According to the Brazilian Corporate Law, companies usually present two main categories of reserve accounts: (i) profit reserve accounts; and (ii) capital reserve accounts.

Profit Reserves

The profit reserve accounts are comprised of the legal reserve, contingency reserve, unrealized profit reserve, retained profit reserve and statutory reserve.

Legal Reserve

Under the Brazilian Corporate Law, we are required to maintain a legal reserve to which we must allocate 5.0% of our net income for each fiscal year until the aggregate amount of the reserve equals 20.0% of our share capital. However, we are not required to make any allocations to our legal reserve in a year in which the legal reserve, when added to our established capital reserves, exceeds 30.0% of our share capital. Any net loss may be offset with the amounts allocated to the legal reserve. The amounts allocated to such reserve must be approved by our shareholders in a shareholders´ meeting, and may only be used to increase our share capital or to offset losses. As of June 30, 2007, our legal reserve was

Contingency Reserve

Under the Brazilian Corporate Law, a percentage of our net profits may be allocated to a contingency reserve for anticipated losses that are deemed probable in future years, if their amount may be estimated. The proposal of our board of directors with respect to the allocation of a percentage of our net profits to a contingency reserve shall indicate the reason for the eventual loss and justify the constitution of the reserve. Any amount so allocated must be reversed in the fiscal year in which a loss that had been anticipated fails to occur as projected or charged off in the event that the anticipated loss occurs. The allocations to the contingency reserve are also subject to approval of our shareholders in a shareholders´ meeting. [As of June 30, 2007, we did not have a contingency reserve.]¹

Unrealized Profit Reserve

Under the Brazilian Corporate Law, the shareholders´ meeting may distribute to an unrealized profit reserve account, pursuant to a proposal of the board of directors, the amount by which the mandatory dividend exceeds the "realized" net profits in a given year, and the mandatory dividends may be limited to the "realized" portion of the net income. The Brazilian Corporate Law defines "realized" net profits as the amount by which our net profits exceeds the sum of (i) our net positive results, if any, from the equity method of accounting; and (ii) the profits, gains or income that will be received by our Company after the end of the next fiscal year. Profits recorded under the unrealized profit reserve, if realized and not absorbed by losses in subsequent years, must be added to the next mandatory dividend distributed after the realization. [As of June 30, 2007, we did not have an unrealized profit reserve.]²

Retained Profit Reserve

Under the Brazilian Corporate Law, our shareholders may decide at the annual shareholders´ meeting to retain a portion of our net profits, as provided for in a capital expenditure budget that has been previously approved. The allocation of funds to this reserve cannot jeopardize the payment of the minimum mandatory dividends. [As of June 30, 2007, we did not have a retained profit reserve.]³

¹ Please confirm.
² Please confirm.
³ Please confirm.

Statutory Reserv

We are permitted by the Brazilian Corporate Law to allocate part of our net income to a discretionary reserve account that may be established in accordance with our bylaws. As of June 30, 2007, we had no statutory reserve.

Capital Reserves

Pursuant to the Brazilian Corporate Law, the capital reserves are comprised of goodwill paid in connection with the subscription of our shares, special reserve of goodwill in incorporation, sale of beneficiary interests, sale of subscription warrants, premium related to issuance of debentures, tax incentives, donations and granting for investments. The amounts destined to capital reserves are not included in the mandatory dividend calculation. [As of June 30, 2007, no amounts were allocated to the capital reserve account.]⁴

Also according to the Brazilian Corporate Law, the capital reserves may be used, among other things, to: (i) absorb losses exceeding accumulated profits and profits reserves; (ii) redemption, reimbursement, or purchase of our own shares; and (iii) allocation to our capital stock.

The Brazilian Corporate Law requires that the bylaws of a Brazilian company specify a minimum percentage of the available profits for the annual distribution of dividends, known as mandatory dividend, which must be paid to shareholders as either dividends or interest on shareholders´ equity. In the event the bylaws does not provide for a mandatory dividend, the Brazilian Corporate Law establishes that the mandatory dividends shall not be less than 25.0% of our net income. According to Law No. 9,249 of December 26, 1995, interest on shareholders´ equity may be distributed and included in the amount due as mandatory dividends.

