.

 

The Association Agreement contains provisions that restrict Linx’s ability to pursue alternatives to the Transaction.

 

As more fully described in this prospectus and as set forth in the Association Agreement, and subject to certain exceptions, Linx has agreed to ensure exclusivity to negotiate the Transaction with STNE and has agreed not to: request, seek or initiate any proposals from third parties in connection with any similar or competing Transaction. For more information on the provisions in the Association Agreement relating to non-solicitation of Competing Transactions, see the section of this prospectus entitled “The Transaction Documents—The Association Agreement—Exclusivity.” These provisions could discourage a third party that may have an interest in acquiring all or a significant part of either company from considering or proposing such an acquisition, even if such third party were prepared to enter into a transaction that would be more favorable to the companies and their respective shareholders than the Transaction.

 

Some of the conditions to the Transaction and termination rights may be waived by StoneCo or Linx without resoliciting Linx shareholder approval of the proposals approved by them.

 

Some of the conditions and termination rights set forth in the Association Agreement may be waived by StoneCo or Linx, subject to certain limitations. If any conditions or termination rights are waived, StoneCo will evaluate whether amendment of this prospectus would be warranted and Linx will evaluate whether new resolutions by its shareholders are warranted. Subject to applicable law, if Linx determines that new resolutions of Linx’s shareholders are not warranted, the parties will have the discretion to complete the Transaction without seeking further Linx shareholder approval.

 

StoneCo and Linx may have difficulty attracting, motivating and retaining executives and other key employees due to uncertainty associated with the Transaction.

 

StoneCo’s success after completion of the Transaction will depend in part upon the ability of StoneCo to retain key employees of StoneCo and Linx. Competition for qualified personnel can be intense. Current and prospective employees of StoneCo or Linx may experience uncertainty about the effect of the Transaction, which may impair StoneCo’s and Linx’s ability to attract, retain and motivate key personnel prior to and following the Transaction. Employee retention may be particularly challenging during the pendency of the Transaction, as employees of StoneCo and Linx may experience uncertainty about their future roles with the combined company.

 

In addition, if key employees of StoneCo or Linx depart, the integration of the companies may be more difficult and the combined company’s business following the Transaction may be harmed. Furthermore, the combined company may have to incur significant costs in identifying, hiring, training and retaining replacements for departing employees and may lose significant expertise and talent relating to the businesses of StoneCo or Linx, and the combined company’s ability to realize the anticipated benefits of the Transaction may thus be adversely affected. Furthermore, there could be disruptions to or distractions for the workforce and management associated with activities of labor unions or works councils or integrating employees into the combined company. Accordingly, no assurance can be given that StoneCo will be able to attract or retain key employees of StoneCo and Linx to the same extent that those companies have been able to attract or retain their own employees in the past.

 

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The Transaction is subject to certain legal proceedings and may be subject to future legal proceedings, which could delay the Transaction and prevent the Transaction from being completed.

 

On August 17, 2020, a collective action lawsuit (ação civil pública) was filed by the Brazilian Institute of Corporate Activism and Governance - IBRASG against Linx and STNE, alleging that the Original Non-Compete Agreements (as defined herein) and the Original Executive Engagement Agreement (as defined herein) executed by the Linx Founding Shareholders were a form of control premium. The plaintiff has asked the court to, among other things, suspend the Linx Special Meeting and award other Linx shareholders tag-along rights to those of the Linx Founding Shareholders. StoneCo believes that the claims asserted in this suit are without merit and intends to vigorously defend the Transaction against them. StoneCo cannot predict the outcome of or estimate the possible loss or range of loss from this matter. For a more detailed description of the litigation in connection with the Transaction, see the section entitled “The Transaction—Litigation Related to the Transaction”.

 

StoneCo and Linx may in the future be party to legal proceedings and claims related to the Transaction in addition to the claims described above. The current claims and any future legal challenges to the Transaction could result in an injunction, preventing or delaying the completion of the Transaction. The outcome of the current claims or any future lawsuits related to the Transaction are uncertain and such legal proceedings could prevent or delay the closing and/or result in substantial costs to StoneCo and/or Linx. Any such actions may create uncertainty relating to the Transaction and may result in substantial costs and divert management time and resources. Further, the defense or settlement of the current claims or any future lawsuits or claims, if unresolved at Closing, may adversely affect the combined company’s business, financial condition, results of operations and cash flows.

 

Linx’s executive officers and directors have interests in the Transaction that may be different from the interests of Linx’s shareholders generally.

 

When considering the recommendation of Linx’s board of directors that Linx’s shareholders adopt the Association Agreement, Linx shareholders should be aware that directors and executive officers of Linx have certain interests in the Transaction that may be different from or in addition to the interests of Linx shareholders generally. The material interests of Linx directors and executive officers that shareholders should be aware of are as follows:

  

·On August 11, 2020, STNE and StoneCo entered into non-compete agreements (the “Original Non-Compete Agreements”) with each of Alon Dayan, Nércio José Monteiro Fernandes and Alberto Menache (each a “Linx Founding Shareholder”). The parties amended and restated each of the Original Non-Compete Agreements on September 1, 2020 to revise certain terms therein. The Non-Compete Agreements provide that STNE will pay each Linx Founding Shareholder a number of StoneCo Class A Common Shares in exchange for such Linx Founding Shareholder’s fulfillment of certain non-compete and non-solicitation obligations.

 

·On August 11, 2020, STNE and Alberto Menache entered into the Executive Engagement Proposal (the “Original Executive Engagement Agreement”), pursuant to which Alberto Menache agreed to accept the position of Chairman of the Software Division of one or more companies of Stone Group. The parties amended and restated the Original Executive Engagement Agreement on September 1, 2020 to revise certain terms therein, including Alberto Menache’s engagement as Senior Advisor to Stone Group following the Transaction (the “Executive Engagement Agreement”). Alberto Menache will receive during the term of his engagement and in return for his services to STNE, certain remuneration and benefits set forth in the Executive Engagement Agreement.

  

Linx’s board of directors was aware of the potentially differing interests of Linx directors and executive officers and considered them, among other matters, in reaching its decision to approve the Association Agreement and approve the submission of the Transaction Proposal to the Linx shareholders. The independent members of the board of directors of Linx (the "Linx Independent Board Members") also considered these facts in reaching their decision to approve the Association Agreement at a meeting of the Linx board of directors on September 1, 2020. The Linx Independent Board Members do not have any interests in the Transaction.

 

These interests are described in more detail and quantified under the section of this prospectus entitled “The Transaction Documents—Non-Compete Agreements” and “—Executive Engagement Proposal.” The Non-Compete Agreement and the Executive Engagement Agreement are filed as exhibits to the registration statement of which this prospectus is a part as Exhibits 10.2, 10.3, 10.4 and 10.5, respectively.

 

The Transaction may result in significant charges or other liabilities that could adversely affect the financial results of the combined company.

 

The financial results of the combined company, following our acquisition of Linx, may be adversely affected by cash expenses and non-cash accounting charges incurred in connection with our integration of the business and operations of Linx. Furthermore, as a result of the Transaction we will record a significant amount of goodwill and other intangible assets on our consolidated financial statements, which could be subject to impairment based upon future adverse changes in our business or prospects including our inability to recognize the benefits anticipated by the Transaction.

 

In addition, upon the acquisition of Linx we will assume all of Linx’s liabilities, including unknown and contingent liabilities that Linx assumed in connection with their acquisitions, that we failed or were unable to identify. Furthermore, Linx has additional future obligations regarding certain of these acquisitions including outstanding earn-out obligations and put options requiring Linx to purchase additional shares in the target company, which we will assume upon consummation of the Transaction. If we are not able to completely assess the scope of these liabilities or if these liabilities are neither probable nor estimable at this time, our future financial results could be adversely affected by unanticipated reserves or charges, unexpected litigation or regulatory exposure, unfavorable accounting charges, unexpected increases in taxes due, a loss of anticipated tax benefits or other adverse effects on our business, operating results or financial condition. The price of the StoneCo Class A Common Shares if the Transaction is consummated could decline to the extent the combined company’s financial results are materially affected by any of these events.

 

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StoneCo and Linx will incur significant transaction-related costs in connection with the Transaction.

 

StoneCo and Linx have incurred and expect to incur a number of non-recurring direct and indirect costs associated with the Transaction. These costs and expenses include fees paid to financial, legal, accounting and other advisors, severance and other potential employment-related costs, including payments that may be made to certain StoneCo and Linx executives, filing fees, printing expenses and other related charges. Some of these costs are payable by StoneCo and Linx regardless of whether the Transaction is completed. There are also processes, policies, procedures, operations, technologies and systems that must be integrated in connection with the Transaction and the integration of the two companies’ businesses. While both StoneCo and Linx have assumed that a certain level of expenses would be incurred in connection with the Transaction and continue to assess the magnitude of these costs, there are many factors beyond their control that could affect the total amount or the timing of such expenses.

 

There may also be additional unanticipated significant costs in connection with the Transaction that StoneCo and Linx may not recover. These costs and expenses could reduce the realization of efficiencies and strategic benefits StoneCo and Linx expect StoneCo to achieve from the Transaction. Although StoneCo and Linx expect that these benefits will offset the transaction expenses and implementation costs over time, this net benefit may not be achieved in the near term or at all.

 

The value of the Consideration may be affected by fluctuations in the real/U.S. dollar exchange rate.

 

Volatility in the real/U.S. dollar exchange and depreciation of the Brazilian real against the U.S. dollar may decrease the value of the Consideration, either directly affecting the cash portion of the Consideration or indirectly affecting the price of StoneCo Class A Common Shares. As the exchange rate of the real and the U.S. dollar fluctuates, the implied value of the Consideration will fluctuate too. As a result, the implied value of the Consideration that you will receive upon the completion of the Transaction could be greater than, less than or the same as the implied value of the Consideration in U.S. dollars on the date of this prospectus or at the time of the Linx Special Meeting. See also “Risk Factors—Risks Relating to Brazil and the Other Countries in Which We Operate.”

 

Risks Relating to the Combined Company Following Completion of the Transaction

 

We may not realize the benefits anticipated from the Transaction, which could adversely affect our stock price.

 

The anticipated benefits from the Transaction are, necessarily, based on projections and assumptions about the combined businesses of our company and Linx, which may not materialize as expected or which may prove to be inaccurate. Our ability to achieve the anticipated benefits will depend on our ability to successfully and efficiently integrate the business and operations of Linx with our business and achieve the expected synergies. We may encounter significant challenges with successfully integrating and recognizing the anticipated benefits of the potential Transaction, including the following:

 

    potential disruption of, or reduced growth in, our historical core businesses, due to diversion of management attention and uncertainty with our current client relationships;

 

    challenges arising from the expansion of our product offerings into adjacencies with which we have limited experience, including enterprise management software;

 

    challenges arising from the expansion into those Linx regions where we do not currently operate or have significant operations;

 

    coordinating and integrating research and development teams across technologies and products to enhance product development while reducing costs;

 

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    consolidating and integrating corporate, information technology, finance and administrative infrastructures, and integrating and harmonizing business systems;

 

    coordinating sales and marketing efforts to effectively position our capabilities and the direction of product development;

 

    difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from combining Linx’s business with our business;

 

    limitations prior to the completion of the Transaction on the ability of management of our company and of Linx to conduct planning regarding the integration of the two companies;

 

    the increased scale and complexity of our operations resulting from the Transaction;

 

    retaining key employees, suppliers and other partners of our company and Linx;

 

    retaining and efficiently managing Linx’s customer base;

 

    obligations that we will have to counterparties of Linx that arise as a result of the change in control of Linx;

 

    difficulties in anticipating and responding to actions that may be taken by competitors in response to the Transaction; and

 

    the assumption of and exposure to unknown or contingent liabilities of Linx.

 

In addition, our anticipated benefits of the Transaction with Linx contemplate certain synergies. Consequently, even if we are able to successfully integrate the operations of Linx with ours, we may not realize the full benefits of the Transaction if we are unable to identify and implement the anticipated synergies or if the actions taken to implement such synergies have unintended consequences on our other business operations.

 

If the Transaction is consummated, the inclusion of Linx’s business as a consolidated subsidiary of ours will result in certain incremental risks to us, which risks are expected to be material and could have a material adverse effect on our future results of operations and financial condition. The addition of Linx’s business may also exacerbate existing risks to our business.

 

If the Transaction is consummated, Linx will operate its business as a consolidated subsidiary of ours. We have not historically engaged in a business similar to Linx and Linx’s business and structure will pose incremental risks to us, many of which may be material. These risks include, but are not limited to:

 

    business operational risks, including macroeconomic changes, and the impact of such changes on the market for enterprise management software;

 

    Linx’s substantial dependence on revenue generated from services related to its integrated enterprise management software, including monthly subscription fees;

 

    risks related to the competitive nature of the software industry, which is characterized by changing technology, changing client and end-consumer needs, evolving industry standards and frequent introductions of new products and services;

 

    risks related to Linx’s historical growth strategy, which has included acquisitions, and in particular, Linx’s inability to integrate an acquired business or technology as successfully as expected or to accurately identify and assess the magnitude of the liabilities assumed by Linx;

 

    risks related to system failures, the non-authorized or incorrect use of third-party data used by and/or made available to Linx’s systems; and

 

    risks associated with Linx’s failure to adequately protect personal data.

 

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If the Transaction is consummated, each of these risks could have material adverse effect on our results of operations and financial condition.

 

In addition, the consummation of the Transaction may heighten the potential adverse effects on our business, operating results, cash flows or financial condition described in the risk factors contained in the StoneCo 2019 20-F and incorporated by reference herein, including, but not limited to:

 

    risks related to the novel coronavirus (COVID-19) pandemic and its impact on our business, as well as to other natural and man-made disasters and catastrophes;

 

    risks related to unauthorized disclosure, destruction or modification of data, through cybersecurity breaches, computer viruses or otherwise;

 

    risks related to our ability to manage growth effectively; and

 

    risks related to changes in general, economic, market and political conditions, particularly in Brazil.

 

Certain of Linx’s outstanding indebtedness requires lender consents in order to complete the Transaction. If such consents are not obtained, this indebtedness could be accelerated, and we may not be able to refinance such indebtedness on favorable terms or at all following the Transaction.

 

The terms of certain of Linx’s indebtedness include covenants and/or events of default that will be breached or triggered (as applicable) upon a change of control of Linx, unless we obtain prior creditor consent. In particular, certain credit agreements entered into by and between Linx’s affiliate Linx Sistemas e Consultoria Ltda. (“Linx Sistemas”) as debtor, Banco Nacional de Desenvolvimento Economico e Social (“BNDES”) as creditor, and Linx as guarantor provide that prior consent from BNDES must be obtained for certain corporate reorganizations, including but not limited to a merger of shares, involving either Linx or Linx Sistemas. As of the date of the Form F-4, Linx has informed BNDES about the Transaction and is seeking to obtain the required consents. The total aggregate amount outstanding under such credit agreements as of June 30, 2020 was R$201,640,000.

 

If Linx does not obtain the requisite consents from holders of such indebtedness to the transfer of control of Linx to StoneCo as a result of the completion of the Transaction, a significant portion of Linx’s indebtedness could be accelerated by the holders of such debt upon completion of the Transaction. The resulting acceleration of Linx’s indebtedness could adversely affect StoneCo’s and Linx’s financial condition.

 

As a condition to Closing of the Transaction, Linx must obtain such consent from BNDES and certain other material consents. For more information on the conditions precedent that must be satisfied or waived for the Transaction to occur, see the section of this prospectus entitled “The Transaction Documents—The Association Agreement—Conditions to the Transaction.”

 

Risks Related to Our Business and Industries in Which We Operate

 

You should read and consider the risk factors specific to our business that will also affect the combined company after the Transaction. These risks are described in Item 3D of the StoneCo 2019 Form 20-F, as such risks may be updated or supplemented in StoneCo’s subsequently filed current reports on Form 6-K, which are incorporated by reference into this prospectus. See the sections of this prospectus entitled “Incorporation of Certain Documents by Reference” and “Where You Can Find More Information”.

 

Actual or threatened epidemics, pandemics, outbreaks, or other public health crises, such as the COVID-19 pandemic, may have an adverse impact on our clients’ financial condition, particularly SMB merchants, consequently impacting our business.

 

Our business is focused on SMB merchants in Brazil that conduct commerce primarily through brick-and-mortar storefronts. Our business and the businesses of our clients could be materially and adversely affected by the risks (or the public perception of the risks) related to an epidemic, pandemic, outbreak, or other public health crisis, such as the recent outbreak of novel coronavirus (COVID-19). The global spread of the COVID-19 pandemic, which originated in late 2019 and was later declared a pandemic by the World Health Organization in March 2020, has negatively impacted the global economy, disrupted supply chains and created significant volatility in global financial markets. Reflecting this, the COVID-19 pandemic has caused the levels of equity and other financial markets to decline sharply and to become volatile in February, March and April 2020, and the market volatility resulting from the COVID-19 pandemic has already caused a number of planned public stock offerings and merger and acquisition transactions in Brazil to be postponed or cancelled.

 

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The risk (or public perception of the risk) of a pandemic, such as the COVID-19 pandemic, or media coverage of infectious diseases caused customers to avoid our clients storefronts, and with respect to our clients’ businesses generally, caused temporary disruptions in our clients’ businesses and they cause long-term description or closures. For instance, the COVID-19 pandemic has led to some of our clients’ employees being unable to work, including because of illness or travel or government restrictions in connection with pandemics or disease outbreaks. Additionally, the COVID-19 pandemic has resulted in the temporary or permanent closure of many of our clients’ stores or facilities, and in some cases, our clients’ businesses. These factors have adversely impacted our clients’ sales and severely disrupted their operations, leading to a decline in TPV and in the revenue we generate from our clients. Furthermore, if our clients’ businesses continue to be adversely affected, default rates for clients using our credit solutions will likely rise.

 

The ultimate extent of the impact of any epidemic, pandemic or other health crisis, such as the COVID-19 pandemic, on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic or other health crisis and actions taken to contain or prevent their further spread, among others. These and other potential impacts of an epidemic, pandemic or other health crisis, such as the COVID-19 pandemic, could have a material adverse effect on our business, financial condition and results of operations, and it may also have the effect of heightening many of the other risks described in this “Risk Factors” section.

 

Risks Relating to Brazil and the Other Countries in Which We Operate

 

You should read and consider the risk factors specific to our business’s operations in Brazil that will also affect the combined company after the Transaction. These risks are described in Item 3D of the StoneCo 2019 Form 20-F, as such risks may be updated or supplemented in StoneCo’s subsequently filed current reports on Form 6-K, which are incorporated by reference into this prospectus. See the sections of this prospectus entitled “Incorporation of Certain Documents by Reference” and “Where You Can Find More Information”.

 

Risks Relating to the StoneCo Class A Common Shares

 

You should read and consider the risk factors specific to the StoneCo Class A Common Shares that will also affect shareholders of the combined company after the Transaction. These risks are described in Item 3D of the StoneCo 2019 Form 20-F, as such risks may be updated or supplemented in StoneCo’s subsequently filed current reports on Form 6-K, which are incorporated by reference into this prospectus. See the sections of this prospectus entitled “Incorporation of Certain Documents by Reference” and “Where You Can Find More Information”.

 

StoneCo Class A Common Shares to be received by Linx shareholders as a result of the Transaction will have rights different from the Linx Shares they hold prior to the Transaction.

