PDA Brf- Brasil Foods S.A.

 

Filed pursuant to Rule 424(b)(5)

Registration File No.: 333-160506

SUBJECT TO COMPLETION, DATED JULY 10, 2009

 

115,000,000 Common Shares

 

 

BRF—Brasil Foods S.A.

(formerly named Perdigão S.A.)

 

Including Common Shares in the Form of American Depositary Shares

 

We are selling our common shares in a global offering, which consists of an international offering in the United States and other countries outside Brazil and a concurrent offering in Brazil. The common shares are being offered directly or in the form of American depositary shares, or “ADSs,” each of which represents two common shares. The offering of the ADSs is being underwritten by the international underwriters named in this prospectus supplement. The common shares purchased by investors outside Brazil will be settled in Brazil and paid for in reais , and underwritten by the Brazilian underwriters named elsewhere is this prospectus supplement. We are offering common shares in the Brazilian offering. The offering of the common shares is being underwritten by the Brazilian underwriters. The closings of the international and Brazilian offerings are conditioned upon each other.

 

Our common shares are listed on the BM&FBOVESPA S.A.—Bolsa de Valores, Mercadorias e Futuros , or “São Paulo Stock Exchange,” under the symbol “PRGA3.” The closing price of our common shares on the São Paulo Stock Exchange on July 8, 2009 was R$38.80 per common share, which is equivalent to approximately U.S.$19.30 per common share, based upon the selling rate of R$2.01 to U.S.$1.00 on that date. The ADSs are listed on the New York Stock Exchange, or “NYSE,” under the symbol “PDA.” The closing price of the ADSs on the NYSE on July 8, 2009 was U.S.$38.52 per ADS.

 

Investing in our common shares and ADSs involves a high degree of risk. Before buying any shares or ADSs, you should carefully read the discussion of material risks of investing in our common stock in “Risk factors” on page S-10.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.

 

 

Banco UBS Pactual S.A., one of the Brazilian underwriters, has an option to purchase up to 17,250,000 additional common shares to cover over-allotments of common shares, if any.

 

The international underwriters are offering the common shares as set forth under “Underwriting.” Delivery of the common shares will be made in Brazil through the book-entry facilities of the São Paulo Stock Exchange on or about          , 2009. Delivery of the ADSs will be made through the book-entry facilities of The Depository Trust Company on or about          , 2009.

 

 

TABLE OF CONTENTS

 

Prospectus Supplement

 

 

 

Prospectus

 

 

 

You should rely only on the information contained and incorporated by reference in this prospectus supplement and the accompanying prospectus. We have not, and the international underwriters have not, authorized anyone to give you different or additional information. You should not assume that the information in this prospectus supplement and accompanying prospectus is accurate as of any date after their respective dates.

 

This prospectus supplement is being used in connection with the offering of common shares, including common shares in the form of ADSs, in the United States and other countries outside Brazil.

 

We are also offering common shares in Brazil by a prospectus in the Portuguese language. The Brazilian prospectus, which has been filed with the Brazilian Securities Commission (Comissão de Valores Mobiliários) , or “CVM,” is in a format different from that of this prospectus and contains information not generally included in documents such as this prospectus supplement. This offering of common shares, including common shares in the form of ADSs, is made in the United States and elsewhere outside Brazil solely on the basis of the information contained in this prospectus supplement and accompanying prospectus.

 

Any investors outside Brazil purchasing common shares must be authorized to invest in Brazilian securities under the requirements established by the Brazilian National Monetary Council (Conselho Monetário Nacional) , or “CMN,” and the CVM. The Brazilian underwriters are offering common shares in Brazil to Brazilian investors and U.S. and other international investors authorized to invest in Brazilian securities under the requirements established by the CMN and CVM.

 

No offer or sale of ADSs may be made to the public in Brazil except in circumstances that do not constitute a public offer or distribution under Brazilian laws and regulations. Any offer or sale of ADSs in Brazil to non-Brazilian residents may be made only under circumstances that do not constitute a public offer or distribution under Brazilian laws and regulations.

 

This document consists of two parts. The first part is this prospectus supplement, which describes the specific terms of this international offering of common shares and ADSs of BRF—Brasil Foods S.A., or “BRF.” The second part, the accompanying prospectus, presents more general information about BRF. Generally, when we refer only to the “prospectus,” we are referring to both parts combined, and when we refer to the “accompanying prospectus,” we are referring to the accompanying prospectus.

 

If the description of this offering varies between this prospectus supplement and the accompanying prospectus, you should rely on the information in this prospectus supplement.

 

In this prospectus supplement, unless otherwise indicated, all references in this document to “BRF,” “Perdigão,” “our company,” “we,” “our,” “ours,” “us” or similar terms refer to BRF—Brasil Foods S.A. (formerly named Perdigão S.A.) and its consolidated subsidiaries and jointly controlled companies. References to “Sadia” refer to Sadia S.A. and its consolidated subsidiaries and jointly controlled companies.