Pursuant to our bylaws, at least 25% of the adjusted net income of the previous fiscal year, determined in accordance with Brazilian GAAP and adjusted as determined by the Brazilian Corporate Law, shall be distributed as mandatory dividends.

The Brazilian Corporate Law allows, however, a company to suspend such dividend distribution if its board of directors reports to the annual shareholders´ meeting that the distribution would not be advisable given the company´s financial condition. The fiscal council, if one is in place, reviews any suspension of the mandatory dividend. In addition, the board of directors of publicly-held corporations should submit a report to the CVM setting out the reasons for the suspension, within five days from the shareholders´ meeting. Net income not distributed by virtue of a suspension is allocated to a separate reserve and, if not absorbed by subsequent losses, is required to be distributed as dividends as soon as the financial condition of the company should permit such payment.

According to the Brazilian Corporate Law, the general shareholders´ meeting of a publicly-held corporation may approve the payment of dividends in an amount lower than the mandatory dividends or rather retain the total amount of net income, exclusively for raising funds through outstanding debentures which are not convertible in shares, provided that no shareholder is against such proposal at the shareholders´ meeting.

The mandatory dividend may also be paid as interest on shareholders´ equity, and may be deducted as our expenses for purposes of income and social contribution taxes.

We are required by the Brazilian Corporate Law and our bylaws to hold an annual shareholders´ meeting no later than April 30 of each year, at which time, among other subjects, our shareholders approve the allocation of the results of operations in any year and the distribution of an annual dividend are reviewed. The payment of annual dividends is based on our unconsolidated, audited financial statements prepared for the immediately preceding fiscal year.

Any holder of record of shares at the time a dividend is declared is entitled to receive dividends. Under the Brazilian Corporate Law, dividends are generally required to be paid within 60 days following the date on which the dividend is declared, unless the shareholders´ resolution established another payment date, which, in any event, must occur before the end of the year in which the dividend is declared.

⁴ Please confirm.

Unclaimed dividends do not accrue interest, are not adjusted in relation to inflation and revert in our favor if not claimed within three years from the date in which they were made available to the shareholders. Our board of directors may also declare interim dividends based on annual or semi-annual financial statements, as permitted by our bylaws. Dividends paid in each semester may not exceed the capital reserve amount. Any payment of interim dividends may be set off against the amount of mandatory dividends relating to the net profits earned in the year in which the interim dividends were paid.

Our board of directors may also declare interim dividends based on annual or semi-annual financial statements, as permitted by our bylaws. Dividends paid in each semester may not exceed the capital reserve amount. Any payment of interim dividends may be set off against the amount of mandatory dividends relating to the net profits earned in the year in which the interim dividends were paid.

Since January 1, 1996, Brazilian companies have been authorized to pay interest on shareholders´ equity to holders or beneficiaries of shares, and to treat those payments as a deductible expense for purposes of calculating corporate income tax and, since 1997, the social contribution tax, to the extent permitted by applicable law.

The amount of the tax deduction in each year is limited to the greater of (i) 50% of our net income (after the deduction of any allowances for social contribution tax but before taking into account allowances for income tax and the interest on shareholders´ equity) for the period in respect of which the payment is made and (ii) 50% of our accumulated profits and profit reserve at the beginning of the relevant period. The rate applied in calculating interest on shareholders´ equity cannot exceed the pro rata die variation of the Brazilian long term interest rate (TJLP). Payments of interest on shareholders´ equity, net of withholding income tax, may be considered as part of the mandatory dividend distribution. Under applicable law, we are required to pay to our shareholders an amount sufficient to ensure that the net amount they receive in respect of interest on shareholders´ equity, after payment of any applicable withholding tax, plus the amount of distributed dividends, is at least equivalent to the minimum mandatory dividend amount.

