Bridging the Gap? Recent SEC Initiatives Affecting Foreign Issuers Antonio N. Piccirillo Partner Proskauer Rose LLP São Paulo (11)

1 What Gap?  The vast majority of equity offerings by Brazilian companies in the U.S. market in recent years have been conducted in non-registered offerings in the Rule 144A market.  Traditional advantages of SEC-registered offerings: —Improved access to capital (deeper market) —Fewer restrictions on resales —Liquidity premium —Ability to use shares for acquisitions —Improved corporate image —Coverage of company by analysts —Ability to conduct shelf offerings

2 What Gap?  Disadvantages of conducting a registered offering (as opposed to a Rule 144A/Regulation S offering): —Lengthier and more expensive process —Less flexibility in disclosure documents —Continuing reporting obligations for company (20-F, 6-K) —Reporting obligations of large shareholders (13D filings) —Sarbanes-Oxley —Increased exposure to liability —U.S. GAAP financial statements —Inability to deregister (cont’d)

3 Bridging the GAP?  In 2007 the SEC adopted two measures to ease burdens on foreign issuers: —IFRS financial statements —Deregistration reform  In 2008 the SEC proposed several measures that would affect foreign issuers, including: —Rule 12g3-2(b) reform —Shortening of 20-F filing period —Financial statement measures

4 IFRS Financial Statements  Old rule: —Foreign issuers were required to present financial information either:  in accordance with U.S. GAAP or  in accordance with home country accounting principles and reconciled to U.S. GAAP  New rule: —Foreign issuers may present financial information under IFRS (International Financial Reporting Standards) as issued by the IASB (International Accounting Standards Board) without the need to reconcile financial information to U.S. GAAP. —Rule applies to financial statements for years ending November 15, 2007 and thereafter.

5 Deregistration Reform  Old Rule: —A foreign issuer could only deregister its securities (and suspend its reporting obligations) only if it proved that it had fewer than 300 holders of ADRs or shares in the United States.  Complicated “look-through” calculation applied on a worldwide basis. —Reporting obligations would resume if number of U.S. holders surpassed 300.  This required issuers to recalculate the number of U.S. holders on an annual basis, and to be prepared to resume reporting obligations.

6 Deregistration Reform  New rule (Rule 12h-6): —A foreign issuer can permanently deregister and terminate its reporting obligations by using one of two tests:  Average Daily Trading Volume (ADTV) test —ADTV in the United States must have been less than 5% of ADTV worldwide in preceding 12 months. —Issuer can rely on reports from third party providers obtained in good faith. —Convertible and equity-linked securities excluded.  300 U.S. holder test —Similar to old rule, but scope of “pass-through” calculation is limited to brokers in the United States, the issuer’s home country and the primary trading market for the securities. —Only test available for debt securities. —Issuer is granted an automatic 12g3-2(b) exemption by deregistering. (cont’d)

7 Rule 12g3-2(b) Reform  Old rule: —A foreign issuer with assets of more than U.S.$10 million and a class of securities held of record by more than 500 persons worldwide and 300 persons in the United States was subject to registration. —Exemption available if foreign issuer files a 12g3-2(b) exemption request and files with the SEC (or makes available on its website):  All material information required to be distributed by the issuer’s home country laws or local stock exchange rules.  All other material information distributed or required to be distributed to its security holders. —Exemption required for ADR Level I issuers. —Filing must be made before issuer becomes subject to registration.

8 Rule 12g3-2(b) Reform (con’t)  New proposed rule: —A foreign issuer can claim the 12g3-2(b) exemption without making a filing with the SEC so long as:  the issuer is not otherwise required to file reports pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934  the issuer maintains listing of the securities in one or more foreign jurisdictions that collectively represent the primary trading market (at least 55% of trading) for these securities  either: (i) the issuer’s ADTV in the United States represents less than 20% of worldwide ADTV or (ii) the issuer has terminated its registration and reporting obligations under Rule 12h-6 and  the issuer makes available on its website English language versions of its non-U.S. disclosure documents.

9 Other Proposed Rules  Shortening of filing periods: —Current rule:  A foreign issuer can file its Annual Report on Form 20-F up to 180 days following the end of its fiscal year. —Proposed rule:  Period would be shorted to 90 days for large accelerated filers and accelerated filers and 120 days for remaining filers.  Financial statement proposals: —Eliminate exemption for provision of segment information for foreign issuers (or eliminate item 17 disclosure altogether). —Require foreign issuers to disclose information on material acquisitions.