 

Unless otherwise indicated, all references herein to “common shares” refer to the Company’s authorized and outstanding common shares, which are designated ordinary shares ( ações ordinárias ), each without par value. All references herein to the “ real ,” “ reais ” or “R$” are to the Brazilian real, the official currency of Brazil. All references to “U.S. dollars,” “dollars” or “U.S.$” are to United States dollars.

 

All references herein to “2008 Annual Report on Form 20-F” refer to our Annual Report on Form 20-F for the year ended December 31, 2008, filed on June 30, 2009 with the U.S. Securities and Exchange Commission, or “SEC.”

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Prospectus summary

Ø	frozen whole and cut chickens;
Ø	frozen pork cuts and beef cuts;
Ø	processed food products, such as the following:

	-	marinated frozen whole and cut chickens, roosters (sold under the Chester ® brand) and turkeys;
	-	specialty meats, such as sausages, ham products, bologna, frankfurters, salamis, bacon and other smoked products;
	-	frozen processed meats, such as hamburgers, steaks, breaded meat products, kibes and meatballs, and frozen processed vegetarian foods;
	-	frozen prepared entrees, such as lasagnas and pizzas, as well as other frozen foods, including vegetables, cheese bread and pies;
	-	dairy products, such as cheeses, powdered milk and yogurts;
	-	juices, soy milk and soy juices; and
	-	margarine;

Ø	milk; and
Ø	soy meal and refined soy flour, as well as animal feed.

Ø	the implementation of the principal operating strategies of the Company, including integration of current acquisitions as well as the conclusion or acquisition or joint venture transactions or other investment opportunities that may occur in the future;
Ø	the cyclicality and volatility of raw materials and selling prices; health risks related to the food industry;
Ø	the risk of outbreak of animal diseases—in particular, avian influenza and A(H1 N1) influenza;
Ø	more stringent trade barriers in key export markets and increased regulation of food safety and security;
Ø	strong international and domestic competition;
Ø	general economic, political and business conditions in our company’s markets, both in Brazil and abroad;
Ø	interest rate fluctuations, inflation and exchange rate movements of the real in relation to the U.S. dollar and other currencies;
Ø	the declaration or payment of dividends;
Ø	the direction and future operation of our company;

Ø	the implementation of the our financing strategy and capital expenditure plans; and
Ø	the factors or trends affecting the our financial condition or results of operation. See “Risk factors.”

Issuer		BRF—Brasil Foods S.A. (formerly named Perdigão S.A.).
Global offering		The global offering consists of the international offering and the concurrent Brazilian offering.
International offering		common shares, including common shares in the form of ADSs representing common shares, are being offered through the international underwriters (which, in the case of the common shares, will act as placement agents on behalf of the Brazilian underwriters) in the United States and other countries outside Brazil. The common shares purchased by any investor outside Brazil will be settled in Brazil and paid for in reais , and the offering of these common shares is being underwritten by the Brazilian underwriters named elsewhere in this prospectus supplement. Any investor outside Brazil purchasing common shares must be authorized to invest in Brazilian securities under the requirements established by the CMN and the CVM.
Brazilian offering		Concurrently with the international offering,          common shares are being offered by the Brazilian underwriters in Brazil to Brazilian investors.
ADSs		Each ADS represents two common shares. ADSs will be evidenced by American depositary receipts, or “ADRs.”
Offering price		The public offering price for the international offering for the ADSs is set forth on the cover page of this prospectus supplement. The offering price for the common shares, which is also set forth on the cover page, is the approximate per common share real equivalent of the offering price per ADS in the international offering, based upon the selling rate of R$      to U.S.$1.00 as of July   , 2009 and the ratio of two common shares to one ADS.
Over-allotment option		We have granted Banco UBS Pactual S.A. an option to purchase up to 17,250,000 additional common shares within 30 days from the date of the publication, in Brazil, of the announcement of commencement of the offering, solely to cover over-allotments, if any.
Use of proceeds		We estimate that the net proceeds from the global offering (after deducting transaction expenses) will be approximately R$4,483.4 million. We intend to use the net proceeds from the global offering to reduce short-term debt following the business combination with Sadia, and for general corporate purposes. See “Use of proceeds.”
Share capital before and after the global offering		Our share capital consists of 244,595,660 common shares (excluding 430,485 treasury shares). Immediately after the global offering, we will have 359,595,660 common shares outstanding, assuming no exercise of the over-allotment option.