 

Upon completion of the Transaction, the rights of former Linx shareholders who become shareholders of StoneCo will be governed by the StoneCo Articles of Association and by the laws of the Cayman Islands. The rights associated with Linx Shares are different from the rights associated with StoneCo Class A Common Shares. Material differences between the rights of shareholders of Linx and the rights of shareholders of StoneCo include differences with respect to, among other things, dividends, redemptions, preemptive rights, shareholder voting rights, approval of mergers and business combinations, cumulative voting, nomination and appointment of directors, vacancies on the board of directors, committees of the board of directors, the fiscal counsel, the convening of annual meetings of shareholders and special shareholder meetings, notice provisions for meetings, the quorum for shareholder meetings, shareholder action by written consent, mandatory tender offer, shareholder information rights, rights of dissenting shareholders, the ability to amend governing documents and the indemnification of directors and officers. See the section of this prospectus entitled “Comparison of the Rights of Holders of StoneCo and Linx Shares.”

 

The trading of StoneCo Class A Common Shares after completion of the Transaction may cause the market price of StoneCo Class A Common Shares to fall.

 

The StoneCo Class A Common Shares are publicly traded on the Nasdaq, enabling former Linx shareholders to sell the StoneCo Class A Common Shares they receive in the Transaction. Such sales of StoneCo Class A Common Shares may take place promptly following the Transaction and could have the effect of decreasing the market price for StoneCo Class A Common Shares owned by former Linx shareholders below the market price of the Linx Shares owned by such Linx shareholders prior to completion of the Transaction.

 

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The market price of StoneCo Class A Common Shares after the Transaction may be affected by factors different from those that may currently affect the market price of Linx Shares.

 

Upon completion of the Transaction, subject to restrictions shareholders may have, and the adjustments set forth in the Association Agreement, holders of Linx Shares will become holders of StoneCo Class A Common Shares. StoneCo’s combined businesses following the Transaction will differ from those of StoneCo and Linx, respectively, prior to completion of the Transaction in important respects and, accordingly, after the Transaction, the market price of StoneCo Class A Common Shares may be affected by factors different from those currently affecting the market price of StoneCo Class A Common Shares and Linx Shares, separately.

 

Risks Relating to Tax Matters

 

The receipt of the Consideration pursuant to the Transaction will be a taxable transaction for U.S. federal income tax purposes.

 

The exchange of Linx Shares for the Consideration in the Transaction will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. Holder (as defined herein) will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between (i) the fair market value of any StoneCo Class A Common Shares received on the date of the exchange and/or the cash received with respect to the Linx Shares exchanged and (ii) the U.S. Holder’s adjusted tax basis in the Linx Shares. A U.S. Holder will have a tax basis in any StoneCo Class A Common Shares received equal to their fair market value on the date of the exchange, and the U.S. Holder’s holding period for such StoneCo Class A Common Shares will begin on the day after the date of the exchange. The tax consequences of the Transaction and of holding StoneCo Class A Common Shares are discussed in more detail below under “Material Tax Considerations—U.S. Federal Income Tax Consequences”.

 

There could be adverse tax consequences to Linx shareholders who hold StoneCo Class A Common Shares following the Transaction if we are a passive foreign investment company.

 

U.S. shareholders of passive foreign investment companies are subject to potentially adverse U.S. federal income tax consequences. In general, a non-U.S. corporation is a passive foreign investment company, or PFIC, for any taxable year in which (i) 75% or more of its gross income consists of passive income; or (ii) 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 purposes of the above calculations, a non-U.S. corporation that owns, directly or indirectly, at least 25% by value of the shares of another corporation is treated as if it held its proportionate share of the assets of the other corporation and received directly its proportionate share of the income of the other corporation. Based on the expected composition of our income and assets, including goodwill, we do not believe that we currently are a PFIC. However, our PFIC status is a factual determination that is made on an annual basis. Because our PFIC status for any taxable year will depend on the manner in which we operate our business, the composition of our income and assets and the value of our assets from time to time (including, following the Transaction, the income and assets of Linx), there can be no assurance that we will not be a PFIC for any taxable year. If we are a PFIC, U.S. shareholders would be subject to certain adverse U.S. federal income tax consequences as discussed under “Material Tax Considerations—U.S. Federal Income Tax Considerations.” In particular, although we consider ourselves to be actively engaged in an active business, it is not entirely clear how certain of our income will be treated for purposes of the PFIC rules. Certain of our income may be treated as passive income, unless such income is eligible for an exception for income derived in the active conduct of a financing business under Section 954(h) of the Internal Revenue Code of 1986, as amended (the “Active Financing Exception”), and related assets may be considered passive assets unless the Active Financing Exception applies. We believe that the Active Financing Exception, as interpreted by recently proposed Treasury regulations (the “Proposed Regulations”), should apply to treat such income and related assets as active, but such treatment is not certain and, in particular, it is not certain how the Active Financing Exception will apply to our assets and income following the Transaction. Moreover, while the Proposed Regulations permit taxpayers to rely on them, it is possible that the U.S. Department of the Treasury (“Treasury Department”) will not follow the approach of the Proposed Regulations when issuing final regulations, in which case the Active Financing Exception might not apply to our income and it is possible that we could be treated as a PFIC.

 

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Risks Related to Linx’s Business

 

You should read and consider the risk factors specific to Linx’s business that will also affect the combined company after the Transaction. These risks are described in Item 3D of the Linx 2019 Form 20-F, as such risks may be updated or supplemented in Linx’s subsequently filed current reports on Form 6-K, which are incorporated by reference into this prospectus. See the sections of this prospectus entitled “Incorporation of Certain Documents by Reference” and “Where You Can Find More Information”.

 

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The Linx Special Meeting

 

StoneCo is providing this prospectus to holders of Linx Shares in advance of the Linx Special Meeting that Linx has called for the purpose of approving the Transaction. This prospectus contains information that you need to know about the Transaction and the proposals to be voted on at the Linx Special Meeting, in order to be able to vote, or instruct your vote, as applicable, to be cast at the Linx Special Meeting.

 

Date, Time and Place of the Linx Special Meeting

 

The Linx Special Meeting to consider the Merger of Shares is scheduled to be held on              , 2020 at                 (São Paulo time) at Linx headquarters at Avenida Doutora Ruth Cardoso, 7221, 7th floor, São Paulo, São Paulo, CEP 05425-902, Brazil.

 

Purpose of the Linx Special Meeting

 

The Linx Special Meeting will consider and vote on:

 

·the waiver of any obligations of STNE to carry out the public tender offer for the acquisition of the Linx Shares, pursuant to Article 43 of the bylaws of Linx, as a result of the Transaction;

 

·the waiver of STNE’s adhesion to the Novo Mercado segment of the B3 in case of approval of the proposed Transaction;

 

·the ratification of the appointment of the specialized company hired to conduct the valuation of Linx;

 

·the approval of the Valuation Report prepared by the engaged appraiser;

 

·the approval of the Merger of Shares Protocol; and

 

·the approval of the Merger of Shares.

 

The mandatory tender offer (“MTO”) provided for in Article 43 of the bylaws of Linx, the waiver of which is part of the Transaction Proposal, provides that any shareholder or person that acquires or becomes the holder of an equity stake in Linx representing 25% or more of the Linx Shares is required to launch a tender offer to acquire all of the remaining Linx Shares in accordance with the provisions of the applicable regulations of the CVM, Novo Mercado Rules and Linx’s bylaws. The MTO is required to be made within 60 days from the date of the event on which title to the qualifying equity stake is acquired.

 

The approval of the Transaction Proposal (which includes the waiver of the MTO provision and the exemption for STNE to adhere to the Novo Mercado listing level of B3) is a condition for the Transaction provided for in the Merger of Shares Protocol.

 

On August 11, 2020, StoneCo, STNE and DLP entered into that certain Voting Commitment and Assumption of Obligations (the “Voting Agreement”) with Linx and the Linx Founding Shareholders, whereby the parties to the Voting Agreement undertook, as limited by the Brazilian Law No. 6.404/76, as amended (the “Brazilian Corporation Law”), obligations to implement the Transaction, including by binding their shares to vote in favor of the corporate resolutions necessary for the approval, closing and implementation of the Transaction. Linx and STNE acted as intervening parties in the Voting Agreement. The Voting Agreement also indicates that if, at the Linx Special Meeting regarding the Transaction, a sufficient approval quorum is reached for the approval of matters related to the Transaction, considering the favorable vote of other Linx shareholders, Linx Founding Shareholders are free to vote in favor or abstain from voting, according to their convenience, to the extent that, in this case, the calculation of the Linx Founding Shareholders’ votes does not affect the effective approval of the Transaction. In any event, the voting obligations of Linx Founding Shareholders established in the Voting Agreement will be subject to legal impediments and may not violate CVM and Novo Mercado Rules. The Linx Founding Shareholders party to the Voting Agreement held, as of the date thereof, 13.92% of the issued share capital of Linx. In order to approve the Transaction Proposal (as defined herein), holders of at least the majority of Linx Shares must vote in favor of the Transaction. For more information, see “The Transaction Documents—Voting Agreement”.

 

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Quorum for Installation

 

The Linx Special Meeting will be installed on first call if the requirement of attendance by 25% of the issued and outstanding Linx Common Shares are present, in person or by proxy.

 

If the attendance requirement is not met for the Linx Special Meeting on first call, the Linx Special Meeting will be reconvened at a date and time, at least eight calendar days after the date and time scheduled for the Linx Special Meeting on first call. The Linx Special Meeting will be installed on second call with any percentage of holders present at the meeting following second call, in person or by proxy.

 

Required Vote

 

At the Linx Special Meeting (i) the waiver of any obligations of STNE to carry out the public tender offer for the acquisition of the Linx Shares, pursuant to Article 43 of the bylaws of Linx, requires the affirmative vote of holders representing a majority of Linx Common Shares at the relevant meeting; (ii) the waiver of the adhesion of STNE to the Novo Mercado listing level of B3 requires the affirmative vote of holders representing a majority of the “free float” of Linx Common Shares (i.e., the total number of issued and outstanding Linx Common Shares excluding Linx Common Shares held by controlling shareholders, its related persons, directors and officers and treasury stock, as defined in the Novo Mercado Rules) attending the meeting, under applicable Novo Mercado Rules; and (iii) the ratification of the appointment of the specialized company hired to conduct the valuation of Linx, the approval of the Valuation Report prepared by the engaged appraiser, the approval of the Merger of Shares Protocol; and the approval of the Merger of Shares requires the affirmative vote of holders representing a majority of Linx Common Shares. The approval by the holders of Linx Shares of the Transaction Proposal is a condition to the completion of the Merger of Shares. If the Transaction Proposal is not approved, the Merger of Shares will not be completed.

 

Shareholders Entitled to Attend the Linx Special Meeting and to Vote

 

Holders of Linx Common Shares on the date of the Linx Special Meeting are entitled to attend the Linx Special Meeting and vote on the items set forth on the agenda, as long as they have timely provided the appropriate documentation required by Linx at the time of the call notice to the Linx Special Meeting. There is no record date for purposes of determining direct holders of Linx Common Shares entitled to attend the Linx Special Meeting or to vote. Holders of Linx Shares wishing to authorize a proxy to vote their Linx Shares may do so by mailing the proxy instruments to Linx’s head office, which instruments must be received by Linx at least two business days in advance of the Linx extraordinary general shareholders meeting. Linx does not accept electronic proxies.

 

To be valid, the proxy must be appointed less than one year before the Linx Special Meeting. For legal entities that hold Linx Shares, any proxy duly constituted in accordance with applicable law and such legal entities’ corporate documents may represent the shareholder at the Linx Special Meeting. However, an investment fund must be represented by its investment fund officer. For individuals who hold Linx Common Shares, the proxy must be either a shareholder, an executive officer or board member of Linx, a lawyer or a financial institution.

 

Pursuant to provisions of the Deposit Agreement, dated as of June 25, 2019 (the “Linx Deposit Agreement”), among Linx, The Bank of New York Mellon, as the depositary (the “Linx Depositary”), and the owners and holders from time to time of ADSs issued thereunder, holders of Linx ADSs are not entitled to attend or vote at the Linx Special Meeting, although holders of Linx ADSs are entitled to instruct the Linx Depositary how to vote the amount of underlying Linx Common Shares in the manner described below. If you hold Linx ADSs and wish to attend and vote at the Linx Special Meeting, you must first surrender your Linx ADSs and withdraw the Linx Common Shares represented thereby in accordance with the terms of the deposit agreement governing the Linx ADSs, and then you may attend and vote at the Linx Special Meeting.

 

 

 

 

 

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You will need to take these steps in sufficient time to allow your ownership of the Linx Common Shares to be reflected in the shareholder list that Linx will use to determine holders of Linx Common Shares that are permitted to attend the Linx Special Meeting.

 

Solicitation of Proxies

 

Linx intends to use distance vote ballots (boletim de voto a distância) to solicit proxies from its shareholders so that they may exercise their voting rights at the Linx Special Meeting. In addition, holders of Linx Common Shares can still be represented by proxy in accordance with the Brazilian Corporation Law.

 

Manner of Voting

 

Holders of Linx Common Shares

 

Under Brazilian law, in order to vote at the Linx Special Meeting, a holder of Linx Common Shares must either vote at the Linx Special Meeting or submit its vote through a distance-voting ballot.

 

Voting In Person

 

A holder of Linx Common Shares electing to vote in person must attend the Linx Special Meeting in person and vote its shares or appoint another shareholder, an executive officer of Linx, a financial institution or an attorney as the holder’s attorney in fact and that appointed person must attend the Linx Special Meeting in person and vote the holder’s Linx Common Shares.

 

Holders of Linx Common Shares wishing to attend the Linx Special Meeting that hold shares through the Fungible Custody of Registered Shares of the Stock Exchange (Custódia Fungível de Ações Nominativas das Bolsas de Valores) must provide a statement containing their corresponding equity interest in Linx dated within 48 hours of the Linx Special Meeting.

 

Under Brazilian law, the holder of Linx Common Shares may be required to show documents proving the holder’s identity to gain admittance to the Linx Special Meeting, provided the holder is entitled to attend the Linx Special Meeting. If the holder appoints an attorney-in-fact to vote on the holder’s behalf at the Linx Special Meeting that person will be required to show original or certified copies of the documents that grant him or her powers of representation. The person acting on the holder’s behalf must be appointed to that purpose for less than one year prior to the date of the Linx Special Meeting. The power of attorney must be deposited in properly notarized and consularized form at the headquarters of Linx no later than 48 hours before the occurrence of the Linx Special Meeting and may be revoked in accordance with Brazilian law. Holders of Linx Common Shares should confirm with Brazilian counsel that any power of attorney or revocation thereof delivered by them in connection with the Linx Special Meeting satisfies the requirements of Brazilian law, as Linx will not accept such forms or revocations if they do not comply with Brazilian law. Holders of Linx Common Shares that have given a power of attorney may revoke it by issuing an instrument of revocation and depositing it, in properly notarized and consularized form at the headquarters of Linx no later than 48 hours before the occurrence of the Linx Special Meeting.

 

Distance Voting

 

Holders of Linx Common Shares may exercise their voting rights at the Linx Special Meeting by using distance vote ballots (boletim de voto a distância), in which they convey voting instructions for the completion of the ballot of remote vote through the respective custodian agents, in case they provide said services.

 

The service of collection and transmission of instructions and completion of vote may be provided also by Banco Itaú, bookkeeping agent of the stocks issued by Linx, by means of an electronic platform. For such purpose, the Stockholder shall register on the website Itaú Securities Services Assembleia Digital (https://www.itau.com.br/securitiesservices/assembleiadigital/).

 

 

 

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Furthermore, holders of Linx Common Shares shall be allowed to exercise the voting rights by means of the distance vote ballots directly sending the identification documents to the Company (ri@linx.com.br) for the attention of the Investors Relations Board.

 

The distance vote ballots, accompanied by the respective documentation, shall be considered solely in case they are received by Linx, in order, within up to seven days before the date of the Linx Special Meeting. According to the provisions set forth in Article 21-U of the Instruction CVM number 481, Linx shall inform the holders of Linx Common Shares whether the documents received are sufficient so that the vote is considered valid, or the procedures and terms for possible rectification or resend, as necessary.

 

Holders of Linx ADSs

 

As soon as practicable after receipt of notice of the Linx Special Meeting, if requested in writing by Linx, the Linx Depositary will disseminate to all registered holders of Linx ADSs (“Linx ADS Owners”) a notice, the form of which notice will be in the sole discretion of the Linx Depositary, containing:

 

·the information included in the notice of meeting received by the Linx Depositary from Linx;

 

·a statement that the Linx ADS Owners as of the close of business on a specified record date will be entitled, subject to any applicable provision of Brazilian law and Linx’s estatutos, to instruct the Linx Depositary as to the exercise of the voting rights pertaining to the number of Linx Common Shares represented by their respective Linx ADSs;

 

·a statement as to the manner in which such instructions may be given, including an express indication that instructions may be deemed given in accordance with penultimate sentence of the next paragraph, if no instruction is received, to the Linx Depositary to give a discretionary proxy to a person designated by Linx; and

 

·the last date on which the Linx Depositary will accept instructions, or the Instruction Cutoff Date.

 

Upon the written request of a Linx ADS Owner on the record date specified by the Linx Depositary that is received on or before the Instruction Cutoff Date, the Linx Depositary will endeavor, insofar as practicable and permitted under the applicable laws and provisions of Linx’s estatutos, to vote or cause to be voted the number of Linx Common Shares represented by the Linx ADSs held by the Linx ADS Owner in accordance with the instructions set forth in that request. The Linx Depositary may not itself vote or attempt to exercise the right to vote that attaches to the Linx Common Shares underlying the Linx ADSs other than in accordance with instructions given by Linx ADS Owners and received by the Linx Depositary or as provided in the following sentence. If (1) Linx instructed the Linx Depositary to disseminate a notice of the Linx Special Meeting as described above and gives the Linx Depositary notice of the Linx Special Meeting, details concerning the matters to be voted upon and copies of materials to be made available to holders of Linx Common Shares in connection with the Linx Special Meeting not less than 30 days prior to the date of the Linx Special Meeting, (2) no instructions are received by the Linx Depositary from a Linx ADS Owner with respect to a matter and any number of Linx ADSs owned by that Linx ADS Owner on or before the Instruction Cutoff Date, and (3) the Linx Depositary has received from Linx, by the business day following the Instruction Cutoff Date, a written confirmation that, as of the Instruction Cutoff Date, (x) Linx wishes a proxy to be given under this sentence, (y) Linx reasonably does not know of any substantial opposition to the matter, and (z) the matter is not materially adverse to the interests of holders of Linx Common Shares, then, the Linx Depositary shall deem that Linx ADS Owner to have instructed the Linx Depositary to give a discretionary proxy to a person designated by Linx with respect to that matter and the number of Linx Common Shares represented by number of Linx ADSs and the Linx Depositary shall give a discretionary proxy to a person designated by Linx to vote that number of Linx Common Shares as to that matter. Under Brazilian law, the Linx Depositary may vote the Linx Common Shares represented by Linx ADSs in accordance with the instructions of the Linx ADS Owners even if those instructions differ among those Linx ADS Owners.

