Legal Aspects of Level I ADRs

1. Legal Aspects of Level I ADRs October 22, 2009New York Eduardo Vidal

2. Introduction Advantages Easily Established Private Placements Legal Implications Conclusion Contents

3. Level III programs allow capital raising, but Require registration with SEC, which includes: Form F-1 Form 20-F Reconciling financial statements Sarbanes-Oxley Act of 2002 Introduction

4. Level II programs do not allow capital raising, but Also require registration with SEC, Usually following a private placement, Pursuant to an exchange offer Introduction(cont.)

5. Level I programs also do not allow capital raising, but ADRs are not registered with the SEC Traded over-the-counter Pursuant to an exemption Introduction(cont.)

6. Introduction to international capital markets Most convenient way to trade for international investors: Denominated in U.S. dollars, Settlements occur in accordance with New York rules, and In the world’s most liquid capital market Advantages

7. SEC requirements do not include: Form F-1 Form 20-F Reconciling financial statements Sarbanes-Oxley Act of 2002 Advantages(cont.)

8. Can be established quickly Web page In English Same information as provided in Brazil Easy to terminate Advantages (cont.)

9. ADRs are traded on the over-the-counter electronic markets in New York Pink OTC No listing requirements Advantages (cont.)

10. First, present financial information electronically in accordance with Rule 12g3-2(b) In October 2008, amendments to Rule 12g3-2(b)came into effect No longer paper filings Easily Established

11. Issuers are automatically exempted from registration requirements Do not have to apply with or notify the SEC,so long as they Are listed on the Bovespa Publish financial information on their website, and Do not have any public securities listed in the U.S. capital markets Easily Established (cont.)

12. To comply with these requirements, the issuer should promptly publish, in English on its website All information that, Since the first day of its most recently completed fiscal year, It has made public to investors in Brazil Easily Established (cont.)

13. Publish only information that is material to an investment decision Such as, for example: Financial condition and results of operations Changes in business Related transactions Easily Established (cont.)

14. Second, a Deposit Agreement must be entered into by issuer and depositary Setting forth the program’s terms and conditions Issuer subjects itself to the jurisdiction of Federal courts in the State of New York Issuer appoints an authorized agent in New York to receive service of process Easily Established (cont.)

15. Third, Form F-6 must be filed by the depositary with the SEC: Simplified registration statement Signed by majority of issuer’s board of directors Easily Established (cont.)

16. Typically involve two simultaneous offerings: Rule 144A Regulation S Using different, though almost identical, deposit agreements Information requirements of Rule 144A(d)(4) Satisfied by compliance with Rule 12g3-2(b) Private Placements

17. Regulation S allows the sale of ADRs outside the United States Following a “restricted period” of 40 days, May establish an over-the-counter ADR program in the United States Private Placements (cont.)

18. SEC anti-fraud provisions apply But no capital is raised U.S. Foreign Corrupt Practices Act (“FCPA”) Do not apply to Level I programs Exemption from registration Legal Implications

19. New Rule 12g3-2(b) facilitates the creation of unsponsored programs, Established without any issuer participation But not permitted in Brazil Legal Implications (cont.)

20. Level I ADR program Raises the profile of Brazilian issuers in international capital markets The compliance process is relatively simple The issuer must make available in English on its Website The same information it makes available on its home market Conclusion