Voting rights		Holders of our common shares have full voting rights, as described in “Description of Share Capital—Rights of Common Shares” in the accompanying prospectus.
		Holders of ADSs do not have voting rights, but may instruct the ADR depositary how to vote the common shares underlying their ADSs under the circumstances described in the ADR deposit agreement. See “Description of American Depositary Shares—Voting Rights” in the accompanying prospectus.
Dividends		Under our by-laws, we are required to distribute a minimum dividend of not less than 25% of our annual net income, as calculated under Brazilian GAAP and adjusted as required by the Brazilian Corporation Law (which may differ significantly from net income under U.S. GAAP), unless our board of directors recommends not to distribute dividends due to our financial condition and our shareholders approve that recommendation. We may also pay dividends in the form of interest on shareholders’ equity. See “Dividends and Dividend Policy” in the accompanying prospectus.
		The holders of ADSs will be entitled to receive dividends to the same extent as the owners of our common shares, subject to deduction of any fees and charges of the depositary for the ADSs.
Listings		Our common shares are listed on the Novo Mercado of the São Paulo Stock Exchange under the symbol “PRGA3”. The ADSs are listed on The New York Stock Exchange under the symbol “PDA”. See “Market information—São Paulo Stock Exchange corporate governance standards.”
Pro rata subscription rights of existing Brazilian shareholders		Shareholders of our company and shareholders of Sadia that are residents of or domiciled in Brazil will be given the opportunity to subscribe for shares in the Brazilian offering on a priority basis at the price to the public to the extent necessary to preserve their ownership percentages as of a record date to be determined and, subject to certain terms and conditions, to subscribe for shares the priority right in respect of which is not exercised. The priority subscription procedure will not be made available to shareholders of our company and shareholders of Sadia that are not residents of or domiciled in Brazil. The number of common shares available for sale in the global offering to investors that are not residents of or domiciled in Brazil will be reduced to the extent that existing shareholders of our company and shareholders of Sadia that are residents of or domiciled in Brazil subscribe on the priority basis for common shares in the Brazilian offering.
Lock-up agreement		We have agreed with the underwriters, subject to certain exceptions described in “Underwriting,” not to offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the SEC or the CVM a registration statement relating to, any additional common shares or ADSs

		or securities convertible into or exchangeable or exercisable for any of our common shares or ADSs or warrants or other rights to purchase any shares or ADSs, or publicly disclose the intention to make any such offer, sale, pledge, disposition or filing, for a period of 90 days after the date of this prospectus supplement, without the prior written consent of UBS Securities LLC, J.P. Morgan Securities Inc. and Santander Investment Securities Inc., as representatives of the international underwriters. Substantially all of our directors and executive officers have agreed to substantially similar lock-up provisions, subject to certain exceptions.
ADR depositary		The Bank of New York Mellon.
Risk factors		See “Risk factors” and the other information in this prospectus supplement and incorporated by reference herein before investing in the ADSs or common shares.

Commencement of marketing of the global offering			July 10, 2009
Announcement of offer price			July 22, 2009
Allocation of ADSs and common shares			July 22, 2009
Settlement and delivery of ADSs and common shares			July 27, 2009

 

Prospective purchasers of our common shares or the ADSs should carefully consider the risks described below, those risks described in our annual report on our 2008 Annual Report Form 20-F under “Part I, Item 3D: Key Information—Risk Factors,” in the second Current Report on Form 6-K filed on July 10, 2009, which contains, among other things, important additional risks relating to Sadia set forth in Exhibit 99.8 thereto, under the caption “Risk Factors,” and any other document incorporated by reference in this prospectus supplement and accompanying prospectus, as well as the other information in this prospectus supplement and accompanying prospectus, before deciding to purchase any common shares or ADSs. Our business, results of operations, financial condition or prospects could be negatively affected if any of these risks occurs, and as a result, the market prices of our common shares or the ADSs could decline and you could lose all or part of your investment.

 

RISKS RELATING TO THE PROPOSED SADIA TRANSACTION

 

Our proposed business combination with Sadia is subject to antitrust approvals, and any antitrust approval could be conditioned on divestment of a portion of our business.

 

On May 19, 2009, we signed a merger agreement with Sadia that contemplates a business combination between us and Sadia. In the business combination, Sadia is expected to become our wholly owned subsidiary. Holders of common shares and preferred shares of Sadia are expected to receive common shares of our company, and holders of ADSs representing preferred shares of Sadia are expected to receive ADSs representing common shares of our company. The transaction is described in more detail under “Item 4. Information on the Company-History and Development of the Company-Proposed Business Combination with Sadia” of our 2008 Annual Report on Form 20-F.