 

Ownership of a Linx ADS does not entitle the holder to attend the Linx Special Meeting. A Linx ADS Owner wishing to do so must surrender its Linx ADSs and obtain delivery of the underlying Linx Common Shares, registered in the name of that Linx ADS Owner, before the meeting. To do so, the holder you must (1) surrender to The Bank of New York Mellon, as Linx Depositary, at 240 Greenwich Street, New York, NY 10286, the Linx ADSs representing Linx Common Shares that the holder wishes to withdraw, (2) pay a fee to the Linx Depositary in the amount of up to U.S.$0.05 per Linx ADS for the cancellation of those Linx ADSs, and (3) pay any taxes or governmental charges payable in connection with the holder’s withdrawal of the Linx Common Shares from the Linx ADS program, among other fees. If a holder surrenders Linx ADSs and receives Linx Common Shares, the Linx Common Shares so received will be registered at the clearing and settlement chamber of the B3, and the holder will need to obtain your its foreign investor registration under Resolution No. 4,373 of the National Monetary Council, or Resolution 4,373. The holder will need to take these steps in sufficient time to allow its ownership of the Linx Common Shares to be reflected in the shareholder list that Linx will use to determine holders of Linx Common Shares that are permitted to attend the Linx Special Meeting.

 

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Withdrawal Rights

 

Under Article 137 of the Brazilian Corporation Law, the holders of Linx Common Shares that dissent from the vote in favor of the Merger of Shares have the right to withdraw the Linx Common Shares of which they were record holders at the close of trading on the date of the first publication of the call notice for the Linx Special Meeting, or on the date of communication of the material relevant object of the resolution, whichever occurs first, and request that Linx reimburse the value of those Linx Common Shares. You cannot exercise these withdrawal rights if you vote in favor of the Merger of Shares. The failure to vote on the Merger of Shares at the Linx Special Meeting by a shareholder who would otherwise be entitled to exercise withdrawal rights will not constitute a waiver of that shareholder’s withdrawal rights.

 

If you hold Linx ADSs, you are not entitled to withdrawal rights with respect to the Merger of Shares. If you hold Linx ADSs and wish to exercise the withdrawal rights with respect to the Linx Common Shares represented thereby, you must surrender your Linx ADSs a sufficient amount of time prior to the Linx Special Meeting held to approve the Merger of Shares to enable you to receive delivery of the Linx Common Shares represented thereby in accordance with the terms of the deposit agreement governing the Linx ADSs prior to the date of the Linx Special Meeting.

 

Under the Brazilian Corporation Law, a shareholder who exercises a withdrawal right generally is entitled to receive the net asset value of its Linx Common Shares, determined based on the book value of Linx’s assets and liabilities as of             . Based on this net asset value, the withdrawal value per Linx Common Share is R$              .

 

If you have withdrawal rights, your withdrawal rights will lapse 30 days after publication of the minutes of the Linx Special Meeting at which the Merger of Shares is approved. Once the 30-day period for the exercise of your withdrawal rights has expired, you will no longer have any right to compel Linx to redeem your Linx Common Shares. The minutes of the Linx Special Meeting, as well as a notice to the market issued pursuant to CVM Instruction No. 358 and filed with the CVM disclosing any material acts or facts concerning publicly traded companies registered with the CVM (a “Material Fact”) related to the approval of the Merger of Shares, will be published in the newspapers in which Linx customarily publishes its notices on the business day following the Linx Special Meeting. Such publication will constitute your sole notification regarding the commencement of the period to exercise your withdrawal rights. If you notify Linx that you wish to exercise your withdrawal rights, such request will be irrevocable.

 

To exercise its withdrawal rights, a shareholder holding shares in custody with Itaú Corretora de Valores S/A, the transfer agent for the shares of Linx, must appear, personally or through an attorney-in-fact, at any office of Itaú Corretora de Valores S/A, during the 30-day period for the exercise of its withdrawal rights, complete a form related to the exercise of the withdrawal rights, which is available in those offices, and surrender certified copies of the documents listed below:

  

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·Individuals: Individual Taxpayers’ Register, Identity Card and current evidence of address (issued within the previous two months).

 

·Legal Entity: National Corporate Taxpayers’ Register, bylaws/articles of association and corresponding amendments, as well as documents related to the partners/legal representatives (act of appointment, Individual Taxpayers’ Register, Identity Card and current evidence of address).

 

Shareholders represented by attorneys-in-fact must surrender the documents described above and the respective public power of attorney, which shall grant special powers to the attorney-in-fact authorizing him to exercise, on behalf of the grantor, the withdraw rights and request the reimbursement for the shares.

 

Shareholders holding shares through the Fungible Custody of Registered Shares of the Stock Exchange must exercise their withdrawal rights through their custody agents.

 

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The Transaction

 

The following is a description of the material aspects of the Transaction. This section does not purport to be complete and may not contain all of the information that is important to you. You should carefully read this entire prospectus and the documents incorporated by reference into this prospectus, including the full text of the Association Agreement, the Voting Agreement, the Non-Compete Agreements and the Executive Engagement Agreement, each of which is incorporated by reference or filed as an exhibit to the registration statement of which this prospectus is a part, for a more complete understanding of the Transaction. All descriptions in this summary and in this prospectus of the terms and conditions of the Transaction are qualified in their entirety by reference to the complete text of the Association Agreement, the Voting Agreement, the Non-Compete Agreements and the Executive Agreement. In addition, important business and financial information about each of StoneCo and Linx is included in or incorporated by reference into this prospectus and the exhibits to the registration statement of which this prospectus is a part. For a listing of the documents incorporated by reference into this prospectus, see the section of this prospectus entitled “Incorporation of Certain Documents by Reference.”

 

Overview

 

On August 11, 2020, Linx and STNE entered into the Association Agreement, outlining the Transaction, including a corporate reorganization as described herein. On September 1, 2020, the parties amended and restated the Original Association Agreement to revise certain terms therein, including increasing the cash portion of the Consideration and lowering the amount payable for a Fine (as defined herein). The Linx Founding Shareholders, StoneCo and DLP acted as intervening parties thereto. Upon the consummation of a series of transactions set forth in the Association Agreement, Linx will become a wholly owned subsidiary of STNE.

 

Pursuant to the terms and subject to the conditions set forth in the Association Agreement, each Linx Share issued and outstanding immediately prior to the consummation of the Transaction will be automatically contributed to STNE in exchange for one newly issued redeemable STNE Class A Preferred Share and one newly issued redeemable STNE Class B Preferred Share. Immediately thereafter, each STNE Class A Preferred Share will be redeemed for a cash payment of R$31.56 and each STNE Class B Preferred Share will be redeemed for 0.0126774 StoneCo Class A Common Share(the “Base Exchange Ratio”).

 

The Base Exchange Ratio takes into account the following assumptions: (i) that no declaration, payment of dividends or interest on equity by STNE or Linx will take place until Closing; (ii) that on September 1, 2020, except for the disclosure of the quarterly results and for the material facts related to the Transaction, there were no material facts pending disclosure to the market by Linx and/or StoneCo; (iii) that on September 1, 2020, there were 14,125,991 shares issued by Linx in treasury; (iv) that the effect of the exercise or acceleration of the total of all of the options and restricted stock plans would result in 3,775,648 additional shares to the share capital of Linx; and (v) that on September 1, 2020, Linx’s corporate capital was represented by 189,408,960 common book-entry shares, nominative and with no par value, including treasury-held shares.

 

As a result of the Transaction, the number of outstanding shares of STNE will be increased by the number of New STNE Shares. The New STNE Shares will have the rights and benefits attributed to them under the terms of the STNE bylaws. The New STNE Shares will not have the right to vote, will have priority in the capital reimbursement in case of liquidation, without a premium, and will be automatically redeemed at the Closing, without a special meeting being held for such purpose. After the Closing date, any fractional StoneCo Class A Common Shares issued by StoneCo will be grouped into whole numbers and sold on the open market managed by the Nasdaq. The net proceeds from the sale of the fractional shares will be distributed on a pro rata basis to the former Linx shareholders who held fractional StoneCo Class A Common Shares. No additional consideration in cash or in kind will be paid by StoneCo and/or STNE to Linx shareholders in connection with the Transaction. The consideration payable to holders of Linx Shares will be paid on the Closing date.

 

If the Transaction is completed, Linx will become a wholly owned subsidiary of STNE and Linx will no longer be an independent, publicly traded corporation incorporated under the laws of the Federative Republic of Brazil. Based on the exchange ratios, adjustments and limitations set forth in the Association Agreement, it is anticipated that, immediately following completion of the Transaction, former holders of Linx Common Shares will own approximately 0.7% of StoneCo on a fully diluted basis.

 

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Background to the Transaction

 

The StoneCo board of directors, together with StoneCo’s management and with the assistance of StoneCo’s legal, financial and other strategic advisors, has periodically reviewed and considered various strategic opportunities available to StoneCo and ways to enhance shareholder value and StoneCo’s performance and prospects. These reviews have included consideration of mergers, acquisitions and other business combinations.

 

As part of those strategic discussions, around November, 2018, StoneCo decided to approach the Linx Founding Shareholders regarding a potential business combination transaction with Linx that StoneCo believed would generate substantial synergies in the payments market, enhance completeness of service to customers, and generally increase the combined companies’ competitiveness in the global markets. In around early December, 2018, representatives of StoneCo initiated contact with representatives of the Linx Founding Shareholders to present a verbal, indicative, non-binding offer to merge Linx into StoneCo, or a subsidiary thereof, in exchange for a combination of cash and shares of StoneCo. The Linx Founding Shareholders and StoneCo agreed to execute a non-disclosure agreement, on December 4, 2018 (“NDA”), in order to pursue the potential transaction discussions. These discussions only considered possible high level financial terms of a transaction and the parties involved agreed that any discussion of non-financial terms would require the participation of counsel for the parties to determine the most effective structure for such a potential transaction. However, these discussions did not proceed beyond these preliminary stages and discussions were terminated.

 

At the end of May, 2020, StoneCo resumed internal discussion and review regarding a potential transaction with Linx. Representatives of StoneCo made preliminary contact with representatives of Linx at the end of June, 2020 to explore the possibility of opening discussions about a possible business combination transaction. On July 14, 2020, the parties agreed to an extension of the term of the NDA. During the course of July, 2020, StoneCo engaged in a series of further internal discussions, including review and discussion with its financial and legal advisors, in order to consider and explore the parameters of a possible proposal to Linx, the results of which were presented to and discussed with the board of directors of StoneCo around August 1, 2020.

 

On August 3, 2020, representatives of StoneCo submitted a written proposal with respect to a potential merger transaction whereby Linx shareholders would be entitled to receive aggregate consideration in the amount of R$33.00 per Linx Share at Closing, comprising 65% in shares of StoneCo and 35% in cash, assuming 176.8 million shares of Linx on a fully diluted basis, net of treasury shares.

 

Between August 3, 2020 and August 5, 2020, representatives of StoneCo and Linx participated in discussions regarding the financial terms of the proposal from StoneCo.

 

Following initial feedback from Linx that the overall consideration did not provide sufficient value to Linx shareholders, on August 6, 2020, StoneCo provided Linx with a revised proposal at an increased aggregate price per Linx Share of R$34.00 comprising 50% in shares of StoneCo and 50% in cash, assuming 176.8 million shares of Linx on a fully diluted basis, net of treasury shares.

 

Following those discussions, on August 7, 2020, and in response to Linx’s request to increase the cash component of the offer, representatives of StoneCo made a further oral offer to representatives of Linx, to change the proportions of the consideration to 90% in cash and 10% in shares of StoneCo.

 

On August 7, 2020, legal representatives of StoneCo delivered initial drafts of transaction documents to legal representatives of Linx and the Linx Founding Shareholders, proposing that the transaction be implemented by Linx merging with and into a subsidiary of StoneCo.

 

During the period from August 7 through August 11, 2020, representatives of StoneCo and representatives of Linx and the Linx Founding Shareholders held a number of further discussions and engaged in negotiations regarding the potential transaction structure and other terms and conditions of the Transaction and definitive agreements. These discussions and negotiations focused on the other key financial and non-financial terms of the transaction such as the scope and terms of the exclusivity provisions, the amount and triggers of any break fees to be paid by Linx or StoneCo, the closing conditions with respect to the Transaction, including obligations of StoneCo to obtain the applicable antitrust approval, obligations of the Linx Founding Shareholders to support and vote in favor of the Transaction, and the terms and conditions relating to employment, retention and non-compete arrangements with members of the Linx management team.

 

On August 9, 2020, the StoneCo board of directors was provided with an update on the material terms and conditions of the Transaction and, by means of written resolution, the StoneCo board of directors unanimously approved the entry into the Association Agreement and the Transaction and delegated authority to StoneCo management to conclude the definitive terms of the Transaction and the related documentation.

 

Following further discussions between the parties and their respective representatives, on August 10, 2020, representatives of StoneCo and Linx reached agreement on an aggregate price per Linx share of R$34.25, assuming 176.8 million shares of Linx on a fully diluted basis, net of treasury shares (which was subsequently adjusted to R$33.76 to reflect the actual number of shares of Linx on a fully diluted basis of 179.0 million shares, net of treasury shares), representing a premium of 28.3% over Linx’s 30-day VWAP.

 

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On August 11, 2020, prior to the execution of the Transaction documents, news of the potential Transaction first leaked to the markets and, in accordance with applicable laws and regulations, Linx responded with a notice to the market filed with CVM on the same date, confirming that final discussions were taking place between representatives of StoneCo regarding a potential transaction.

 

Later on August 11, 2020, StoneCo, STNE, DLP, Linx and the Linx Founding Shareholders entered into the Original Association Agreement and the Voting Agreement, which sets forth the terms of the Transaction and the agreement by which DLP and the Linx Founding Shareholders are to exercise their voting rights so as to effect the combination of the operations and the shareholdings of Linx and STNE, by means of the Merger of Shares of Linx into STNE, under Brazilian law. Each of the Linx Founding Shareholders additionally entered into Original Non-Compete Agreements with StoneCo and STNE and Alberto Menache agreed on the final terms of the Original Executive Engagement Agreement with STNE.

 

Following the announcement of the Transaction, on August 14, 2020, TOTVS S.A. (“TOTVS”) publicly announced a high level and indicative unsolicited proposal to Linx to acquire 100% of the outstanding shares of Linx through a stock and cash merger (the “TOTVS Proposal”). The TOTVS Proposal provides that Linx shareholders will receive, for each Linx Share they hold, (i) one share of TOTVS common stock and (ii) R$6.20 in cash.

 

Following disclosure of the TOTVS Proposal, and in response to suggestions received from certain Linx shareholders, commencing on August 28, 2020 the Linx Independent Board Members, Linx Founding Shareholders and StoneCo and its representatives engaged in a series of discussions and negotiations (i) with respect to the terms of the Original Association Agreement, solely with Linx Independent Board Members and their representatives, and (ii) with respect to the terms of the Original Executive Engagement Agreement and the Original Non-Compete Agreements, solely with the Linx Founding Shareholders and their respective representatives. As a result of these discussions and negotiations, StoneCo, STNE, DLP, Linx and the Linx Founding Shareholders entered into an amended and restated Association Agreement, which provided for an increase in the cash component of the Consideration such that each STNE Class A Preferred Share will be redeemed for a cash payment of R$31.56, while each STNE Class B Preferred Share will still be redeemed for 0.0126774 StoneCo Class A Common Shares, increasing the total Consideration to R$35.10 per share, based on StoneCo's closing share price as of August 31, 2020, a premium of 47% to Linx's unaffected 60-day VWAP. The amendment to the Association Agreement also resulted in a reduction to (i) the Fine to R$453,750,000, and (ii) the amount that Linx will be obliged to pay StoneCo in the event that the Linx Special Meeting is not held or any item is not approved at the Linx Special Meeting and such non-approval prevents the consummation of the Transaction, to R$112,500,000. In addition, the applicable parties entered into an amendment to the terms of the Original Executive Engagement Agreement, reducing the term of the agreement and removing any share based remuneration from the agreement, and amendments to the terms of the Original Non-Competition Agreements extending the term of the non-compete obligations and reducing the aggregate consideration payable under the terms of those agreements and extending the applicable vesting terms.

  

StoneCo’s Reasons for the Transaction

 

By means of a written resolution passed on August 9, 2020, the StoneCo board of directors unanimously approved the Association Agreement and the Transaction. In doing so, the StoneCo board of directors considered the business, assets, liabilities, results of operations, financial performance, strategic direction and prospects of Linx and StoneCo. In evaluating the Transaction, the StoneCo board of directors consulted with and received the advice of StoneCo’s management, who carefully evaluated the Transaction in several dimensions, such as strategic complementarity, value creation potential and synergy opportunities, among others.

 

We believe the business combination of STNE and Linx will help accelerate StoneCo’s strategic roadmap and achieve its mission of empowering Brazilian merchants of all sizes to manage their businesses more effectively through technology and superior service. The acquisition is expected to generate value to Linx’s and StoneCo’s clients and create shareholder value by:

 

·Providing Linx’s 70,000 clients with access to StoneCo’s best-in-class solutions, including our payments technology, financial services and customer support capabilities through a more convenient and powerful integrated solution.

 

·Providing merchants with the tools to seamlessly adapt to a complex omnichannel world, by integrating their physical offline operations to a growing number of digital commerce channels (such as their own website, numerous online marketplaces and social media apps) through the combination of Linx’s digital solutions and StoneCo’s fintech-as-a-service platform.

 

·Extending StoneCo’s offerings to penetrate the small-and medium-sized business, or SMB, software market by leveraging the strengths of StoneCo’s business model (such as SMB focus, integrated technology, high quality service and direct distribution) to adapt Linx’s vertical solutions to meet the needs of smaller merchants and distribute software more effectively into the SMB market.

 

StoneCo began this journey by establishing itself as (1) an integrated provider of payments and financial services for SMBs, through our Acquiring, Banking & Credit, or ABC, platform and (2) a full stack digital payments solution for online merchants, marketplaces, wallets and sub acquirers, through our Pagar.me and Mundipagg platforms. More recently, StoneCo has advanced in its strategy to become an integrated provider of software and payments for SMBs by investing in a modern ecosystem of software solutions in different market segments, and helping our clients to digitalize their offline operations by offering complementary solutions such as food delivery, digital media, and online marketplace integration.

 

We have deployed this strategy by (1) offering software solutions through our own distribution channels, (2) investing and acquiring software companies with great people, scalable technology, and their own distribution channels, and (3) promoting StoneCo’s model and culture of client-centricity to help our software partners and investments put clients at the center of all their product design, processes and operations. StoneCo has invested in or acquired 11 software companies, in different verticals and horizontals such as food, food delivery, beauty salons, general retail, customer relationship management and digital media. As a result of this strategy, StoneCo has grown its subscribed software clients to approximately 305,000 as of July 2020, an increase of approximately 100% compared to the first quarter of 2020.

 

 

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We will complement and strengthen our software offerings by combining STNE’s and Linx’s assets and technology capabilities to create a full omnichannel commerce platform that is well positioned to serve and empower the digital commerce evolution in Brazil. We will be able to offer our combined client base a full stack solution to conduct commerce through multiple channels (such as brick and mortar, e-commerce, mobile commerce, online marketplaces, and social commerce), offering attractive alternatives for them to increase their sales volume with little additional effort.