Any payments of interests on shareholders´ equity to the shareholders, whether Brazilian residents or not, is subject to a withholding income tax of 15%, provided that such rate shall be of 25% if the beneficiary of the interests is a resident of a tax haven (i.e., a country where there is no income tax, or where the maximum fixed rate is lower than 20%, or where the local law impose restrictions to the disclosure of the shareholders or owner of the investment).

The amount paid as interest on shareholders´ equity after deducting the income tax shall be set off against the mandatory dividends. According to the applicable law, we are required to pay to our shareholders an amount sufficient to ensure that the net amount they receive in respect of interest on shareholders´ equity, after payment of any applicable withholding tax, plus the amount of distributed dividends, is at least equivalent to the minimum mandatory dividend amount. The interest on the shareholders´ equity revert in our favor if not claimed within three years after the date in which they were made available to the shareholders, as in the case of dividends.

According to the Bylaws, net profit for the fiscal period available after management profit sharing up to the maximum legal limit, and after compensated for eventual accumulated losses, is distributed as follows: (i) 5% for the legal reserve, until reaching 20% of the fully paid up company equity; and (ii) 25% of the remaining balance for payment of mandatory dividends.

On April 30, 2009 the Company’s shareholders approved during an Ordinary Shareholders Meeting that the net profit in the total amount of R$182,463,742.20 would be distributed as follows: (i) R$29,527,138.78 (twenty-nine million, five hundred twenty seven thousand reais and seventy eight centavos) were distributed as minimum mandatory dividend, an amount equivalent to 25% (twenty five percent) the amount calculated, after discounting interest on own capital to be distributed in the amount of R$13,808.000.00 (thirteen million, eight hundred and eight thousand reais), representing the amount of R$0.20 (twenty centavos) to be paid for each share issued by the Company, to be paid by June 30, 2009; (ii) R$9,123,187.11 (nine million, one hundred twenty three thousand reais and 11 centavos), for the legal reserve; (iii) R$130,005,416.30 (one hundred thirty million, five thousand, four hundred and sixteen reais and 30 centavos), for the new projects reserve, created for the Capital Budget proposed by management, which was approved at the same meeting by a decision of the shareholders attending, whose copy is on file at the Company’s headquarters.

On December 23, 2008 the proposal of the Executive Board was approved to pay shareholders Interest on Own Capital referenced to the fiscal year of 2008 in the total amount of R$16,180,000.00 (sixteen million one hundred and eighty thousand reais), resulting in a gross value of R$0.11126198 per common share, with a net value of R$0.09457268 per common share after withholding 15% (fifteen percent) in income tax at the source), and R$0.08344648 per common share after the withholding of 25% of income tax at the source, as applicable to each shareholder. The value of the interest to be paid was imputed to the value of the mandatory dividend, as called for under paragraph 7 of Article 9 of Law 9.249/95 and article 26 of the Company’s Bylaws.

On April 29, 2008 during an ordinary shareholders meeting the Company’s Shareholders approved that the net profit, in a total amount of R$71,156,340.01 (seventy one million, one hundred fifty six thousand, three hundred forty and one centavo) be distributed as follows: (i) R$16,899,630.75 (sixteen million eight hundred ninety nine thousand, six hundred thirty reais and seventy five centavos) to be paid for each share issued by the Company, with the date of payment to be May 5, 2008; (ii) R$3,557,817.00 (three million, five hundred fifty seven thousand, eight seventeen reais)  for the legal reserve; (iii) R$50,698,892.26 (fifty million, six hundred ninety eight thousand, eight ninety two reais and twenty six centavos) for the new projects reserve, created for the Capital Budget proposed by management, which was approved at the same meeting. The reserve was used in the Company’s new investments as called for by the Capital Budget.>

On April 30, 2007, our shareholders approved the distribution of R$4,918,263.70 as the minimum annual mandatory dividends. Such amount corresponded to 25% of our net income in 2006, representing a payment of R$0,044448 per share.

In 2006, our net income was R$20,708,340.22. We destined the balance of our net income that was not distributed to our shareholders as follows: (i) R$1,035,417.01 to create our legal reserve and (ii) R$14,754,659.51 to create a projects reserve, pursuant to the annual budget approved by our shareholders.