 

In accordance with Brazilian law, we and Sadia submitted a summary of the terms and conditions of the business combination and other information about each company to the Brazilian Conselho Administrativo de Defesa Econômica (the Brazilian government agency with antitrust decision making authority, or “CADE”) on June 8, 2009. After an analysis by the Secretaria de Acompanhamento Econômico (the Economic Policy Bureau of the Ministry of the Treasury, or “SEAE”) and the Secretaria de Direito Econômico (the Economic Law Office of the Ministry of Justice, or “SDE”), the CADE will determine whether the business combination negatively impacts consumer conditions in the relevant markets in which we and Sadia compete or whether they would negatively affect consumers. Brazilian antitrust law does not prevent parties from closing a transaction on a provisional basis until the Brazilian antitrust authorities render a final decision. However, on July 7, 2009, we entered into an agreement (an Acordo de Preservação da Reversibilidade da Operação ”) with the CADE, under which we agreed to ensure the reversibility of the business combination until a final decision is made by such authorities. If the business combination is approved, it will be retroactive to the date the transaction closed; however, if the business combination is not approved, it will be unwound retroactively to the closing date. As a condition to approving the transaction, the Brazilian antitrust authorities could impose significant conditions or performance commitments on the combined company, including commitments to divest from certain businesses, risks and product lines, trademarks or production facilities. Any such conditions could materially adversely affect our financial performance and prospects.

 

The business combination is subject to approval by foreign antitrust authorities. Like the Brazilian authorities, those antitrust authorities could impose significant conditions to their approvals affecting our operations in those regions, particularly in regions in which we have a significant market share. Any such conditions could materially adversely affect our export revenues and growth strategy.

 

Risk factors

 

 

Our proposed business combination with Sadia is subject to approvals (in addition to antitrust approvals) as well as other uncertainties.

 

Our proposed business combination with Sadia is subject to a number of conditions, in addition to the European antitrust approval described in the preceding risk factor, including the following:

 

 

If we are unable to obtain the necessary approvals, our proposed business combination with Sadia would not be consummated, and we would be unable recover any costs that we have incurred and will incur in connection with the business combination, nor would we be able to realize its expected benefits.

 

In addition, although it is not a condition to the consummation of the business combination, both we and Sadia have agreed to use our best efforts to obtain any necessary waivers and consents from financial institutions under any contracts that contain covenants or events of default that would be triggered by the business combination. A significant portion of our outstanding indebtedness contains provisions that may require prepayment or trigger acceleration due to the transaction. We believe that Sadia had at least R$4.9 billion in aggregate principal amount of outstanding indebtedness containing such provisions as of May 31, 2009, including certain derivative instruments. If we or Sadia are unable to obtain consents under any of this indebtedness, we may find it necessary to refinance that indebtedness, which could significantly increase the costs of the business combination.

 

We expect to raise equity financing before the completion of the business combination, and if the business combination does not close, we will have complete discretion as to the use of the net proceeds of that financing.

 

We have previously announced that we plan to raise equity financing to provide gross proceeds in the amount of approximately R$4.0 billion before the consummation of the transaction. The purpose of this equity financing is to enhance the capital base of the combined company resulting from the combination of our company and Sadia. If we undertake this equity financing, it will not be conditioned upon the consummation of the business combination, and if we do not consummate the business combination, we do not currently have any specific use for the net proceeds of the financing. We may, for example, use the net proceeds to acquire or invest in other businesses or product lines, refinance indebtedness or for other uses. We will have complete discretion as to the use of those proceeds and may use them in ways with which investors do not agree or in ways that do not improve our profitability.

 

The proposed equity financing would also lead to significant dilution in the ownership percentages of the current holders of our common shares or ADSs representing our common shares.

 

This description of a potential equity offering does not constitute an offer to sell or the solicitation of an offer to buy any securities of our company.

 

Risk factors

 

 

If we complete the business combination, we may not realize the expected benefits of the transaction, in the timeframe anticipated or at all, because of integration or other challenges.

 

Achieving the expected benefits of the proposed business combination with Sadia will depend on the timely and efficient integration of the operations, business cultures, marketing practices, branding and personnel of BRF and Sadia. This integration may not be completed as quickly as expected, and any failure to effectively integrate the two companies or any delay in that integration could increase our costs, adversely affect our margins, adversely affect our financial condition or have other negative consequences. The challenges involved in the integration include, among others, the following:

 

 

The proposed business combination with Sadia is significantly larger than any transaction that either we or Sadia has undertaken in the past, and any combination of the challenges described above could adversely affect our results of operations and prospects and the market price of the common shares or ADSs of the combined company.

 

Sadia’s use of derivative financial instruments has negatively affected its results of operations, especially in a volatile and uncertain market.

 

Sadia has used derivative financial instruments to manage the risk profile associated with interest rates and currency exposure of its debt. For the year ended December 31, 2008, Sadia had a net loss of approximately R$2,365.8 million from financial instruments as compared to a net gain of R$191.6 million in 2007. These losses resulted from a variety of factors, including losses related to changes in the fair value of cross-currency swaps, other currency derivatives attributable to the variation of the U.S. dollar against the real . Companies experienced a period of greater volatility in the global financial and securities markets as part of the worsening of the crisis, which started in 2007. The financial crisis significantly and negatively affected the valuation of Sadia’s derivative instruments portfolio, primarily the valuation of foreign exchange options and currency derivatives related to debt. As a result of increased volatility and variation of the real against the U.S. dollar, there were significant changes in the fair value of Sadia’s derivative instruments portfolio, which triggered the need to make deposits in margin accounts with the counterparties and to incur additional indebtedness to make margin deposits or to settle some of these derivative transactions, negatively affecting Sadia’s liquidity. To the extent that any of these factors persist in 2009, Sadia may continue to incur net losses from its derivative financial instruments.