 

We analyzed potential synergies which will result from the acquisition and believe there are several opportunities for value creation both on the revenues as well as on the cost side. On the revenue side, StoneCo has the opportunity to penetrate Linx´s client base with financial products, including its payments services through StoneCo’s proprietary end-to-end platform and banking services leveraging on StoneCo’s proprietary API driven banking platform. Additionally, StoneCo could utilize Linx´s know-how and existing software offerings to develop new solutions to SMB clients, including omnichannel and online-to-offline products to digitize these merchants. In terms of cost synergies, we will leverage existing research and development to create combined solutions for merchants of all sizes, streamline general and administrative expenses and improve our negotiation power with suppliers and third-party providers. Our internal assessment of the synergies expected from the Transaction is ongoing, and no assurances can be given that such estimates will not change or that such synergies can be achieved.

 

We also believe that the amended terms of the Association Agreement, alongside the amendments to the terms of the Original Executive Engagement Agreement and the Original Non-Compete Agreements, have resulted in an even more compelling value proposition for Linx shareholders, while continuing to provide the most attractive transaction for Linx clients and employees, through the combination of StoneCo’s model and culture of client-centricity with Linx's differentiated software solutions to help Linx put clients at the center of all their product design, processes and operations, leveraging on an amazing and talented team of hard-working people.

 

We also weighed these advantages and opportunities against a number of uncertainties and risks. Risks related to the Transaction are discussed in the section of this prospectus entitled “Risk Factors,” beginning on page 27 of this prospectus, together with the other information included in or incorporated by reference into this prospectus.

 

The foregoing discussion of the information and factors that the StoneCo board of directors considered is not intended to be exhaustive, but is meant to include the material factors supporting the Transaction that the StoneCo board of directors considered. In view of the complexity and wide variety of factors that the StoneCo board of directors considered, the StoneCo board of directors did not find it practical to, and did not attempt to, quantify, rank or otherwise assign relative or specific weights or values to any of the factors considered. In addition, individual members of the StoneCo board of directors may have given different weights to different factors.

 

The foregoing description of StoneCo’s consideration of the factors supporting the proposed Transaction is forward-looking in nature. Actual results of the combined companies following the Transaction could differ greatly from any such estimates. This information should be read in light of the factors discussed in the section of this prospectus entitled “Forward-Looking Statements” on page iii of this prospectus.

 

Linx’s Reasons for the Transaction

 

The synergies between Linx’s software services and StoneCo’s payment solutions present an opportunity to create value for Linx, StoneCo and their respective clients by expanding the scope of our services and solutions. Our clients will be able to have a fluid, omnichannel experience, both online and offline, putting greater competitive pressure on (1) the business management software sector, which is dominated by TOTVS S.A., on the one hand, and (2) the payment services sector led by large, vertically integrated financial groups, on the other hand. We stand out as an independent player that has stimulated the competitive dynamics of the payment solutions sector. As a result, the Transaction is expected to generate important synergies for the digital commerce evolution in Brazil.

 

Financing Obtained by StoneCo for the Transaction

 

On August 12, 2020, we entered into an underwriting agreement with J.P. Morgan Securities LLC, Morgan Stanley, Citigroup Global Markets Inc. and XP Investments US, LLC, as representatives of the several underwriters named in Schedule I thereto, relating to an offering (the “Offering”) of an aggregate of 31,481,250 StoneCo Class A Common Shares at the public offering price of U.S.$47.50 per share. The Offering closed on August 17, 2020. The gross proceeds from the Offering were approximately U.S.$1,495 million, before deducting underwriting discounts and commissions and other offering expenses, and such proceeds, together with cash on hand, would cover the amounts payable in cash in connection with the Transaction.

 

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Tax Withholding

 

STNE will be entitled to deduct and withhold from the Consideration or any payment made to any holder of Linx Common Shares or Linx ADS pursuant to the Transaction any tax due by such holder that STNE is required to deduct and withhold according to applicable law, considering the rules applicable to each such holder based on such holder’s nature, domicile and regime. To that end, STNE may, when necessary, increase or include a portion of cash in the Base Exchange Ratio of a specific holder of Linx Shares or Linx ADS in order to enable such withholding.

  

For more information on Brazilian taxation considerations, see the section of this prospectus entitled “Material Tax Considerations—Material Brazilian Tax Considerations.” Linx shareholders should consult their respective tax advisors regarding the tax consequences of the Transaction to such shareholders in their respective particular circumstances.

 

Interests of Certain Persons in the Transaction

 

Linx shareholders should be aware that Linx directors and executive officers have interests in the Transaction that may be different from, or in addition to, the interests of Linx shareholders. The material interests of Linx directors and executive officers that shareholders should be aware of are as follows:

 

·On August 11, 2020, STNE and StoneCo entered into the Original Non-Compete Agreements with each Linx Founding Shareholder . The parties amended and restated the Original Non-Compete Agreements on September 1, 2020 to revise certain terms therein. The Non-Compete Agreements provide that STNE will pay each Linx Founding Shareholder a number of StoneCo Class A Common Shares in exchange for such Linx Founding Shareholder’s fulfillment of certain non-compete and non-solicitation obligations.

  

·On August 11, 2020, STNE and Alberto Menache entered into the Original Executive Engagement Proposal (the “Original Executive Engagement Agreement”), pursuant to which Alberto Menache agreed to accept the position of Chairman of the Software Division of one or more companies of Stone Group. The parties amended and restated the Original Executive Engagement Agreement on September 1, 2020 to revise certain terms therein, including Alberto Menache’s engagement as Senior Advisor to Stone Group following the Transaction. Alberto Menache will receive during the term of his engagement and in return for his services to STNE, certain remuneration and benefits set forth in the Executive Engagement Agreement.

  

When negotiating the Non-Complete Agreements with the Linx Founding Shareholders, StoneCo considered, among other factors, the competitively sensitive knowledge possessed by the Linx Founding Shareholders’ in regards to the Linx business and the importance to the future operations of the combined companies to protect this information. When negotiating the Executive Engagement Agreement, StoneCo considered, among other factors, the importance of Mr. Menache to the integration and future operations of the Linx business after the consummation of the Transaction. StoneCo believes that the value of the incentives agreed to with Mr. Menache in the Executive Engagement Agreement are within a range that the StoneCo team believes to be reasonable in the scope of the Transaction.

 

Linx’s board of directors was aware of the potentially differing interests of Linx directors and executive officers and considered them, among other matters, in reaching its decision to approve the Association Agreement and approve the submission of the Transaction Proposal to the Linx shareholders. The Linx Independent Board Members also considered these facts in reaching their decision to approve the Association Agreement at a meeting of the board of directors of Linx on September 1, 2020. The Linx Independent Board Members do not have any interests in the Transaction.

 

These interests are described in more detail and quantified under the section of this prospectus entitled “The Transaction Documents—Non-Compete Agreements” and “—Executive Engagement Proposal.” The Non-Compete Agreements and the Executive Engagement Agreement are filed as exhibits to the registration statement of which this prospectus is a part as Exhibits 10.2, 10.3, 10.4 and 10.5, respectively.

 

Accounting Treatment of the Transaction

 

Under IFRS as issued by the IASB, the acquisition of Linx S.A. by StoneCo Ltd. will be accounted for under the acquisition method of accounting for business combinations. Under the acquisition method of accounting, the total consideration paid is allocated to an acquired company’s tangible and intangible assets, liabilities and any noncontrolling interest based on their estimated fair values as of the acquisition date.

 

 

 

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Delisting and Deregistration of Linx Common Shares and Linx ADSs

 

After the Transaction is completed, the Linx Common Shares will be delisted from the B3, the Linx ADSs will be delisted from the NYSE and will be deregistered under the Exchange Act, after which Linx will no longer be required under SEC rules and regulations to file periodic reports with the SEC with respect to Linx ADSs.

 

Withdrawal Rights for Linx Shareholders

 

Under Article 137 of the Brazilian Corporation Law, the holders of Linx Common Shares that dissent from the vote in favor of the Merger of Shares have the right to withdraw the Linx Common Shares of which they were record holders at the close of trading on the date of the first publication of the call notice for the Linx Special Meeting, or on the date of communication of the material relevant object of the resolution, whichever occurs first, and request that Linx reimburse the value of those Linx Common Shares. You cannot exercise these withdrawal rights if you vote in favor of the Merger of Shares. The failure to vote on the Merger of Shares at the Linx Special Meeting by a shareholder who would otherwise be entitled to exercise withdrawal rights will not constitute a waiver of that shareholder’s withdrawal rights.

 

If you hold Linx ADSs, you are not entitled to withdrawal rights with respect to the Merger of Shares. If you hold Linx ADSs and wish to exercise the withdrawal rights with respect to the Linx Common Shares represented thereby, you must surrender your Linx ADSs a sufficient amount of time prior to the Linx Special Meeting held to approve the Merger of Shares to enable you to receive delivery of the Linx Common Shares represented thereby in accordance with the terms of the deposit agreement governing the Linx ADSs prior to the date of the Linx Special Meeting.

 

Under the Brazilian Corporation Law, a shareholder who exercises a withdrawal right generally is entitled to receive the net asset value of its Linx Common Shares, determined based on the book value of Linx’s assets and liabilities as of                . Based on this net asset value, the withdrawal value per Linx Common Share is R$                .

 

If you have withdrawal rights, your withdrawal rights will lapse 30 days after publication of the minutes of the Linx Special Meeting at which the Merger of Shares is approved. Once the 30-day period for the exercise of your withdrawal rights has expired, you will no longer have any right to compel Linx to redeem your Linx Common Shares. The minutes of the Linx Special Meeting, as well as a Material Fact related to the approval of the Merger of Shares, will be published in the newspapers in which Linx customarily publishes its notices on the business day following the Linx Special Meeting. Such publication will constitute your sole notification regarding the commencement of the period to exercise your withdrawal rights. If you notify Linx that you wish to exercise your withdrawal rights, such request will be irrevocable.

 

To exercise its withdrawal rights, a shareholder holding shares in custody with Itaú Corretora de Valores S/A, the transfer agent for the shares of Linx, must appear, personally or through an attorney-in-fact, at any office of Itaú Corretora de Valores S/A, during the 30-day period for the exercise of its withdrawal rights, complete a form related to the exercise of the withdrawal rights, which is available in those offices, and surrender certified copies of the documents listed below:

 

·Individuals: Individual Taxpayers’ Register, Identity Card and current evidence of address (issued within the previous two months).

 

·Legal Entity: National Corporate Taxpayers’ Register, bylaws/articles of association and corresponding amendments, as well as documents related to the partners/legal representatives (act of appointment, Individual Taxpayers’ Register, Identity Card and current evidence of address).

 

Shareholders represented by attorneys-in-fact must surrender the documents described above and the respective public power of attorney, which shall grant special powers to the attorney-in-fact authorizing him to exercise, on behalf of the grantor, the withdraw rights and request the reimbursement for the shares.

 

Shareholders holding shares through the Fungible Custody of Registered Shares of the Stock Exchange must exercise their withdrawal rights through their custody agents.

 

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Restrictions on Resales of StoneCo Shares Received in the Transaction

 

StoneCo Class A Common Shares received by holders of Linx Shares in connection with the Transaction will be registered under the Securities Act and will be freely transferable under the Securities Act, except for StoneCo Class A Common Shares issued to any holder of Linx Shares who may be deemed to be an “affiliate” of StoneCo for purposes of Rule 144 under the Securities Act. Persons who may be deemed to be affiliates include individuals or entities that control, are controlled by, or are under common control with StoneCo and may include StoneCo’s executive officers, directors and significant shareholders. This prospectus does not cover any resales of StoneCo Class A Common Shares received by any person upon completion of the Transaction, and no person is authorized to make use of this prospectus in connection with any such resale.

 

Dividend Information

 

The following table shows the amount of dividends declared and interest on capital distributed by each of Linx and StoneCo for years ended December 31, 2019, 2018 and 2017.

 

The Brazilian Corporation Law and Linx’s bylaws in effect as of its annual report on Form 20-F require that Linx distribute annually to its shareholders a mandatory dividend, which is the mandatory distribution of a minimum percentage of its net income for the prior fiscal year, unless the Linx board of directors recommends against such distribution due to considerations relating to its then financial condition. Also, according to the Brazilian Corporation Law, a corporation’s net income may be allocated to profit reserves and to the payment of dividends.

 

Under the Companies Law and StoneCo’s Articles of Association, a Cayman Islands company may pay a dividend out of either its profit or share premium account, but a dividend may not be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. According to the StoneCo Articles of Association, dividends can be declared and paid out of funds lawfully available to the company, which include the share premium account.

 

   Linx  StoneCo
   (In reais)  (In reais)
2019    20,000    -   
2018    40,000    -   
2017    40,000    -   

 

Past Contracts, Transactions, Negotiations and Agreements

 

There have been no past, present or proposed material contracts, arrangements, understandings, relationships, negotiations or transactions during the periods for which financial statements are presented in this prospectus between StoneCo or its affiliates and Linx or its affiliates, other than those described in the sections entitled “The Transaction Documents” and “The Transaction.”

 

Interests of Experts and Counsel

 

Not applicable.

 

Litigation Related to the Transaction

 

On August 17, 2020, a collective action lawsuit (ação civil pública) was filed by the Brazilian Institute of Corporate Activism and Governance - IBRASG against Linx and STNE, alleging that the Original Non-Compete Agreements and the Original Executive Engagement Proposal executed by the Linx Founding Shareholders were a form of control premium. The plaintiff has asked the court to, among other things, suspend the Linx Special Meeting and award other Linx shareholders tag-along rights to those of the Linx Founding Shareholders. StoneCo believes that the claims asserted in this suit are without merit and intends to vigorously defend the Transaction against them. StoneCo cannot predict the outcome of or estimate the possible loss or range of loss from this matter. Additional lawsuits arising out of or relating to the Association Agreement and the Transaction may be filed in the future. If additional similar complaints are filed, absent new or different allegations that StoneCo believes to be material, StoneCo will not necessarily announce such additional filings.

 

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Expenses

 

The following is an itemized statement of the expenses incurred or estimated to be incurred by StoneCo in connection with the Transaction:

 

Type of Fee

Amounts in U.S.$ thousand

Legal fees  
Accounting fees and fees for presentations and valuation reports  
Printing costs  
ADS Depositary fees and expenses
Total

 

 

 

 

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The Transaction Documents

 

This section describes the material terms of the Transaction Documents, which are the Association Agreement, the Voting Agreement, the Non-Compete Agreements and Executive Engagement Agreement. The rights and obligations of the parties to the Transaction Documents are governed by the express terms and conditions of the Transaction Documents and not by this summary or any other information contained in this prospectus. The description in this section and elsewhere in this prospectus is qualified in its entirety by reference to the complete text of the Association Agreement, the Voting Agreement, the Non-Compete Agreements and the Executive Agreement, each of which is incorporated by reference or filed as an exhibit to this prospectus and the registration statement of which this prospectus is a part. This summary does not purport to be complete and may not contain all of the information about the Transaction Documents that is important to you. StoneCo and Linx encourage you to read each of the Transaction Documents carefully and in their entirety.

 

The Association Agreement

 

Consideration

 

Pursuant to the terms and subject to the conditions set forth in the Association Agreement, each Linx Share issued and outstanding immediately prior to the consummation of the Transaction will be automatically contributed to STNE in exchange for one newly issued redeemable STNE Class A Preferred Share and one newly issued redeemable STNE Class B Preferred Share. Immediately thereafter, each STNE Class A Preferred Share will be redeemed for a cash payment of R$31.56 and each STNE Class B Preferred Share will be redeemed for 0.0126774 StoneCo Class A Common Share (the “Base Exchange Ratio”). The Base Exchange Ratio is calculated on a fully diluted basis, assuming a number of fully-diluted shares of Linx of 179,058,617, and represents a total consideration of R$35.10 for each Linx Share, considering the share price of the StoneCo Shares as of August 31, 2020.

 

The Base Exchange Ratio takes into account the following assumptions: (i) that no declaration, payment of dividends or interest on equity by STNE or Linx will take place until Closing; (ii) that on September 1, 2020, except for the disclosure of the quarterly results and for the material facts related to the Transaction, there were no material facts pending disclosure to the market by Linx and/or StoneCo; (iii) that on September 1, 2020, there were 14,125,991 shares issued by Linx in treasury; (iv) that the effect of the exercise or acceleration of the total of all of the options and restricted stock plans would result in 3,775,648 additional shares to the share capital of Linx; and (v) that on September 1, 2020, Linx’s corporate capital was represented by 189,408,960 common book-entry shares, nominative and with no par value, including treasury-held shares.

 

Conditions to the Transaction

 

The Association Agreement provides that the parties’ mutual obligations to consummate the Transaction are subject to the following conditions:

 

(i) No competent court or tribunal (including arbitral tribunal) shall have issued any order, writ, injunctive relief or decision, and no other governmental body shall have issued any order or law that would cause the actions necessary for Closing to violate applicable law or otherwise prevent the consummation of the Transaction; and

 

(ii) The Transaction shall have been definitively approved by CADE.

 

The Association Agreement provides that Linx’s and the Linx Founding Shareholders’ obligations to consummate the Transaction are subject to the following conditions (unless waived by Linx):

 

(i) The representations and warranties made by STNE, StoneCo and DLP in the Association Agreement must be true and correct in all respects on the date of the Association Agreement and until Closing (except where the representations and warranties themselves contain a reference to a previous date, in which case they shall be true and correct in all respects as of such date);

 

(ii) STNE, StoneCo and DLP must have complied with all of their obligations and fulfilled all of their commitments and agreements, in each case, required to be complied with or fulfilled prior to Closing, as set forth in the Association Agreement and the Voting Agreement; provided that if a party breaches any such obligation, such party shall have 30 days from the receipt of notice of such breach to cure its breach;

 

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(iii) StoneCo’s registration statement on Form F-4 to effect the registration of the StoneCo Class A Common Shares will have become effective and remain effective (and not subject to any stop order suspending the effectiveness of the F-4 or any proceedings for that purpose); and

 

(iv) At the general shareholders meeting, the STNE shareholders must approve, under the terms of the Brazilian Corporation Law: (a) all the necessary documentation for the Merger of Shares and the attribution of the New STNE Shares, including, but not limited to, the Merger of Shares Protocol to be prepared by the managements of Linx and STNE; and (b) the redemption by STNE of the New STNE Shares issued to holders of Linx Shares at the Closing of the Transaction.

 

The Association Agreement provides that the obligations of STNE, StoneCo and DLP to consummate the Transaction are subject to the following conditions (unless waived by STNE):

 

(i) The representations and warranties made and provided by Linx and the Linx Founding Shareholders in the Association Agreement must be true and correct in all respects on the date of the Association Agreement and until Closing (except where the representations and warranties themselves include a reference to a previous date, in which case they will be true and correct in all respects as of such date);

 

(ii) Linx and the Linx Founding Shareholders must have complied with all of their obligations and fulfilled all of their commitments and agreements, in each case, required to be complied with or fulfilled prior to Closing, as set forth in the Association Agreement and the Voting Agreement; provided that if a party breaches any such obligation, such party shall have 30 days from the receipt of notice of such breach to cure its breach;

 

(iii) Linx shall (a) have obtained third-party consents to the Transaction for all of its agreements currently in force of an amount greater than R$50,000,000.00 that are subject to early termination resulting from the Transaction (“Obligations Subject to Early Termination”); (b) have liquidated all its Obligations Subject to Early Termination; or (c) have cash equal to one hundred percent (100%) of the amount necessary to liquidate all the Obligations Subject to Early Termination (including any penalties incidental thereto);

 

(iv) The Linx Special Meeting must approve, under the terms of the Brazilian Corporation Law and the Novo Mercado Regulation each of the items in the Transaction Proposal; and

 

(v) From the date of the Association Agreement and until the Closing, Linx must not have undergone any Material Adverse Change (as such term is defined in the Association Agreement).

