1. 60750558_4 Legal Aspects of Level I ADRs October 22, 2009 New York Eduardo Vidal

2. 2 60750558_4 Contents I.Introduction II.Advantages III.Easily Established IV.Private Placements V.Legal Implications VI.Conclusion

3. 3 60750558_4 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. 4 60750558_4 Introduction (cont.) Level II programs do not allow capital raising, but Also require registration with SEC, –Usually following a private placement, –Pursuant to an exchange offer

5. 5 60750558_4 Introduction (cont.) 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

6. 6 60750558_4 Advantages 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

7. 7 60750558_4 Advantages (cont.) SEC requirements do not include: –Form F-1 –Form 20-F –Reconciling financial statements –Sarbanes-Oxley Act of 2002

8. 8 60750558_4 Advantages (cont.) Can be established quickly –Web page –In English –Same information as provided in Brazil Easy to terminate

9. 9 60750558_4 Advantages (cont.) ADRs are traded on the over-the-counter electronic markets in New York –Pink OTC No listing requirements

10. 10 60750558_4 Easily Established 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

11. 11 60750558_4 Easily Established (cont.) 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

12. 12 60750558_4 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. 13 60750558_4 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. 14 60750558_4 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. 15 60750558_4 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. 16 60750558_4 Private Placements 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)

17. 17 60750558_4 Private Placements (cont.) 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

18. 18 60750558_4 Legal Implications 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

19. 19 60750558_4 Legal Implications (cont.) New Rule 12g3-2(b) facilitates the creation of unsponsored programs, Established without any issuer participation –But not permitted in Brazil

20. 20 60750558_4 Conclusion 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