 

The current financial crisis, which has continued into 2009, could also negatively affect Sadia’s derivative financial instruments by weakening the creditworthiness and viability of the financial institutions which act as the counterparties to its derivative transactions. The risk of counterparty default is currently higher in light of existing capital market and economic conditions. Reduced liquidity

 

Risk factors

 

 

or financial losses resulting from exposure to the risk of counterparties could have a material adverse effect on Sadia’s cash flow and financial condition. The current economic environment could cause Sadia’s counterparties to breach their obligations under Sadia’s contracts with them by failing to pay Sadia amounts that may become due under its derivative contracts or to seek bankruptcy protection. The instability and uncertainty in the financial markets has also made it difficult to assess the risk of counterparties to derivatives contracts. Any of the foregoing could adversely impact Sadia’s business, financial condition and results of operations.

 

Furthermore, the fair value of derivative instruments fluctuates over time as a result of the effects of future interest rates, exchange rates and financial market volatility. These values must be analyzed in relation to the fair values of the underlying transactions and as part of our overall exposure to fluctuations in interest rates and foreign exchange rates. Since valuation is imprecise and variable, it is difficult to accurately predict the magnitude of the risk posed by the use of derivative financial instruments going forward and to state with certainty that Sadia will not be negatively affected by its derivative financial positions.

 

Derivative financial instruments are generally subject to margin calls in case the threshold set by the counterparties is exceeded. In certain scenarios, the cash required to cover margin calls may be substantial and may reduce the funds available to Sadia for its operations or other capital needs. Some of Sadia’s derivatives contracts have clauses that reduce the threshold amounts after certain pre-defined credit downgrades by the credit agencies. The change in mark-to-market of some of Sadia’s derivative financial instruments is reflected in its income statement introducing volatility in Sadia’s interest net income and related ratios.

 

Sadia is subject to significant potential liabilities in connection with litigation, which would become potential liabilities of our combined company after the completion of the business combination.

 

Sadia’s businesses are subject to regulation under a wide variety of Brazilian, U.S. federal, state and foreign laws, regulations and policies. Sadia, in particular, is subject to a variety of legal proceedings and legal compliance risks. Sadia’s businesses and the industries in which we operate are at times reviewed or investigated by regulators, which could lead to enforcement actions, fines and penalties or the assertion of private litigation claims and damages. Sadia is a party to a wide range of agreements, contracts and joint ventures with other companies, which could potentially result in litigation if the parties cannot find a common understanding on the issues in dispute.

 

In the fall of 2008, the real suffered a strong devaluation, including in relation to the U.S. dollar. As a result of such devaluation, it had sustained significant losses on foreign exchange derivative transactions. In connection therewith, Sadia sold certain of its long-term financial investments to be able to make deposits in margin accounts related to the currency derivatives, which resulted in further losses due to the decrease in the value of such financial instruments as a result of the global economic crisis. In connection with these losses, Sadia, as well as certain individuals who were officers and/or directors of Sadia during the events at issue, were named in five lawsuits in U.S. courts alleging various violations of U.S. federal securities laws related to losses that Sadia incurred with respect to foreign exchange derivative contracts. These five actions have since been consolidated in a single class action lawsuit.

 

In addition, on May 15, 2009, Sadia received a letter from the Brazilian Securities and Exchange Commission ( Comissão de Valores Mobiliários ), or “CVM,” informing Sadia that the CVM had initiated a preliminary analysis of possible liability of certain individuals who were officers and/or directors of Sadia for losses in connection with the derivative transactions in 2008. The letter states that the proceeding is still at a preliminary stage, and the CVM has not yet specified which crimes have been committed, or whether any crimes have been committed at all.

 

Risk factors

 

 

It is not possible to predict whether additional suits will be filed in connection with such derivative losses or what the outcome of any such litigation will be. Although Sadia intends to contest the current lawsuits vigorously, it is possible that there could be unfavorable outcomes in these or other proceedings. At the current stage of the proceedings, it is not possible to determine the probability of loss and/or the amounts involved in any potential loss and the expenses that will be incurred in defending these lawsuits.

 

Adverse results in proceedings involving Sadia and/or the incurrence of significant litigation expenses could be material to its business, operations, financial position, profitability or cash flows. If our proposed business combination with Sadia is consummated, Sadia will become our wholly owned subsidiary and we will be subject to any adverse outcomes arising out of proceeedings involving Sadia. Any such adverse results could therefore be material to our business, operations, financial position, profitability or cash flows.