 

Representations and Warranties

 

The Association Agreement contains representations and warranties of STNE, StoneCo, DLP, Linx and the Linx Founding Shareholders. None of the representations or warranties for any party to the Association Agreement survive Closing. The representations and warranties in the Association Agreement are complicated and not easily summarized. You are urged to read carefully, and in their entirety, the sections of the Association Agreement entitled “Representations and Warranties by STNE, StoneCo and DLP,” “Representations and Warranties by Linx” and “Representations and Warranties by Linx Shareholders” in Chapter IV and Chapter V of the Association Agreement, which is incorporated into this prospectus by reference in its entirety.

 

The Association Agreement contains representations and warranties of STNE, StoneCo and DLP as to, among other things:

 

·corporate existence;

 

·capacity and authority;

 

·binding obligation;

 

·non-contravention;

 

·capitalization;

 

·governmental authorizations;

 

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·financial statements of StoneCo and STNE;

 

·accuracy of StoneCo’s 20-F;

 

·bribery and anti-corruption;

 

·general meetings approvals;

 

·financial capacity; and

 

·no other representation or warranty.

 

The Association Agreement contains representations and warranties of Linx as to, among other things:

 

·corporate existence;

 

·capacity and authority;

 

·binding obligation;

 

·non-contravention;

 

·capitalization;

 

·governmental authorizations;

 

·financial statements;

 

·certain filings (including Linx’s Reference Form as filed with the CVM);

 

·operational activities;

 

·contingencies, litigation and liabilities;

 

·agreements with related parties;

 

·bribery and anti-corruption; and

 

·no other representation or warranty.

 

The Association Agreement contains representations and warranties of the Linx Founding Shareholders as to, among other things:

 

·capacity and authority;

 

·binding obligation; and

 

·no other representation or warranty.

 

Conduct of Linx’s and STNE’s Businesses Pending Closing

 

Subject to certain exceptions, prior to the Closing date, each of Linx and STNE agrees to conduct its operations in the ordinary course of business and/or in the best interest of its business in view of the market circumstances. Linx and STNE agree to refrain from committing acts that may materially affect their businesses or operations.

 

Until the consummation of the Transaction or termination of the Association Agreement, Linx must not perform, or approve the performance by any of its subsidiaries of, the acts below, unless authorized by STNE:

 

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(i) propose any changes to its bylaws (except if required by applicable law) at a shareholders meeting;

 

(ii) redeem, repurchase, issue or sell any Linx Shares, or any securities convertible into or exchangeable for shares, options, warrants, purchase rights or any other form of acquisition right relating to the Linx Shares, subject to certain exceptions;

 

(iii) propose the reduction of its capital or the redemption of its shares at the at a shareholders meeting of Linx;

 

(iv) approve the acquisition (including by amalgamation, merger, acquisition of shares or assets, or in any other way) of any interest in assets or any business or person that involves an individual amount greater than R$50,000,000.00 (other than acquisitions for which Linx does not incur debt);

 

(v) approve the entry into alliances, joint venture agreements or any type of similar relationship;

 

(vi) approve the execution of new compensation and benefit plans (or amend existing plans), as well as pay bonuses, commissions, incentives or any type of compensation for shares outside the ordinary course of business other than if required by applicable law;

 

(vii) directly or indirectly enter into any agreement or other arrangement with a director or an executive officer of Linx or the related parties of such director or executive officer outside of the ordinary course of business;

 

(viii) promote any change in Linx’s accounting policies and practices, other than as required by law;

 

(ix) lease or encumber (including the granting of any option on) any of its assets, except in connection with the fulfillment of currently existing contracts or in the ordinary course of business;

 

(x) except in relation to actions to be taken under existing contracts, assume any obligation or responsibility or enter into any new material contracts, including: (a) contracts for the sale of assets of Linx of amount greater than R$5,000,000.00; or (b) property lease contracts for the head office of Linx, other than such property lease contracts that are already in effect as of the date of the Association Agreement;

 

(xi) mortgage or pledge any tangible or intangible asset or offer them as collateral, other than if so required due to guarantees made by Linx relating to labor or tax proceedings in which Linx and/or its subsidiaries, as the case may be, are defendants in a dispute not exceeding claims against Linx in excess of R$50,000,000.00;

 

(xii) take out any loan, issue debt securities, enter into any type of financing agreement or change the terms of existing financing agreements or debt instruments, except: (a) those entered into in the regular course of Linx’s business and that in any case do not increase the debt of Linx by more than R$200,000,000.00; or (b) operations that aim to refinance the indebtedness of Linx, without the issuance of convertible or exchangeable securities for its shares;

 

(xiii) guarantee, endorse or otherwise become liable (whether directly, contingently or otherwise) for the obligations of any person, except in relation to its subsidiaries;

 

(xiv) enter into, amend, modify or in any way alter the terms of the existing contracts entered into by Linx and/or its respective subsidiaries in order to speed up payments due under those contracts;

 

(xv) donate or freely assign any asset, right, or any form of asset, to their respective shareholders, directors, officers and/or any third party, except for the current agreed practices and donation to Ten Yad;

 

(xvi) enter into any collective bargaining agreement or promote any relevant changes to the terms and conditions of the current employment contracts to which they are a party, other than in the ordinary course of business;

 

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(xvii) engage in different commercial activities, except for such different commercial activities that are incidental to the planned business activities of Linx or those relating to the Transaction contemplated by the Association Agreement;

 

(xviii) accelerate the vesting periods of the options, or maintenance of the plan, granted under the Linx Plans (as such term is defined in the Association Agreement), except for vesting acceleration as currently set forth in such agreements;

 

(xix) approve (a) the hiring of new employees in coordination, managerial or higher hierarchical position or managers of any positions, outside the ordinary course of business; (b) the dismissal of employees outside the ordinary course of business; and (c) the implementation of any voluntary termination or dismissal program for employees;

 

(xx) propose the cancellation of its registration as a publicly held company at a shareholders meeting of Linx;

 

(xxi) enter into any contract or otherwise assume any obligation to any related party; and

 

(xxii) agree or undertake to perform any of the acts described above.

 

Exclusivity

 

Linx and the Linx Founding Shareholders agree to, directly or indirectly, from the date of the Association Agreement until the earlier of (a) the consummation of the Transaction; or (b) termination of the Association Agreement:

 

(i) ensure exclusivity for STNE until the Closing in relation to the Transaction or any similar and/or equivalent transaction to the Transaction;

 

(ii) not request, seek or initiate any proposal with a third party related to any agreement, arrangement or operation that is a competitor to, or that has the effect of competing with, the Transaction or that may harm or make the Closing of the Transaction unfeasible, or that has the same or a similar purpose to the Transaction, including any corporate reorganization involving Linx, public offer for the purchase of shares for Linx shareholders or any operation that depends on the waiver or elimination of the poison pill provided for in Article 43 of Linx’s bylaws (“Competing Transaction”); and

 

(iii) immediately inform the other parties to the Association Agreement in writing about any approach in writing that is received from any third party to carry out or discuss a Competing Transaction.

 

Notwithstanding the foregoing, the Linx Independent Board Members, without the participation of certain Linx shareholders, jointly with its advisors and in Linx’s best interest, may receive and analyze, and recommend the approval of a Competing Transaction that: (x) was brought at the exclusive initiative of a third party, and (y) is a binding proposal not subject to financing or due diligence, as required to fulfill its fiduciary and legal duties.

 

Linx Special Meeting

 

After the effectiveness of the Form F-4, the Linx Special Meeting will be called. The call notice for the Linx Special Meeting must be published thirty (30) days in advance of the Linx Special Meeting and its term may not be postponed without the prior written consent of StoneCo, except for legal or governmental authority’s determination. In the event that the CADE approval has not been obtained at the time that the Form F-4 becomes effective or if any other conditions precedent to the Closing have not yet been fulfilled prior to the calling date of the Linx Special Meeting, the Linx Special Meeting will nonetheless be called and the matters on the agenda shall be submitted for resolution by the Linx shareholders under the condition that they are subject to the fulfillment of such other unfulfilled conditions precedent set forth in the Association Agreement.

 

If the attendance requirement is not met for the Linx Special Meeting on first call, the Linx Special Meeting will be reconvened at a date and time, at least eight calendar days after the date and time scheduled for the Linx Special Meeting on first call. The Linx Special Meeting will be installed on second call with any percentage of holders present at the meeting following second call, in person or by proxy.

 

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Other Covenants

 

The Association Agreement contains a number of other covenants on the part of the parties, including covenants relating to:

 

·preparation of the Merger of Shares Protocol;

 

·preparation of the necessary documentation to file the Form F-4 and any other materials required to be filed with a governmental authority related to the Transaction;

 

·cooperation in identifying any approvals or filings with any government authority that are necessary for the consummation of the Transaction, and satisfying any such obligations;

 

·cooperation in connection with any debt financing sought by StoneCo in connection with the Transaction;

 

·the entry into non-competition agreements by certain Linx shareholders and employees;

 

·the engagement of Alberto Menache in the position of Senior Advisor of Stone Group;

 

·holding confidential any non-public information received in connection with the Transaction;

 

·holding certain shareholders meetings; and

 

·keeping the other parties informed regarding the conditions to the Transaction.

 

Termination of the Association Agreement

 

In addition to the termination events mentioned in the “Break Fees” section below, the Association Agreement provides for certain termination rights of Linx and StoneCo:

 

(i) by either party at any time prior to Closing upon the later of the following to occur: (a) the date that is 12 months from the date of execution of the Association Agreement, (b) the date that is three months from the date of the CADE approval or (c) the date that is three months from the effectiveness of the registration of Form F-4; but in no circumstances can it exceed 18 months as from the date of execution of the Association Agreement, except if such delay is due to the fault or intent of one of the parties, in which case the other party may choose to extend the term of the Association Agreement until Closing occurs;

 

(ii) at any time prior to Closing by written agreement between Linx and STNE;

 

(iii) by STNE if any part of the Transaction Proposal is not approved at the Linx Special Meeting;

 

(iv) by Linx if (a) the CADE imposes restrictions as a condition for CADE approval, and StoneCo, STNE and Linx, after using best efforts, fail to meet such restrictions; or (b) the CADE does not approve the Transaction;

 

(v) by a non-breaching party to the Association Agreement at any time before the Closing, if another party fails to fulfill any obligation of the Association Agreement and such non-compliance is not remedied within 30 days from receipt of notice of such non-compliance by the non-breaching party, subject to certain exceptions; or

 

(vi) by STNE, StoneCo and DLP if, prior to the date on which the Linx shareholders approve the Transaction at the Linx Special Meeting, STNE, StoneCo or a subsidiary of StoneCo publishes a public tender offer for the acquisition or exchange of Linx Shares at a launched price per share equal to or greater than R$35.10.

 

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Break Fees

 

A compensatory break fee equal to R$453,750,000 (the “Fine”) will be payable (or in the case of prong (ii) below, partially payable) in the following events:

 

(i) Linx will pay the Fine to STNE if (a) Linx fails to comply with its exclusivity obligations under the Association Agreement; (b) a Competing Transaction is approved, executed or accepted by Linx or its shareholders, in any form; or (c) Linx or the Linx Founding Shareholders breach any of their respective obligations under the Association Agreement in such a manner that causes a termination of the Association Agreement;

 

(ii) As long as certain conditions are fulfilled, Linx will be obligated to pay StoneCo an amount equal to R$112,500,000 if the Linx Special Meeting is not held or if any item is not approved and such non-approval prevents the consummation of the Transaction; provided that in such case, if a Competing Transaction is announced or contracted into by Linx prior to the date of the Linx Special Meeting (or prior to the date of the event which causes the Linx Special Meeting to not be held), and such Competing Transaction is approved or entered into by Linx during the 12 month period after the Linx Special Meeting (or prior to the date of the event which causes the Linx Special Meeting to not be held), Linx shall pay to StoneCo an additional amount equal to the remainder of the Fine (R$341,250,000); and

 

(iii) STNE must pay the Fine to Linx if (a) StoneCo, STNE or DLP breach any of their respective obligations under the Association Agreement in such a manner that causes a termination of the Association Agreement; (b) Linx terminates the Association Agreement because the CADE imposes restrictions as a condition for CADE approval, and StoneCo, STNE and Linx, after using best efforts, fail to meet such restrictions; or (c) the CADE does not approve the Transaction.

 

Effect of Termination

 

If the Association Agreement is terminated as set forth therein, it will be void and of no further effect on any of the parties thereto other than such obligations that survive the termination of the Association Agreement as expressly set forth therein, including certain obligations of disclosure, confidentiality, payment of fines, exclusivity and arbitration.

 

Closing

 

The parties to the Association Agreement agree to keep each other informed about the fulfillment of the conditions set forth in the Association Agreement. Once all of such conditions have been fulfilled (or waived by the relevant party, if applicable), either party may notify the other party as to the fulfillment of all conditions precedent and their desire to proceed with the Closing of the Transaction. At such time, the parties shall take necessary measures to close the Transaction in the shortest time possible, including holding such meetings as is necessary to approve the Transaction.

 

Governing Law and Dispute Resolution

 

The Association Agreement is governed by and construed in accordance with the laws of Brazil.

 

Any and all disputes that may arise between the parties as a result of or related to the commitment under the Association Agreement will be resolved definitively by arbitration, administered by the Market Arbitration Chamber instituted by B3 (“Market Arbitration Chamber”), in accordance with the Arbitration Rules of that institution that are in force at the time of the start of arbitration. In the event that the Arbitration Rules of the Market Arbitration Chamber is omitted in any respect, the parties agree to apply, in addition, the dispositions provided for in Law No. 9,307/1996.

 

The place of arbitration shall be the city of São Paulo, State of São Paulo, Brazil, local where the arbitral decision shall be declared and the language of the arbitration shall be Portuguese.

 

The arbitration decision award will be final and binding for the parties and their successors, and the parties agree to waive any right of appeal.

 

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Voting Agreement

 

On August 11, 2020, StoneCo, STNE and DLP entered into the Voting Agreement with Linx and the Linx Founding Shareholders, whereby the parties to the Voting Agreement undertook, as limited by the Brazilian Corporate Law, obligations to implement the Transaction, including by binding their shares to vote in favor of the corporate resolutions necessary for the approval, closing and implementation of the Transaction. Linx and STNE acted as intervening parties in the Voting Agreement. The Voting Agreement also indicates that if, at the Linx Special Meeting regarding the Transaction, a sufficient approval quorum is reached for the approval of matters related to the Transaction, considering the favorable vote of other Linx shareholders, Linx Founding Shareholders are free to vote in favor or abstain from voting, according to their convenience, to the extent that, in this case, the calculation of the Linx Founding Shareholders’ votes does not affect the effective approval of the Transaction. In any event, the voting obligations of Linx Founding Shareholders established in the Voting Agreement will be subject to legal impediments and may not violate CVM and Novo Mercado Rules.

 

Exclusivity

 

DLP and the Linx Founding Shareholders agreed to comply with the Association Agreement in all its terms and conditions, including the exclusivity provision. In case of non-compliance of the exclusivity provision in the Association Agreement by any Linx Founding Shareholder, the breaching Linx Founding Shareholder will pay a compensatory fine of R$30,000,000.00, to STNE, without prejudice to any other measures that STNE may take to stop the infringement, including specific performance. Notwithstanding the foregoing, the obligations contained in the Voting Agreement relating to voting at the Linx Special Meeting will comply with any applicable legal restrictions, including the rules of CVM and Novo Mercado.

 

The parties irrevocably and irreversibly agreed to cooperate with the performance of all necessary acts by the other parties and by Linx and STNE for the implementation of the Transaction.

 

Representations and Warranties

 

DLP and STNE represented and warranted that:

 

(i)        STNE is a corporation duly organized and validly existing according to the laws of the Federative Republic of Brazil;

 

(ii)        DLP (a) are holders and lawful owners of shares bound by the Voting Agreement, which are free and clear of any encumbrances, except as set forth in the Voting Agreement; and (b) have full capacity to enter into the Voting Agreement, carry out all the transactions provided for therein and comply with all obligations assumed therein, having taken all necessary measures to authorize its execution and the performance of the obligations set forth therein, except as expressly provided for in the Voting Agreement; and

 

(iii)        there is no impediment for the execution of the Voting Agreement and of the Association Agreement or for the consummation of the Transaction.

 

The Linx Founding Shareholders represented and warranted that:

 

(i)        Linx is a publicly-held company, duly organized and validly existing according to the laws of the Federative Republic of Brazil;

 

(ii)        Linx Founding Shareholders (a) are holders and lawful owners of Linx bound shares, which are fully paid up and free and clear of any encumbrances, except as set forth in the Voting Agreement (with the exception of shares owned by one of the Linx Founding Shareholders that are encumbered but will be released prior to the Closing of the Transaction); and (b) have full capacity to enter into the Voting Agreement, carry out all the transactions provided for therein and comply with all obligations assumed therein, having taken all necessary measures to authorize its execution and the performance of the obligations set forth therein, except as expressly provided for in the Voting Agreement;

 

(iii)        there is no impediment to the execution of the Voting Agreement and of the Merger of Shares Protocol or for the consummation of the Transaction and the fulfillment of the obligations provided for in the Voting Agreement and in the Merger of Shares Protocol; and

 

(iv)        there are not, at the date of the Association Agreement, any obligations and/or understandings between the Linx Founding Shareholders and/or Linx, directly or indirectly, and any person, that can be characterized as an intention and/or proposal of a transaction, in any way, similar to the Transaction.

 

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Lock-Up and Encumbrance of the Bound Shares

 

During the term of the Voting Agreement, the Linx Founding Shareholders irrevocably and irreversibly undertake not to agree upon or carry out the sale, disposal or transfer, directly or indirectly, by any means or form whatsoever, of their shares, or any rights related thereto, as well as not to create any liens or encumbrances of any nature, whether judicial or extrajudicial, on the bound shares, including, but not limited to, pledge, bond, usufruct, fiduciary sale, trust, promise of purchase and sale or granting of options, creation of rights of first refusal, rent, as well as entering into other voting agreements or shareholders’ agreements.

 

Effective Date and Term

 

The Voting Agreement remains in effect until the earlier of (i) the consummation of the Transaction; or (ii) the termination of the Association Agreement.

 

Conflicts Resolution

 

The Voting Agreement is governed by and construed in accordance with the laws of Brazil.

 

Any and all disputes that may arise between the parties as a result of or related to the commitment under the Voting Agreement will be resolved definitively by arbitration, administered by the Market Arbitration Chamber, in accordance with the Arbitration Rules of that institution that are in force at the time of the start of arbitration. In the event that the Arbitration Rules of the Market Arbitration Chamber is omitted in any respect, the parties agree to apply, in addition, the dispositions provided for in Law No. 9,307/1996.

 

The place of arbitration shall be the city of São Paulo, State of São Paulo, Brazil, local where the arbitral decision shall be declared and the language of the arbitration shall be Portuguese.

 

The arbitration decision award will be final and binding for the parties and their successors, and the parties agree to waive any right of appeal.

 

Non-Compete Agreements

 

On August 11, 2020, STNE and StoneCo entered into the Original Non-Compete Agreements with each Linx Founding Shareholder. The parties amended and restated each of the Original Non-Compete Agreements on September 1, 2020 to revise certain terms therein, including extending the duration of the non-compete obligations of each Linx Founding Shareholder and decreasing the number of StoneCo Class A Common Shares to be received by each Linx Founding Shareholder for fulfillment of such obligations.

 

Non-Solicitation

 

Pursuant to the non-solicitation provision in the Non-Compete Agreements, the Linx Founding Shareholders agree to, directly or indirectly, during the five years following the Closing:

 

(i) not solicit, entice, incite, divert, withdraw or attempt to solicit, incite, divert or withdraw any customer, supplier, distributor or business of STNE or companies of its economic group, or in any way interfere in the relationship maintained between STNE and its current or future customers, suppliers or distributors;

 

(ii) not solicit or encourage any person to quit his job or stop providing services to STNE or any other affiliate, regardless of whether such person is an employee, service provider or executive officer of STNE;

 

(iii) not solicit any of STNE’s employees or executive officers; and

 

(iv) not start dealings, negotiations, or any other type of understandings and not enter into final commitments or agreements with an objective equivalent or similar business to STNE, its subsidiaries or its affiliates.

 

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Non-Compete

 

Pursuant to the non-competition provision in the Non-Compete Agreements, the Linx Founding Shareholders agree to, directly or indirectly, during the five years following the Closing:

 

(i) not own, operate, advise or be a partner, shareholder, employee, director, officer, service provider or consultant of (a) any business developed by the competing companies set forth in the Non-Compete Agreements, or its controlled or affiliated companies or companies in which STNE holds an interest; or (b) which, directly or indirectly, carries out activities related to STNE or its subsidiaries or their businesses, including, but not limited to, activities related to consultancy and risk management related to the means of payment and management software segments in Brazil for the retail sector and investments in individuals or legal entities operating in the segments of means of payment in general, financial services for retail, and management software in Brazil for the retail sector; and

 

(ii) not establish or maintain any business relationship with any employees, suppliers, customers, distributors, business partners or consultants of STNE, its controlled and affiliated companies, and companies in which STNE holds interest, which may adversely affect them or the relationships and business between STNE, its controlled and affiliated companies, and companies in which STNE holds interest and said employees, suppliers, customers, distributors, business partners or consultants.

 

Indemnity

 

The Non-Compete Agreements provide that STNE will pay each Linx Founding Shareholder a number of StoneCo Class A Common Shares in exchange for such Linx Founding Shareholder’s fulfillment of their Non-Compete and Non-Solicitation obligations. Alon Dayan will receive 53,759 StoneCo Class A Common Shares, Nércio José Monteiro Fernandes will receive 268,797 StoneCo Class A Common Shares and Alberto Menache will receive 340,746 StoneCo Class A Common Shares. One fifth of such shares shall be transferred on the first anniversary of the Closing, one fifth on the second anniversary of the Closing, one fifth on the third anniversary of the Closing, one fifth on the fourth anniversary of the Closing and the remaining shares on the fifth anniversary of the Closing (the “Indemnification”). The transfer of each installment of the Indemnification will be conditioned on the fulfillment by each such Linx Founding Shareholder of the obligations in the Non-Compete Agreement.

 

STNE will reduce the number of StoneCo Class A Common Shares to be transferred to the Linx Founding Shareholder in connection with certain tax deductions required by applicable law, provided that the Linx Founding Shareholder will receive the net value of the Indemnification, after the applicable deductions.

 

Acknowledgment of Payment

 

Each Linx Founding Shareholder agrees that the transfer of StoneCo Class A Common Shares under the Non-Compete Agreement constitutes fair and sufficient compensation for the fulfillment of the terms of the Non-Compete Agreement.

 

Executive Engagement Proposal

 

On August 11, 2020, STNE and Alberto Menache entered into the Original Executive Engagement Proposal, pursuant to which Alberto Menache agreed to accept the position of Chairman of the Software Division of one or more companies of Stone Group. The parties amended and restated the Original Executive Engagement Agreement on September 1, 2020 to revise certain terms therein, including changing the role in which Alberto Menache will serve to Senior Advisor of Stone Group, reducing the term of the agreement to one year and removing the StoneCo Class A Common Shares that Alberto Menache was to receive as part of his remuneration for serving such role. The responsibilities of this role include rendering strategic and specialized consulting services in the software segment for the retail sector for one or more companies of Stone Group, including during the transition period following the Transaction and being responsible for discussing the strategies and planning of the integration of STNE and Linx, together with the STNE board of officers.

 

Pursuant to the Executive Engagement Agreement, in return for his services to STNE, Alberto Menache will receive remuneration in cash equivalent to R$5,000,000 per year for one year. In addition, the Executive Engagement Agreement provides that Alberto Menache will be required, during the term of his contract and for two years after its termination, to keep confidential any and all Stone Group information to which he has access.

 

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Material Tax Considerations

 

Material U.S. Federal Income Tax Considerations

 

The following summary describes the material U.S. federal income tax consequences of the Transaction and of the receipt, ownership and disposition of StoneCo Class A Common Shares, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person. The summary applies only to U.S. Holders (as defined herein) that hold Linx Shares and StoneCo Class A Common Shares as capital assets for U.S. federal income tax purposes. In addition, it does not describe all of the tax consequences that may be relevant in light of a U.S. Holder’s particular circumstances, including the potential application of the provisions of the Internal Revenue Code of 1986, as amended (the “Code”) known as the Medicare contribution tax, alternative minimum tax consequences, state, local or non-United States tax laws, and tax consequences applicable to U.S. Holders subject to special rules, such as:

 

·a financial institution;

 

·an insurance company;

 

·a real estate investment trust or regulated investment company;

 

·a dealer or trader in securities that uses a mark-to-market method of tax accounting;

 

·a person that holds ADSs or shares as part of a “straddle,” conversion transaction or integrated transaction;

 

·a person whose “functional currency” is not the U.S. dollar;

 

·a tax exempt entity, including an “individual retirement account” or “Roth IRA”;

 

·a partnership or other entity classified as a partnership for U.S. federal income tax purposes;

 

·a person that owns or is deemed to own, by vote or value, 10% or more of the shares of Linx or StoneCo;

 

·a person that acquired ADSs or shares pursuant to the exercise of an employee stock option or otherwise as compensation; or

 

·a person that holds ADSs or shares in connection with a trade or business outside the United States.

 

If an entity that is classified as a partnership for U.S. federal income tax purposes holds shares or ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding shares or ADSs and partners in such partnerships should consult their tax advisors as to the particular U.S. federal income tax consequences of the Transaction.

 

This summary is based on the Code, administrative pronouncements, judicial decisions, and final, temporary and proposed Treasury Regulations, all as of the date hereof, changes to any of which may affect the tax consequences described herein, possibly with retroactive effect. U.S. Holders are urged to consult their own tax advisors as to the U.S. federal income tax consequences of the Transaction and of holding the StoneCo Class A Common Shares.

 

As used herein, you are a “U.S. Holder” if, for U.S. federal income tax purposes, you are a beneficial owner of Linx Shares or StoneCo Class A Common Shares and are:

 

·a citizen or individual resident of the United States;

 

·a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or

 

·an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.

 

This disclosure assumes that a holder of Linx ADSs will be treated for U.S. federal income tax purposes as the beneficial owner of the underlying Linx Shares represented by those ADSs.

 

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Consequences of the Transaction

 

For U.S. federal income tax purposes, a U.S. Holder of Linx Shares will be treated as transferring its Linx Shares to STNE in exchange for the Consideration in a taxable transaction. Accordingly, such U.S. Holder will generally recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount realized on the exchange and its tax basis in the Linx Shares exchanged, in each case, determined in U.S. dollars. The amount realized on the exchange will be the fair market value of any StoneCo Class A Common Shares received on the date of exchange, as determined in U.S. dollars, and/or the cash received with respect to the Linx Shares exchanged.

 

Gain or loss and holding period must be calculated separately for each block of Linx Shares exchanged. Based on Linx’s public filings, StoneCo believes that Linx has not been a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. Assuming that Linx is not and has not been a PFIC, gain or loss realized in the exchange generally will be capital gain or loss and generally will be long-term capital gain or loss if the Linx Shares exchanged have been held for more than one year. This gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes.

 

A U.S. Holder will have a tax basis in any StoneCo Class A Common Shares received in the exchange equal to the fair market value of the StoneCo Class A Common Shares on the date of exchange, and its holding period with respect to such StoneCo Class A Common Shares will begin on the day after the date of the exchange.

 

Brazilian taxes that may be imposed upon the receipt of the Consideration pursuant to the Transaction will generally be treated as income taxes eligible for a credit against a U.S. Holder’s U.S. federal income tax liability. A U.S. Holder will be entitled to use these foreign tax credits to offset only the portion of its U.S. tax liability that is attributable to foreign-source income. This limitation on foreign taxes eligible for credit is calculated separately with regard to specific classes of income. Because a U.S. Holder’s gain from the receipt of the Consideration will generally be treated as U.S.-source income, this limitation may preclude such holder from claiming a credit for all or a portion of the taxes imposed on this gain. U.S. Holders exchanging Linx Shares for the Consideration should consult their tax advisors as to whether these Brazilian taxes may be creditable against their U.S. federal income tax liability. Instead of claiming a credit, a U.S. Holder may, upon election, deduct otherwise creditable Brazilian income taxes in computing its taxable income, subject to generally applicable limitations. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign taxes paid or accrued in the taxable year. The rules governing foreign tax credits are complex and U.S. Holders should consult their tax advisors to determine whether they are subject to any special rules that limit their ability to make effective use of foreign tax credits.

 

Any cash component of the amount realized will be the U.S. dollar value of the reais calculated by reference to the spot rate on the date of the exchange (or, if the Linx Shares are traded on an established securities market at such time, in the case of cash basis and electing accrual basis U.S. Holders, the settlement date). If a U.S. Holder is an accrual basis taxpayer and does not elect to determine the amount realized using the spot exchange rate on the settlement date, such holder will recognize foreign currency gain or loss equal to the difference between the U.S. dollar value of the amount received based on the spot exchange rates in effect on the date of the exchange and the settlement date. U.S. Holders will have a tax basis in the reais received equal to the U.S. dollar value of the reais received at the spot rate on the settlement date. Any currency gain or loss realized on the settlement date or the subsequent sale, conversion, or other disposition (including, in the case of Linx ADSs, a conversion by the depositary) of the reais received for a different U.S. dollar amount generally will be U.S.-source ordinary income or loss, and will not be eligible for the reduced tax rate applicable to long-term capital gains. If an accrual basis U.S. Holder does make the election described in the first sentence of this paragraph, it must be applied consistently from year to year and cannot be revoked without the consent of the U.S. Internal Revenue Service (the “IRS”). U.S. Holders should consult their own tax advisors regarding the treatment of any foreign currency gain or loss realized with respect to reais received in exchange for Linx Shares.

 

Information reporting and backup withholding (at a rate of 24%) may apply to payments in connection with the Transaction unless a U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding. The amount of any backup withholding will be allowed as a credit against a U.S. Holder’s federal income tax liability and may entitle a holder to a refund, provided that the required information is timely furnished to the IRS.

 

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Consequences of the Ownership and Disposition of StoneCo Class A Common Shares

 

Taxation of Distributions

 

Distributions made with respect to the StoneCo Class A Common Shares will generally be taxed as ordinary dividend income to U.S. Holders to the extent that they are paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, we expect that distributions generally will be reported as dividends. Subject to applicable limitations, dividends paid to certain non-corporate U.S. Holders may be eligible for taxation as “qualified dividend income” and therefore may be taxable at rates applicable to long-term capital gains so long as the StoneCo Class A Common Shares are listed and traded on Nasdaq (or are readily tradable on another established securities market in the United States). U.S. Holders should consult their tax advisors regarding the availability of the reduced tax rate on dividends in their particular circumstances.

 

The amount of a dividend will generally be treated as foreign-source dividend income to U.S. Holders and will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code. Dividends will be included in a U.S. Holder’s income on the date of receipt of the dividend.

 

Sale or Other Disposition of StoneCo Class A Common Shares

 

Subject to the discussion below under “—Passive Foreign Investment Company Rules,” for U.S. federal income tax purposes, gain or loss realized on the sale or other disposition of StoneCo Class A Common Shares will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder held the StoneCo Class A Common Shares for more than one year. The amount of the gain or loss will equal the difference between the U.S. Holder’s tax basis in the StoneCo Class A Common Shares disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. This gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes. The deductibility of capital losses is subject to various limitations.

 

Passive Foreign Investment Company Rules

 

A non-U.S. corporation will be a PFIC for any taxable year in which either (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 consist of assets that produce, or are held for the production of, “passive income.” For this purpose, subject to certain exceptions, passive income includes interest, dividends, rents and certain gains from transactions. Cash is a passive asset for these purposes. A non-U.S. corporation will be treated as owning its proportionate share of the assets and earning its proportionate share of the income of any other corporation in which it owns, directly or indirectly, more than 25% (by value) of the stock.

 

Based on the composition of our income and assets, the value of our assets, and the Proposed Regulations, we do not believe we were a PFIC for our 2019 taxable year, and we do not expect to be a PFIC for our current taxable year. However, because our PFIC status for any taxable year can be determined only after the end of such taxable year and will depend on the composition of our income and assets and the market value of our assets from time to time (including, following the Transaction, the income and assets of Linx), and because there is no guarantee that the Proposed Regulations will be adopted in their current form, there can be no assurance that we will not be a PFIC for our current taxable year or any future year and, in particular, it is not certain how the Active Financing Exception will apply to our assets and income following the Transaction. Moreover, there can be no assurance that the IRS will agree with our conclusion. In particular, although we consider ourselves to be actively engaged in an active business, it is not entirely clear how certain of our income will be treated for purposes of the PFIC rules. Certain of our income may be treated as passive income, unless such income is eligible for the Active Financing Exception, and related assets may be considered passive assets unless the Active Financing Exception applies. We believe that the Active Financing Exception, as interpreted by the Proposed Regulations, should apply to treat such income and related assets as active, but such treatment is not certain. Moreover, the Treasury Department has specifically requested comments regarding the continued applicability of the Active Financing Exception in the PFIC context once the corollary exception under the PFIC rules for licensed banks is finalized, While the Proposed Regulations permit taxpayers to rely on them, it is possible that the Treasury Department will not follow the approach of the Proposed Regulations when issuing final regulations, in which case the Active Financing Exception might not apply to our income and it is possible that we could be treated as a PFIC. If we were a PFIC for any year during which a U.S. Holder holds StoneCo Class A Common Shares, we generally would continue to be treated as a PFIC with respect to such U.S. Holder for all succeeding years during which it holds the StoneCo Class A Common Shares, even if we ceased to meet the threshold requirements for PFIC status.

 

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If we were a PFIC for any taxable year and any of our subsidiaries, consolidated affiliated entity or other companies in which we own or are treated as owning equity interests were also a PFIC (any such entities, a “Lower-tier PFIC”), U.S. Holders would be deemed to own a proportionate amount (by value) of the shares of each Lower-tier PFIC and would be subject to U.S. federal income tax according to the rules described in the subsequent paragraph on (i) certain distributions by a Lower-tier PFIC and (ii) dispositions of shares of Lower-tier PFICs, in each case as if such U.S. Holders held such shares directly, even though they have not received the proceeds of those distributions or dispositions.

 

If we were a PFIC for any taxable year during which a U.S. Holder held StoneCo Class A Common Shares, such holder may be subject to adverse tax consequences. Generally, gain recognized upon the disposition (including, under certain circumstances, a pledge) of StoneCo Class A Common Shares would be allocated ratably over the U.S. Holder’s holding period for such shares. The amounts allocated to the taxable year of disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year and an interest charge would be imposed on the tax on such amount. Further, to the extent that any distribution a U.S. Holder receives on its StoneCo Class A Common Shares exceeds 125% of the average of the annual distributions on the StoneCo Class A Common Shares received during the preceding three years or such U.S. Holder’s holding period, whichever is shorter, that distribution would be subject to taxation in the same manner as gain, described immediately above.

 

Alternatively, if we were a PFIC and if the StoneCo Class A Common Shares were “regularly traded” on a “qualified exchange,” a U.S. Holder could make a mark-to-market election that would result in tax treatment different from the general tax treatment for PFICs described above. The StoneCo Class A Common Shares would be treated as “regularly traded” in any calendar year in which more than a de minimis quantity of the StoneCo Class A Common Shares were traded on a qualified exchange on at least 15 days during each calendar quarter. The Nasdaq is a qualified exchange for this purpose.

 

If a U.S. Holder makes a mark-to-market election, it generally will recognize as ordinary income any excess of the fair market value of its StoneCo Class A Common Shares at the end of each taxable year over its adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of the StoneCo Class A Common Shares over their fair market value at the end of the taxable year (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). If a U.S. Holder makes the election, its tax basis in the StoneCo Class A Common Shares will be adjusted to reflect these income or loss amounts. Any gain recognized on the sale or other disposition of StoneCo Class A Common Shares in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as an ordinary loss (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). Because the mark-to-market election only applies to marketable stock, however, it would not apply to a U.S. Holder’s indirect interest in any Lower-tier PFIC.

 

In addition, if we were a PFIC or, with respect to a particular U.S. Holder, were treated as a PFIC for the taxable year in which we paid a dividend or for the prior taxable year, the preferential dividend rates discussed above with respect to dividends paid to certain non-corporate U.S. Holders would not apply.

 

A U.S. Holder of StoneCo Class A Common Shares in any year in which we are treated as a PFIC generally must file an annual report containing such information as the U.S. Treasury may require on IRS Form 8621 (or any successor form) with respect to us, generally with its federal income tax return for that year.

 

U.S. Holders should consult their tax advisors concerning our potential PFIC status and the potential application of the PFIC rules.

 

Information Reporting and Backup Withholding

 

Payments of dividends and sales proceeds that are made within the United States or through certain U.S.- related financial intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless (i) a U.S. Holder is a corporation or other exempt recipient or (ii) in the case of backup withholding, a U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding.

 

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Backup withholding is not an additional tax. The amount of any backup withholding from a payment will be allowed as a credit against a U.S. Holder’s federal income tax liability and may entitle such holder to a refund, provided that the required information is timely furnished to the IRS. U.S. Holders should consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

 

Information with Respect to Foreign Financial Assets

 

Certain U.S. Holders who are individuals (and certain entities) may be required to report information on their U.S. federal income tax returns relating to an interest in the StoneCo Class A Common Shares, subject to certain exceptions (including an exception for StoneCo Class A Common Shares held in accounts maintained by certain U.S. financial institutions). U.S. Holders should consult their tax advisors regarding the effect, if any, of this requirement on their ownership and disposition of the StoneCo Class A Common Shares.

 

Material Brazilian Tax Considerations

 

The Transaction

 

Capital Gains

 

According to Brazilian tax rules, gains on the disposition of assets located in Brazil by a holder who resides in Brazil (a “Brazilian Holder”) or by a holder deemed to not be domiciled in Brazil for Brazilian tax purposes (a “Non-Brazilian Holder”) are subject to Brazilian taxation.

 

Notwithstanding the analysis of the tax treatment applicable to the contribution (incorporação de ações) of Linx Common Shares into STNE, as a result of the subsequent redemption of New STNE Shares, gains recognized by holders of Linx Common Shares are expected to be subject to Brazilian income tax at different rates, depending on the nature, domicile and regime of the corresponding holder. The rate for a Non-Brazilian Holder may generally vary from 15% to 22.5%, or may be a flat rate of 25% in case of a Non-Brazilian Holder resident of or domiciled in a “No Taxation or Low Taxation Jurisdiction.” The rate for a Brazilian Holder may vary widely, for example, from 15% to 22.5% for individuals, or 34% for Brazilian companies.