 

Sadia is subject to significant tax and other potential liabilities in connection with litigation in Brazil, and these would be potential liabilities of our consolidated company after the completion of the business combination.

 

Sadia has significant tax and other potential liabilities in connection with litigation in Brazil. As of December 31, 2008, these liabilities included (1) tax proceedings in the aggregate amount of R$1,818.5 million (of which Sadia had recorded provisions for probable losses of R$50.9 million (R$22.6 million of income and social contribution payables and R$28.3 million of other tax proceedings)), (2) civil proceedings in the aggregate amount of R$116.6 million (of which Sadia had recorded provisions for probable losses of R$10.2 million) and (3) labor claims in the aggregate amount of R$67.6 million (of which Sadia had recorded provisions for probable losses of R$28.1 million). The difference between the amounts recorded as provisions for probable losses in each of these categories and the total amounts represent liabilities that Sadia’s management has judged to be possible or remote, and Sadia did not, therefore, record any provision in its financial statements for these contingencies. The losses to Sadia could, therefore, be significantly higher than the amounts for which Sadia has recorded provisions. Even for the amounts recorded as provisions for probable losses, a judgment against Sadia would have an effect on Sadia’s cash flow if it is required to pay those amounts. Sadia may therefore incur significant losses and expenses defending these lawsuits, which could materially adverse its results of operations and financial condition, and these would be potential liabilities of our consolidated company after the completion of the business combination.

 

Sadia is more highly leveraged than our company, and if we are unable to refinance a significant portion of its indebtedness in connection with the business combination, we would be subject to the risks associated with a higher level of indebtedness.

 

Sadia currently has a substantial amount of debt and may incur more debt in the future. As of December 31, 2008, Sadia had total debt of R$8,844.3 million, of which approximately 42.2% (R$3,729.6 million) was denominated in Brazilian reais and approximately 57.8% (R$5,114.7 million) was denominated in foreign currency (primarily U.S. dollars). In addition, as of December 31, 2008, Sadia had R$913.6 million of negative working capital (defined as total current assets minus total current liabilities) and off-balance sheet obligations in the aggregate amount of R$537.7 million. If we are unable to refinance a significant portion of Sadia’s indebtedness in connection with the business combination transaction, Sadia’s significant level of debt could have important consequences for us, including:

 

 

Risk factors

 

 

 

Sadia has substantial debt that matures in each of the next several years beyond 2009, and if we are unable to refinance a significant portion of its indebtedness in connection with the business combination, we may not be able to comply with its upcoming payment obligations.

 

Sadia currently has a substantial amount of debt and may incur significant additional debt in the future. As of December 31, 2008, it had R$8,844.3 million of total debt, of which approximately 42.2% (R$3,729.6 million) was denominated in Brazilian reais and approximately 57.8% (R$5,114.7 million) was denominated in foreign currency (primarily U.S. dollars). Of its total debt as of December 31, 2008, approximately 34.4% (R$3,037.8 million) was short-term debt, and approximately 16.1% (R$1,421.8 million) was the current portion of the long-term debt and 49.6% (R$4,384.7 million) was long-term debt. Sadia has a substantial amount of debt maturing in the next several years, including debt with an aggregate principal amount of approximately R$1,125.8 million, R$938.7 million and R$663.7 million maturing in 2010, 2011 and 2012, respectively. In addition, as of December 31, 2008, Sadia had R$913.6 million of negative working capital (defined as total current assets minus total current liabilities) and off-balance sheet obligations in the aggregate amount of R$537.7 million. If we are unable to refinance a significant portion of Sadia’s indebtedness in connection with the business combination, we may face difficulties in paying that debt as it matures beyond 2009.

 

The global stock and credit markets have recently experienced extreme disruption, including severely diminished liquidity, constrained credit availability and extreme volatility in securities prices. These factors and the continuing market disruption may have an adverse effect on our and, in particular, Sadia’s ability to refinance future maturities, including a significant portion of its indebtedness in connection with the business combination. Continued uncertainty in the stock and credit markets may also negatively impact our ability to access additional short-term and long-term financing before or after completion of the business combination with Sadia on reasonable terms or at all, which could negatively impact our liquidity and financial condition.

 

In addition, Sadia’s credit ratings have recently been downgraded by Standard & Poor’s and by Moody’s. The disruptions in the financial and credit markets also may continue to adversely affect Sadia’s credit ratings. Any further deterioration of Sadia’s credit ratings or creditworthiness might negatively impact the availability of financing to our company following consummation of the business combination and the terms on which we could refinance Sadia’s debt, including the imposition of more restrictive covenants and higher interest rates.