 

Although there is no clear rule regarding how a disposition of ADSs will be treated under Brazilian tax law, holders of Linx ADSs are expected to be subject to the same tax treatment applicable to holders of Linx Common Shares.

 

Due to the complexity of the Transaction and the detailed analysis and procedures relating to the tax treatment that may apply to Brazilian Holders and Non-Brazilian Holders, we advise such investors to consult their own lawyers and tax advisors for specific advice regarding their particular situation with respect to the Transaction.

 

Discussion of “No Taxation or Low Taxation Jurisdictions”

 

Brazilian tax rules set forth different concepts of “No Taxation or Low Taxation Jurisdictions” and “privileged tax regimes,” which may impact the tax treatment applicable to Non-Brazilian Holders. Nevertheless, on June 7, 2010, the Brazilian Tax Authorities enacted Normative Ruling No. 1,037, as amended, listing (i) the countries and jurisdictions considered to be “No Taxation or Low Taxation Jurisdictions” and (ii) the privileged tax regimes.

 

Accordingly, we recommend that prospective investors consult their own tax advisors for a more thorough analysis of whether they could face any possible tax consequences from a potential characterization of a “No Taxation or Low Taxation Jurisdiction” or a “privileged tax regime.”

 

Investment in StoneCo Class A Common Shares

 

This section describes the main tax implications in Brazil for holders of StoneCo Class A Common Shares.

 

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Taking into consideration the peculiarities concerning the tax treatment that may apply to Brazilian Holders and Non-Brazilian Holders, we advise such investors to consult their own lawyers and tax advisors for specific advice regarding their particular situation.

 

Non-Brazilian Holder

 

Dividends and Other Income

 

Dividends or other similar income arising from StoneCo Class A Common Shares and paid by StoneCo should not be subject to income tax in Brazil when paid in favor of a Non-Brazilian Holder.

 

Gains

 

According to Law No. 10,833/03, dated December 29, 2003, gains assessed on the sale or other disposition of assets located in Brazil are generally subject to income tax in Brazil, regardless of whether the sale or disposition is made by a Non-Brazilian Holder, to a resident or person domiciled in Brazil or to a non-resident.

 

Regardless of potential discussions regarding the indirect sale of Brazilian assets, StoneCo Class A Common Shares should, in principle, not be treated as an asset located in Brazil and therefore, their disposal should not generate income tax in Brazil.

 

Brazilian Holder

 

Dividends and Other Income

 

Dividends or other similar income arising from StoneCo Class A Common Shares and earned by Brazilian Holders are subject to income tax in accordance with applicable rules for investments held outside Brazil, including (i) Individuals Income Tax (“IRPF”) at progressive rates up to 27.5%, and (ii) Corporate Income Taxes (“IRPJ/CSLL”) at a combined rate of 34% in the case of StoneCo Class A Common Shares held by legal entities domiciled in Brazil.

 

Gains

 

Gains assessed on Brazilian Holder arising from any disposal of StoneCo Class A Common Shares are subject to taxation in Brazilian depending on the legal nature of such Brazilian Holder, including (i) income tax at rates varying from 15% up to 22.5% in case of individuals resident in Brazil, and IRPJ/CSLL at a combined 34% in case of StoneCo Class A Common Shares held by legal entities domiciled in Brazil.

 

IOF/FX

 

Conversions of Brazilian currency into foreign currency and foreign currency into Brazilian currency are subject to a tax on foreign exchange (“IOF/FX”). As a rule, a Brazilian Holder may be subject to IOF/FX currently at a rate of 0.38%, including in the case of currency conversions in connection with the inflow of dividends or proceeds related to the sale of StoneCo Class A Common Shares. The Brazilian Government is permitted to increase the rate of the IOF/Exchange at any time, up to 25% of the amount of the foreign exchange transaction. However, any increase in rates may only apply to transactions carried out after this increase in rate and not retroactively.

 

Other Brazilian Taxes

 

Brazilian inheritance, gift or succession taxes might apply on the ownership, transfer or disposition of StoneCo Class A Common Shares by a Brazilian Holder, depending on the rules imposed by certain Brazilian states. There are no Brazilian stamp, issue, registration or similar taxes or duties payable by holders of StoneCo Class A Common Shares.

 

Offsetting of Taxes Potentially Withheld Abroad

 

We advise any Brazilian Holder to consult their own lawyers and tax advisors regarding the viability of offsetting Brazil taxes potentially withheld abroad because of the ownership and transactions involving StoneCo Class A Common Shares.

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Information About the Companies

 

StoneCo

 

We are a leading provider of financial technology solutions that empower merchants and integrated partners to conduct electronic commerce seamlessly across in-store, online, and mobile channels in Brazil. We have developed a strong client-centric culture that seeks to delight our clients rather than simply providing them with a solution or service. To achieve this, we created a proprietary, go-to-market approach called the Stone Business Model, which enables us to control the client experience and ensure that interactions are provided by our people or our technology. The Stone Business Model combines our advanced, end-to-end, cloud-based technology platform; differentiated hyper-local and integrated distribution approach; white-glove, on-demand customer service; and client-centric culture, each of which is described below.

 

1.Advanced, End-to-End, Cloud-Based Technology Platform—We designed our cloud-based technology platform to (i) help our clients connect, get paid and grow their businesses, while meeting the complex and rapidly changing demands of omnichannel commerce; and (ii) overcome long-standing inefficiencies within the Brazilian payments market. Our platform enables us to develop, host and deploy our solutions very quickly. We also sell our solutions to integrated partners such as Payment Service Providers, or PSPs, which are firms that contract with a merchant to provide them with payment acceptance solutions, and marketplaces to empower merchants to conduct commerce more effectively in Brazil.

 

2.Differentiated Hyper-Local and Integrated Distribution—We developed our distribution model to proactively reach and serve our clients in a more effective manner. In particular, we developed Stone Hubs, which are local operations close to our clients that include an integrated team of sales, service, and operations support staff to reach small-and medium-sized businesses or SMBs, locally and efficiently, and to build stronger relationships with them. We also have a specialized in-house sales team that serves online merchants and digital service providers with dedicated expertise. We also work with integrated partners, such as ISVs, to embed our solutions into their offerings and enable their merchants to accept payments seamlessly and easily.

 

3.White-Glove, On-Demand Customer Service—We created our on-demand customer service team to support our clients quickly, conveniently, and with high-quality service designed to strengthen our customer relationships and improve their lifetime value with us. Our customer service approach combines (i) a Human Connection, through which we seek to address our clients’ service needs in a single phone call using a qualified team of technically trained agents; (ii) Proximity, through our Green Angels team of local support personnel who can serve our clients in person within minutes or hours, instead of days or weeks; and (iii) Technology, through a range of self-service tools and proprietary artificial intelligence, or AI, that help our clients manage their operations more conveniently and enable our agents to proactively address merchant needs, sometimes before they are even aware of an issue.

 

4.Client-Centric Culture—We have proactively fostered and developed a highly-innovative, entrepreneurial, and mission-driven culture that we believe helps attract new talent, enables us to achieve our objectives, and provides a key competitive advantage. Our culture unites our team across numerous functions and focuses our collective efforts on passionately developing technology and implementing the Stone Business Model to disrupt legacy practices, older technologies, and incumbent vendors in order to provide solutions and a level of service that go beyond simply meeting the needs of our clients, and instead seeks to deliver an enhanced overall client experience.

 

StoneCo is incorporated as an exempted company with limited liability in the Cayman Islands. Our principal executive office is located at 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman, KY1-1002, Cayman Islands. Our investor relations office can be reached at investors@stone.com.br and our website address is www.stone.co. The information contained on, or accessible through, such website is not incorporated by reference into this prospectus and should not be considered a part of this prospectus.

 

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Linx

 

Linx is a leading cloud-based technology company that develops and provides affordable, easy-to-use, reliable and integrated software solutions to over 70,000 retail clients across more than 100,000 storefronts with approximately R$300 billion of gross transaction volume (GTV), through a software-as-a-service (SaaS) business model. The company is a leading player in the retail management software market and has a strong presence in e-commerce software solutions in Brazil. It serves its clients through an end-to-end platform comprised of three product lines, including:

 

·Linx Core – which provides integrated business management software, such as ERP and POS management solutions, across various industry verticals including auto parts stores, clothing stores, department stores, electronic goods stores, fast food chains, gas stations, home improvement stores, household appliances stores, pharmacies, service retail, and vehicle dealerships.

 

·Linx Digital – which provides an e-commerce platform designed to improve the omnichannel shopping experience, enabling retailers to engage, interact and transact with their clients and manage their inventories across physical stores, mobile applications, and online channels in an integrated manner.

 

·Linx Pay Hub – which provides payment processing solutions integrated with its Core and Digital product lines and provides Electronic Funds Transfer (EFT) services.

 

Linx is a Brazilian corporation (sociedade anônima) incorporated under the Federative Republic of Brazil. Linx’s corporate headquarters are located at Avenida Doutora Ruth Cardoso, 7221, 7th floor, São Paulo, São Paulo, CEP 05425-902, Brazil, and its telephone number at this address is +55-11-2103-1531. Linx’s website is www.linx.com.br. The information contained on, or accessible through, such website is not incorporated by reference into this prospectus and should not be considered a part of this prospectus.

 

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Management and Compensation of StoneCo

 

StoneCo is managed by a board of directors. For a discussion of StoneCo’s management and compensation (as well as certain other corporate governance matters), see “Item 6. Directors, Senior Management and Employees of the StoneCo 2019 20-F,” which is incorporated by reference into this prospectus. For more information about how to obtain copies of documents incorporated by reference, see the sections of this prospectus entitled “Incorporation of Certain Documents by Reference” and “Where You Can Find More Information.”

 

Recent Developments

 

On May 27, 2020, StoneCo announced that its board of directors resolved, on its meeting of May 21, 2020, to appoints Mrs. Luciana Ibiapina Lira Aguiar to the board of directors, effective immediately, and at the same meeting, elected her to the Audit Committee, as replacement for Mr. Ali Mazanderani, who stepped out of the Audit Committee, but remained, nonetheless, as a member of the Board of Directors. Mrs. Aguiar is independent under the applicable rules and regulations of the SEC and the listing standards of the Nasdaq Stock Market. Mrs. Aguiar, 46, has over 25 years of professional experience in tax law. Mrs. Aguiar has been the managing partner of law firm Bocater, Camargo, Costa e Silva Advogados for over 3 years and prior to that, Mrs. Aguiar was a tax lawyer for law firm Mariz de Oliveira e Siqueira Campos Advogados for 2 and half years. Mrs. Aguiar was previously a tax partner at PwC, from 1994 to 2012, where she was responsible for tax audit and tax consulting, with relevant knowledge of auditing standards, tax and accounting legislation, regulation of publicly-held companies. Mrs. Aguiar is Professor of Tax Law courses at GVlaw - FGV Direito - São Paulo, and holds bachelor degrees in Law, Economic Sciences and Accounting Sciences from Pontifícia Universidade Católica de São Paulo and a Master degree in Tax Law from Fundação Getúlio Vargas.

 

With Mrs. Aguiar’s appointment, StoneCo’s current board members are Mr. André Street de Aguiar, Mr. Eduardo Cunha Monnerat Solon de Pontes, Mr. Thomas A. Patterson, Mr. Ali Mazanderani, Mr. Roberto Moses Thompson Motta, Mr. Sílvio José Morais and Mrs. Luciana Ibiapina Lira Aguiar.

 

The Audit Committee currently consists of three members, namely Mr. Roberto Moses Thompson Motta, Mr. Sílvio José Morais and Mrs. Luciana Ibiapina Lira Aguiar, who satisfy the criteria of audit committee financial expert as set forth under the applicable rules of the SEC.

 

Immediately following the Transaction, the composition of the board of directors and the executive officers of StoneCo will remain the same as those currently serving such roles.

 

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Share Ownership of Certain Beneficial Owners and Management

 

Major Shareholders and Directors and Officers of StoneCo

 

The following table and accompanying footnotes present information relating to the beneficial ownership of our Class A Common Shares and Class B Common Shares by (1) each person, or group of affiliated persons, known by us to own beneficially 5% or more of our outstanding shares; (2) each of our executive officers and directors individually; and (3) all of StoneCo’s executive officers and directors as a group, in each case as of August 18, 2020, unless otherwise noted below. We are not aware of any other shareholder that beneficially owns more than 5% of our common shares nor of any arrangements the operation of which may at a subsequent date result in a change of control of StoneCo. Other than those persons listed below, none of our directors or officers beneficially own any of our shares.

 

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 through the exercise of any option, warrant or other right.

 

Except as otherwise indicated, and subject to applicable community property laws, we believe that each shareholder identified in the table below possesses sole voting and investment power over all the Class A Common Shares or Class B Common Shares shown as beneficially owned by the shareholder in the table. Percentages in the table below are based on 225,841,808 outstanding Class A common shares and 82,882,231 outstanding Class B common shares as of August 18, 2020.

 

   Shares Beneficially Owned  % of Total
   Class A  Class B  Voting
   Shares  %  Shares  %  Power(1)
5% Shareholders               
HR Holdings LLC(2)    -      -      55,335,781    66.8%   52.5%
Madrone Partners L.P.(3)    8,959,532    4.0%   20,379,744    24.6%   20.2%
T. Rowe Price Funds(4)    32,838,829    14.5%   -      -      3.1%
Capital Research Global Investors(5)   18,111,355    8.0%   -      -      1.7%
Actis 4 PCC(6)   14,462,320    6.4%   -      -      1.4%
Berkshire Hathaway Inc.(7)    14,166,748    6.3%   -      -      1.3%
Executive Officers and Directors                         
André Street (8)   -      -      61,963,301    74.8%   58.8%
Eduardo Cunha Monnerat Solon de Pontes (9)   -      -      61,963,301    74.8%   58.8%
Roberto Moses Thompson Motta   -      -      -      -      -   
Thomas A. Patterson (10)   8,959,532    4.0%   20,379,744    24.6%   20.2%
Ali Mazanderani   -      -      -      -      -   
Silvio José Morais   -      -      -      -      -   
Thiago dos Santos Piau   -      -      -      -      -   
Augusto Barbosa Estellita Lins   1,736,591    0.8%   -      -      0.2%
Marcelo Bastianello Baldin   -      -      -      -      -   
Rafael Martins Pereira   -      -      -      -      -   
Felipe Salvini Bourrus   -      -      -      -      -   
Vinícius do Nascimento Carrasco   -      -      -      -      -  
Lia Machado de Matos   *    *    -      -      * 
All directors and senior management as a group (13 persons) (11)   10,706,028    4.7%   82,343,045    99.3%   79.1%

 

 

 

* Each of these directors and officers beneficially owns less than 1% of the total number of outstanding Class A common shares.

 

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(1)Percentage of total voting power represents voting power with respect to all of our Class A common shares and Class B common shares, as a single class. Holders of our Class B common shares are entitled to 10 votes per share, whereas holders of our Class A common shares are entitled to one vote per share.

 

(2)Consists of common shares held of record by HR Holdings, LLC as of August 18, 2020. André Street and Eduardo Pontes may be deemed to have voting and dispositive power over the shares held by HR Holdings, LLC. In addition, Mr. Street and Mr. Pontes are the beneficial owners of (i) 1,286,022 Class B common shares held of record by VCK Investment Fund Limited (SAC) A (“VCK A”), a segregated account of VCK Investment Fund Limited (SAC) (“VCK”), (ii) 1,823,680 Class B common shares held of record by VCK Investment Fund Limited (SAC) E (“VCK E”), a segregated account of VCK, (iii) 3,517,818 Class B common shares held of record by Cakubran Holdings Ltd., a company controlled by VCK. HR Holdings, LLC is controlled by ACP Investments Ltd.—Arpex Capital, which is in turn jointly controlled by VCK A and VCK E, which are segregated accounts of VCK.

 

(3)Consists of common shares held of record by Madrone Partners, L.P. as of April 6, 2020. Madrone Capital Partners, LLC is the general partner of Madrone Partners, L.P. Thomas Patterson, Greg Penner and Jameson McJunkin are managing members of Madrone Capital Partners, LLC and may be deemed to have voting and dispositive power over the shares held by Madrone Partners, L.P. The address of each of these entities is 1149 Chestnut Street, Suite 200, Menlo Park, CA 94025.

 

(4)The information in the above table concerning T. Rowe Price Associates, Inc. was obtained from a Schedule 13G/A filed with the Securities and Exchange Commission by T. Rowe Price Associates, Inc. on February 14, 2020 reporting beneficial ownership at December 31, 2019. Disclaimer: T. Rowe Price Associates, Inc. (“TRPA”) serves as investment adviser or subadviser, as applicable, with power to direct investments and/or sole power to vote the securities owned by the funds and accounts listed above. For purposes of reporting requirements of the Securities Exchange Act of 1934, TRPA may be deemed to be the beneficial owner of all the shares listed above; however, TRPA expressly disclaims that it is, in fact, the beneficial owner of such securities. TRPA is the wholly owned subsidiary of T. Rowe Price Group, Inc., which is a publicly traded financial services holding company. T. Rowe Price Investment Services, Inc. (“TRPIS”), a registered broker-dealer (and FINRA member), is a subsidiary of TRPA. TRPIS was formed primarily for the limited purpose of acting as the principal underwriter and distributor of shares of the funds in the T. Rowe Price fund family. TRPIS does not engage in underwriting or market-making activities involving individual securities. T. Rowe Price provides brokerage services through this subsidiary primarily to complement the other services provided to shareholders of the T. Rowe Price funds.

 

(5)The information in the above table concerning Capital Research Global Investors was obtained from a Schedule 13G/A filed with the Securities and Exchange Commission by Capital Research Global Investors on March 10, 2020 reporting beneficial ownership at February 28, 2020. Of the shares of Class A common shares beneficially owned, Capital Research Global Investors reported that it has sole dispositive power with respect to 18,111,355 shares, and sole voting power with respect to 18,104,903 shares. Capital Research Global Investors is a division of Capital Research and Management Company. The business address for Capital Research Global Investors is 333 South Hope Street, Los Angeles, California 90071.

 

(6)The information in the above table concerning Actis 4 PCC-Cell Granite was obtained from a Schedule 13G/A filed with the Securities and Exchange Commission by Actis 4 PCC-Cell Granite on February 12, 2020 reporting beneficial ownership at December 31, 2019. Consists of common shares held by Actis 4 PCC-Cell Granite. Actis 4 PCC-Cell Granite is a Mauritian protected cell company the shareholders of which are investment funds managed by Actis GP LLP or members of the Actis Group. The business address for Actis 4 PCC-Cell Granite is Les Cascades Building, Edith Cavell Street, Port Louis, Mauritius. Actis Global 4 LP and Actis Global 4 A LP hold a majority of the interests of Actis 4 PCC–Cell Granite. Actis GP LLP is the general partner of Actis Global 4 LP and Actis Global 4 A LP. Actis New GP Co Ltd holds a majority of the interests of Actis GP LLP. Actis LLP is the sole shareholder of Actis New GP Co Ltd. H Ebco S.a.r.l. holds a majority of the interests of Actis LLP. Savina Holdings L.P. is the sole owner of H Ebco S.a.r.l. Savina Holdings GP LLP is the general partner of Savina Holdings L.P.