 

Risk factors

 

 

In the years beyond 2009, if we are unable to refinance a significant portion of Sadia’s indebtedness in connection with the business combination and:

 

 

If we are unable to refinance a significant portion of Sadia’s indebtedness in connection with the business combination, the terms of Sadia’s indebtedness will impose significant operating and financial restrictions on us.

 

The instruments governing Sadia’s consolidated indebtedness impose significant operating and financial restrictions. These restrictions may limit, directly or indirectly, Sadia’s ability, among other things, to undertake the following actions:

 

 

If we are unable to refinance a significant portion of Sadia’s indebtedness in connection with the business combination, these restrictions may, among other things:

 

 

Although the covenants to which Sadia is subject have exceptions and qualifications, the breach of any of these covenants could result in a default under the terms of its other existing debt obligations. Upon the occurrence of such an event of default, all amounts outstanding under the applicable debt instruments and the debt issued under other debt instruments containing cross-default or cross-acceleration provisions, together with accrued and unpaid interest, if any, might become or be declared immediately due and payable. If such indebtedness were to be accelerated, we and Sadia may have insufficient funds to repay in full any such indebtedness.

 

In addition, in connection with the entry into new financings or amendments to existing financing arrangements, Sadia and its subsidiaries’ financial and operational flexibility may be further reduced as a result of more restrictive covenants, requirements for security and other terms.

 

Risk factors

 

 

The consummation of the business combination with Sadia might result in an event of default, a termination event or a breach of covenants under certain instruments governing a portion of Sadia’s indebtedness.

 

Under instruments governing at least R$4.9 billion of Sadia’s indebtedness as of May 31, 2009, including certain derivative financial instruments, the consummation of the business combination with Sadia may result in an event of default, a termination event or a breach of one or more covenants, as applicable. In particular, the consummation of the business combination will result in a change of control of Sadia. As a result, following the announcement of the business combination with Sadia, Sadia has engaged in discussions with its lenders and counterparties under those debt instruments with change of control provisions or other provisions triggered by the transaction in order to seek waivers or consents of those provisions. Sadia may be required to pay a premium or a penalty to its lenders or counterparties in order to receive waivers or consents, or they may be unable to obtain these waivers or consents. If they are unable to obtain such waivers or consents, Sadia may find it necessary to prepay the indebtedness outstanding under those debt instruments. We can give no assurances as to whether any of Sadia’s lenders and/or counterparties under the applicable debt instruments will agree to grant its waiver or consent or that Sadia will otherwise be able to prepay the indebtedness outstanding under such debt instruments.

 

If Sadia is unable to obtain all necessary waivers or consents before the consummation of the business combination, we may be required to incur significant expense to obtain them or to prepay or refinance the relevant indebtedness. Our agreement with Sadia requires them to use best efforts to obtain the waivers or consents but does not condition the consummation of the business combination upon Sadia’s ability to obtain them. If we find it necessary to prepay or refinance any indebtedness of Sadia containing change of control or other provisions triggered by the business combination, we may need to obtain financing to enable us to do so, and this could accelerate or exacerbate the risks relating to Sadia’s indebtedness that we highlight above.

 

Debt service requirements under Sadia’s U.S. dollar-denominated debt obligations could heighten our exposure to the risk of fluctuations in the real-U.S. dollar exchange rate.

 

A substantial portion of the Sadia’s outstanding debt is denominated in foreign currencies, primarily U.S. dollars. As of December 31, 2008, Sadia’s U.S. dollar denominated debt represented approximately 57.8% (R$5,114.7 million) of its total debt (not giving effect to its currency-related derivatives as of such date). Sadia’s existing U.S. dollar-denominated debt, however, must be serviced by funds generated from sales by its subsidiaries, the majority of which is not denominated in U.S. dollars. Consequently, when it does not generate sufficient U.S. dollar revenues to cover that debt service, Sadia must use revenues generated in reais or other currencies to service its U.S. dollar-denominated debt. Depreciation in the value of the real or any of the other currencies of the countries in which Sadia operates, compared to the U.S. dollar, could adversely affect its ability to service its debt. In 2008, Sadia’s U.S. dollar-denominated operations, together, generated approximately 76.2% of its total net sales in real terms and some of the currencies in which its revenues are denominated suffered material depreciations against the U.S. dollar. If the business combination in consummated, a devaluation in the value of the real , euro or any of the other currencies of the countries in which the combined business operates, compared to the U.S. dollar, could therefore adversely affect our ability to service this Sadia debt. For example, in 2008 the real depreciated approximately 31.9% against the U.S. dollar, the euro depreciated approximately 5.9% against the U.S. dollar and the British sterling pound depreciated approximately 27.3% against the U.S. dollar. Foreign currency hedge agreements may not be effective in covering these currency-related risks.

 

Risk factors

 

 

We may incur additional costs in relation to Sadia’s internal controls and information systems.