  

(7)The information in the above table concerning Berkshire Hathaway, Inc. (“Berkshire Hathaway”) was obtained from a Schedule 13G filed with the Securities and Exchange Commission by Berkshire Hathaway on November 8, 2018 reporting beneficial ownership at October 29, 2018. Berkshire Hathaway’s controlling shareholder is its Chairman and Chief Executive Officer, Warren E. Buffett, who may be deemed to have voting and dispositive power over the shares held by Berkshire Hathaway. The address for each of Berkshire Hathaway and Warren E. Buffet is 3555 Farnam Street, Omaha, Nebraska 68131.

 

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(8)Shares beneficially owned as of August 18, 2020 consists of (i) 1,286,022 Class B common shares held of record by VCK Investment Fund Limited (SAC) A (“VCK A”), a segregated account of VCK Investment Fund Limited (SAC) (“VCK”), (ii) 1,823,680 Class B common shares held of record by VCK Investment Fund Limited (SAC) E (“VCK E”), a segregated account of VCK, (iii) 3,517,818 Class B common shares held of record by Cakubran Holdings Ltd., a company controlled by VCK and (iv) 55,335,781 Class B common shares held of record by HR Holdings, LLC, a company controlled by ACP Investments Ltd. — Arpex Capital, in turn jointly controlled by VCK A and VCK E, which are segregated accounts of VCK, over which Mr. Street may be deemed to share voting and investment power.

 

(9)Shares beneficially owned as of August 18, 2020 consists of (i) 1,286,022 Class B common shares held of record by VCK Investment Fund Limited (SAC) A (“VCK A”), a segregated account of VCK Investment Fund Limited (SAC) (“VCK”), (ii) 1,823,680 Class B common shares held of record by VCK Investment Fund Limited (SAC) E (“VCK E”), a segregated account of VCK, (iii) 3,517,818 Class B common shares held of record by Cakubran Holdings Ltd., a company controlled by VCK and (iv) 55,335,781 Class B common shares held of record by HR Holdings, LLC, a company controlled by ACP Investments Ltd. — Arpex Capital, in turn jointly controlled by VCK A and VCK E, which are segregated accounts of VCK, over which Mr. Pontes may be deemed to share voting and investment power.

 

(10)Shares beneficially owned consists of 8,959,532 Class A common shares and 20,379,744 Class B common shares held of record by Madrone Partners L.P., as of April 6, 2020, over which Mr. Patterson may be deemed to share voting and investment power.

 

(11)The number of StoneCo Class A Common Shares held by each director or officer is current as of April 6, 2020, pursuant to the StoneCo 2019 20-F, unless otherwise noted.

 

Shareholders Agreement

 

We have entered into a shareholders agreement (or the Shareholders Agreement), with our founder shareholders. Among other things, the Shareholders Agreement provides our founder shareholders with the right to nominate a certain number of directors based on the aggregate voting power of the shares of our outstanding share capital held by them, so long as our founder shareholders own at least 5% of the voting power of our outstanding share capital.

 

The Shareholders Agreement provides that, subject to compliance with applicable law and Nasdaq rules, for so long as our founder shareholders and their affiliates beneficially own shares comprising at least 25% of the voting power of our outstanding share capital, they shall collectively be entitled to designate up to three nominees to our board of directors (or if the size of the board of directors is increased, a majority of the members of the board of directors); for so long as our founder shareholders and their affiliates beneficially own at least 10% of the voting power of our outstanding share capital, they shall collectively be entitled to designate up to two nominees to our board of directors (or if the size of the board of directors is increased, 25% of the members of the board of directors); and for so long as our founder shareholders and their affiliates beneficially own at least 5% of the voting power of our outstanding share capital, they shall collectively be entitled to designate one nominee to our board of directors (or if the size of the board of directors is increased, 10% of the members of the board of directors).

 

In addition, the Shareholders Agreement provides that for so long as our founder shareholders and their affiliates own at least 10% of the voting power of our outstanding share capital, our founder shareholders will have the right to cause each of the compensation committee, the audit committee and the finance committee of our board of directors to include in its membership the pro rata share of the total number of members of each committee that is equal to the proportion that the number of directors that our founder shareholders are entitled to designate bears to the total number of directors on our board of directors, except to the extent that such membership would violate applicable securities laws or Nasdaq rules.

 

The rights granted to our founder shareholders to designate directors are additive to and not intended to limit in any way the rights that our founder shareholders or any of their affiliates may have to nominate, elect or remove our directors under our memorandum and articles of association or laws of the Cayman Islands.

 

The Shareholders Agreement also provides that for so long as founder shareholders own at least 15% of the voting power of our common shares then outstanding, we agree not to take, or permit our subsidiaries to take, certain actions, such as incurring indebtedness in excess of our net equity, entering into a transaction that would result in a Change of Control (as defined therein), entering into a merger, consolidation, reorganization or other business combination, taking any steps to liquidate or declare bankruptcy or insolvency, issue any capital shares other than pursuant to StoneCo’s 2018 omnibus equity plan, acquire or dispose of assets in excess of 20% of our fair market value, or approve any annual compensation of officers and directors, without the approval of our founder shareholders. Additionally, for as long as our founder shareholders and their affiliates hold at least 5% of the total voting power of our outstanding share capital, our founder shareholders and their designated representatives will have certain information and access rights to our management. Finally, the Shareholders Agreement provides that from and after the date on which our founder shareholders no longer collectively beneficially own more than 50% of the voting power of our outstanding share capital, we will cause the board of directors to be divided into three classes of directors, whose members will serve for staggered terms as set forth in the StoneCo Articles of Association.

 

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Major Shareholders and Directors and Officers of Linx

 

The table below presents information relating to the beneficial ownership of Linx’s common shares (including in the form of ADSs) by (1) each person, or group of affiliated persons, known by Linx to own beneficially 5% or more of Linx’s outstanding shares; (2) each of Linx’s executive officers and directors individually; and (3) all of Linx’s executive officers and directors as a group, in each case as of August 18, 2020, unless otherwise noted below.

 

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 August 18, 2020 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 175,282,969 common shares outstanding as of August 18, 2020. Common shares that a person has the right to acquire within 60 days of August 18, 2020 are deemed outstanding for purposes of computing the percentage ownership of the person holding such rights, but are not deemed outstanding for 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.

 

 

Shareholder  Number of Common Shares  Total Common Shares (%)(1)
5% Shareholders      
Genesis Asset Managers   14,743,368    8.41 
Morgan Stanley(2)   13,260,874    7.0 
Itaú-Unibanco   12,183,378    6.95 
GIC Private Limited   8,421,569    4.80 
Executive Officers and Directors          
Nércio José Monteiro Fernandes   10,776,395    6.15 
Alberto Menache(3)   9,045,522    5.16 
Alon Dayan   6,848,988    3.91 
João Cox   *    * 
Roger de Barbosa Ingold   *    * 
Flávio Mambreu Menezes   *    * 
Gilsinei Valcir Hansen   *    * 
Jean Carlo Klaumann   *    * 
Antonio Ramatis Fernandes Rodrigues   —      —   
Dênis Nieto Piovezan   —      —   
Flávio Cesar Maia Luz   —      —   
João Adamo Junior   —      —   
Marcelo Amaral Morães   —      —   
All executive officers and directors as a group (13 persons)          
All executive officers and directors as a group(4)   27,363,284    15.61 

*Represents less than 1% of common shares outstanding.

 

(1) Shareholdings do not sum to 100% due to the effects of rounding.
   
(2) The information in the above table concerning Morgan Stanley was obtained from a Schedule 13G filed with the Securities and Exchange Commission by Morgan Stanley and Morgan Stanley Uruguay Ltda. on August 28, 2020 reporting beneficial ownership at August 19, 2020.

 

(3) Includes 303,109 common shares subject to options exercisable within 60 days of August 18, 2020.

  

(4) Includes 401,777 common shares subject to options exercisable within 60 days of August 18, 2020.

 

 

 

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Founding Block Shareholders’ Agreement

 

As of May 15, 2020, 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 Linx’s board of directors in the founding block shareholders’ agreement, based on Article 118, Paragraph 9 of the Brazilian Corporation Law.

 

On July 30, 2014, Linx entered into a shareholders’ agreement with its 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 their general meetings, and to have their representatives exercise their right to vote in their 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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Comparison of the Rights of Holders of StoneCo and Linx Shares

 

Linx is a corporation (sociedade anônima) incorporated under the laws of the Federative Republic of Brazil. As a result of the Transaction, the holders of Linx Shares will become holders of StoneCo Class A Common Shares, and their rights will be governed by the laws of the Cayman Islands and the StoneCo Articles of Association. Following the Closing of the Transaction, former Linx shareholders will have different rights as StoneCo shareholders than they did as Linx shareholders. Each StoneCo Class A Common Share will be issued in connection with, and will carry with it the rights and obligations set forth in the StoneCo Articles of Association and the laws of the Cayman Islands.

 

This section summarizes material differences between the rights of Linx shareholders before consummation of the Transaction and the rights of StoneCo shareholders after consummation of the Transaction. These differences in shareholder rights result from the differences between the respective constitutional documents of StoneCo and Linx and the applicable governing law. For additional information regarding the differences between owning StoneCo Class A Common Shares and owning Linx Common Shares and ADSs, see the section of this prospectus entitled “The Transaction Documents—The Association Agreement.” The following summary does not include a description of rights or obligations under the U.S. federal securities laws, Brazilian securities laws, Novo Mercado Rules or Nasdaq listing requirements or standards.

 

The following summary is not a complete statement of the rights of the shareholders of StoneCo or the shareholders of Linx or a complete description of the specific provisions referred to below. The identification of specific differences is not intended to indicate that other equally significant or more significant differences do not exist. This summary is qualified in its entirety by reference to the Companies Law, the Brazilian Corporation Law, CVM rulings, the Novo Mercado Rules and StoneCo’s and Linx’s constitutional documents, which you are urged to read carefully.

 

The form of the StoneCo Articles of Association is incorporated herein by reference. Linx has filed with the SEC its constitutional documents and will send copies of these documents to you, without charge, upon your request. For additional information, please see the section of this prospectus entitled “Where You Can Find More Information” of this prospectus.

 

StoneCo

(a Cayman Islands exempted company with limited liability)

 

 

Linx

(a corporation (sociedade anônima) incorporated under the laws of the Federative Republic of Brazil) 

Authorized Share Capital

StoneCo’s authorized share capital is U.S.$50,000 divided into 630,000,000 shares of a par value of U.S.$0.000079365 each.

 

The Amended and Restated Articles of Association of StoneCo (the “StoneCo Articles of Association”) authorize two classes of common shares: the StoneCo Class A Common Shares, and the StoneCo Class B Common Shares. Any holder of StoneCo Class B Common Shares may convert his or her shares at any time into StoneCo Class A Common Shares on a share-for-share basis.

 

The authorized but unissued shares are presently undesignated and may be issued by the board of directors of StoneCo as common shares of any class or as shares with preferred, deferred or other special rights or restrictions.

 

As of December 31, 2019, 178,681,714 Class A common shares and 98,678,252 Class B common shares were issued, fully paid and including 6,870 Class A common shares in treasury.

 

 

Linx’s share capital is R$645,447,005.42 divided into 189,408,960 common shares, registered, book-entry, with no par value.

 

Pursuant to the bylaws of Linx in effect as of the date of this registration statement (the “Linx Bylaws”), Linx’s share capital must be comprised exclusively of common shares. Linx is authorized to increase the share capital up to a limit of 70,000,000 common shares registered, book-entry, with no par value, irrespective of any amendment to the Linx Bylaws, upon resolution of the Linx board of directors.

 

On December 31, 2019, there were 179,539,188 Linx Common Shares issued and outstanding (excluding 9,869,772 Linx Common Shares held in treasury), and there were 13,358,978 ADSs outstanding, representing 7.4% of the outstanding Linx Common Shares.

 

Shareholders’ Voting Rights

Each StoneCo Class A Common Share shall entitle the holder to one vote on all matters subject to a vote at general meetings of StoneCo, and each StoneCo Class B Common

 

 

Each common share shall grant the right to one vote in the resolutions of the Linx shareholders meetings.

 

 

 

 

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StoneCo

(a Cayman Islands exempted company with limited liability)

 

 

Linx

(a corporation (sociedade anônima) incorporated under the laws of the Federative Republic of Brazil) 

Share shall entitle the holder to 10 votes on all matters subject to a vote at general meetings of StoneCo.

 

Subject to any special rights, restrictions or privileges as to voting for the time being attached to any class or classes of shares at any general meeting: (a) on a poll every Member (as defined by the Companies Law) (each a “Member”) present in person or by proxy or, in the case of a Member being a corporation, by its duly authorized representative shall have one vote for every share which is fully paid or credited as fully paid registered in his or her name in the StoneCo register of Members, (each StoneCo Class B Common Share shall entitle the holder to 10 votes on all matters subject to a vote at StoneCo general meetings) provided that no amount paid up or credited as paid up on a share in advance of calls or instalments is treated for this purpose as paid up on the share; and (b) on a show of hands every Member who is present in person (or, in the case of a Member being a corporation, by its duly authorized representative) or by proxy shall have one vote. Where more than one proxy is appointed by a Member which is a Clearing House or its nominee(s), each such proxy shall have one vote on a show of hands. On a poll, a Member entitled to more than one vote need not use all his or her votes or cast all the votes he or her does use in the same way.

 

Other than the exceptions provided for in the Linx Bylaws, the Brazilian Corporation Law or the Novo Mercado Rules, as the case may be, the affirmative vote of Linx 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 Linx shareholders representing at least 50% of the Linx issued and outstanding voting capital is required to approve certain enumerated matters.

 

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, a Linx director or officer, a lawyer or a financial institution. An investment fund must be represented by its manager or a proxy.

 

Structure of Board of Directors

The StoneCo Articles of Association provide that, unless otherwise determined by a special resolution of shareholders (requiring a two-thirds of those in attendance majority vote), the board of directors of StoneCo will be composed of five to eleven directors, with the number being determined by a majority of the directors then in office.

 

Each director shall be appointed and elected for such terms as the resolution appointing him or her may determine or until his or her death, resignation or removal, subject to any applicable provision set forth in the StoneCo Articles of Association.

 

A StoneCo director is not required to hold any shares in StoneCo by way of qualification nor is there any specified upper or lower age limit for directors either for accession to or retirement from the board.

 

 

Pursuant to the Linx Bylaws, the Linx 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 Linx shareholders.

 

The members of the Linx 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 the Linx shareholders. The members of the Linx 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 the Linx board of directors must be independent members.

 

Chairman
If the Founding Shareholders (as defined in the StoneCo Articles of Association) of StoneCo (the “StoneCo Founding Shareholders”) hold at least 50% of all voting powers of the Members, they may elect and appoint a Chairman and Vice-Chairman. If the StoneCo Founding Shareholders do not have such voting power, then the StoneCo board of directors shall appoint the Chairman and Vice-Chairman.   The Board of Directors shall have one Chairman and one Deputy Chairman, both elected by a majority of votes of the members attending the Linx shareholders meeting, provided that the positions of Chairman of the Linx board of directors and Chief Executive Officer of Linx may not be held by the same person.
Shareholder’s Derivative Actions

Class actions are not recognized in the Cayman Islands, but groups of shareholders with identical interests may bring representative proceedings, which are similar. However, a class action suit could nonetheless be brought in a U.S. court pursuant to an alleged violation of U.S. securities laws and regulations.

 

 

 

The Brazilian Corporation Law provides that any shareholder that has suffered direct losses may individually file judicial proceedings against the company or its directors. The Brazilian Corporation Law also authorizes derivative actions against the company’s directors. Once the shareholders’ meeting resolves to file a derivative lawsuit, if the lawsuit has not been initiated within three months following this resolution, any shareholder

 

 

 

 

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StoneCo

(a Cayman Islands exempted company with limited liability)

 

 

Linx

(a corporation (sociedade anônima) incorporated under the laws of the Federative Republic of Brazil) 

In principle, StoneCo would normally be the proper plaintiff and as a general rule, whilst a derivative action may be initiated by a minority shareholder on StoneCo’s behalf in a Cayman Islands court, such shareholder will not be able to continue those proceedings without the permission of a Grand Court judge, who will only allow the action to continue if the shareholder can demonstrate that it has a good case against the defendant, and that it is proper for the shareholder to continue the action rather than the board of directors. Examples of circumstances in which derivative actions would be permitted to continue are where:

 

(i)    a company is acting or proposing to act illegally or beyond the scope of its authority;

 

(ii)   the act complained of, although not beyond the scope of its authority, could be effected duly if authorized by more than a simple majority vote that has not been obtained; and

 

(iii)  those who control the company are perpetrating a “fraud on the minority.”

 

In general, claims against a company by its members must be based on the general laws of contract or tort applicable in the Cayman Islands or be based on a potential violation of their individual rights as members as established by a company’s memorandum and articles of association.

 

 

may do so on behalf of the company. If the shareholders’ meeting votes against filing a derivative lawsuit, shareholders representing at least 5% of the company’s capital stock are entitled to file such lawsuit, notwithstanding the voting result.

 

Further, the Brazilian Corporation Law provides that shareholders representing at least 5% of the company’s capital stock may bring claims against the controlling shareholder to recover damages caused by the breach of its fiduciary duties.

 

The Brazilian Corporation Law permits a wide variety of bases for shareholder lawsuits. For example, shareholders are entitled to file lawsuits to:

 

(i)     void the act of incorporation of the company (limitation period of one year);

 

(ii)    void decisions taken by irregular meetings (limitation period of two years);

 

(iii)   claim civil liabilities against experts and capital subscribers (limitation period of one year);

 

(iv)  claim the payment of dividends (limitation period of 3 years, calculated as from the date on which such dividends were made available to the shareholder);

 

(v)   claim civil liabilities against the founders, shareholders, managers, liquidators, auditors or controlling companies, in the case of violation of the law or by-laws (limitation period of 3 years); and

 

(vi)  claims against the company for whatever reason (limitation period of 3 years).

 

As prescribed by CVM Instruction No. 627, dated June 22, 2020, the threshold to file either a derivative action against the company’s directors or a claim against the controlling shareholder for the breach of its fiduciary duties, considering Linx’s current capital, is of 4% of Linx’s voting capital stock.

 

Approval of Mergers and Business Combinations
The StoneCo Articles of Association provide that, subject to the Companies Law and the rules of any applicable stock exchange, StoneCo will, with the approval of a special resolution (requiring a two-thirds of those in attendance majority vote), have the power to merge or consolidate with one or more constituent companies, upon such terms as the StoneCo directors may determine, provided that any such merger or consolidation shall require the consent of the StoneCo Founding Shareholders.   The affirmative vote of shareholders representing at least 50% of Linx’s issued and outstanding voting capital is required to approve any merger into or consolidation with another company.
Cumulative Voting
As permitted under Cayman Islands law, the StoneCo Articles of Association do not provide for cumulative voting.  

The Brazilian Corporate Law permits the adoption of cumulative voting upon a request by shareholders representing at least 10% of Linx’s voting capital, according to which each share receives a number of votes corresponding to the number of members of the Linx board of directors. The shareholders holding, individually or jointly, at least 15% of the Linx 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 Linx’s current capital, Linx shareholders representing 5% of Linx’s voting capital stock may request the adoption of cumulative voting to elect the members of the Linx board of directors. If cumulative voting is

 

 

 

 

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St