 

We are subject to Section 404 of the Sarbanes-Oxley Act of 2002 as well as SEC rules relating to internal controls over financial reporting, which require that our management annually evaluate the effectiveness of our internal control over financial reporting and disclose the results of that evaluation in this Annual Report. In addition, SEC rules require that our independent auditors prepare an attestation report regarding the effectiveness of our internal control over financial reporting. Although Sadia is a publicly held company in the United States and is also subject to these rules, our management’s report, and our independent auditors’ attestation report, on internal controls for the year ended December 31, 2008 does not address Sadia’s internal control over financial reporting. We may find it necessary to incur expenses and spend time to correct deficiencies and implement additional training. If these deficiencies are serious, and if we cannot remedy them before the filing of our Annual Report on Form 20-F for the next fiscal year, we may not be able to conclude that our internal controls are effective. If this were to occur, investors might lose confidence in our financial statements and the price of our stock could fall.

 

RISKS RELATING TO THE OFFERING, OUR COMMON SHARES AND THE ADSs

 

Holders of ADSs may find it difficult to exercise voting rights at our shareholders’ meetings.

 

Holders of ADSs may exercise voting rights with respect to our common shares represented by ADSs only in accordance with the deposit agreement governing the ADSs. Holders of ADSs will face practical limitations in exercising their voting rights because of the additional steps involved in our communications with ADS holders. For example, we are required to publish a notice of our shareholders’ meetings in specified newspapers in Brazil. Holders of our common shares will be able to exercise their voting rights by attending a shareholders’ meeting in person or voting by proxy. By contrast, holders of ADSs will receive notice of a shareholders’ meeting by mail from the ADR depositary following our notice to the depositary requesting the depository to do so. To exercise their voting rights, holders of ADSs must instruct the ADR depositary on a timely basis. This voting process necessarily will take longer for holders of ADSs than for holders of our common shares. If the ADR depositary fails to receive timely voting instructions for all or part of the ADSs, the depositary will assume that the holders of those ADSs are instructing it to give a discretionary proxy to a person designated by us to vote their ADSs, except in limited circumstances.

 

Holders of ADSs also may not receive the voting materials in time to instruct the depositary to vote our common shares underlying their ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions of the holders of ADSs or for the manner of carrying out those voting instructions. Accordingly, holders of ADSs may not be able to exercise voting rights, and they will have little, if any, recourse if the common shares underlying their ADSs are not voted as requested.

 

Non-Brazilian holders of ADSs and common shares may face difficulties in protecting their interests because we are subject to different corporate rules and regulations as a Brazilian company and our shareholders may have less extensive rights.

 

Holders of ADSs will not be direct shareholders of our company and will be unable to enforce the rights of shareholders under our by-laws and the Brazilian Corporation Law.

 

Our corporate affairs are governed by our by-laws and the Brazilian Corporation Law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, such as the State of Delaware or New York, or elsewhere outside Brazil. Even if a holder of ADSs surrenders its ADSs and becomes a direct shareholder, its rights as a holder of our common shares under the Brazilian Corporation Law to protect its interests relative to actions by our board of directors or executive officers may be fewer and less well-defined than under the laws of those other jurisdictions.

 

Risk factors

 

 

Although insider trading and price manipulation are crimes under Brazilian law, the Brazilian securities markets are subject to different levels of regulations and supervision than the U.S. securities markets or the markets in some other jurisdictions. In addition, rules and policies against self-dealing or for preserving shareholder interests may be less well-defined and enforced in Brazil than in the United States and certain other countries, which may put holders of our common shares and the ADSs at a potential disadvantage. Corporate disclosures also may be less complete or informative than for a public company in the United States or in certain other countries.

 

Non-Brazilian holders of ADSs and common shares may face difficulties in serving process on or enforcing judgments against us and other persons.

 

We are a corporation ( sociedade anônima ) organized under the laws of Brazil, and all of our directors and executive officers and our independent public accountants reside or are based in Brazil. Most of the assets of our company and of these other persons are located in Brazil. As a result, it may not be possible for non-Brazilian holders of ADSs and common shares to effect service of process upon us or these other persons within the United States or other jurisdictions outside Brazil or to enforce against us or these other persons judgments obtained in the United States or other jurisdictions outside Brazil. Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if certain conditions are met, holders may face greater difficulties in protecting their interests in the case of actions by us or our directors or executive officers than would shareholders of a U.S. corporation.

 

Judgments of Brazilian courts with respect to our common shares may be payable only in reais.

 

If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of the common shares, we may not be required to discharge our obligations in a currency other than reais . Under Brazilian exchange control limitations, an obligation in Brazil to pay amounts denominated in a currency other than reais may only be satisfied in Brazilian currency at the exchange rate, as determined by the Central Bank, in effect on the date the judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then prevailing exchange may not afford non-Brazilian investors with full compensation for any claim arising out of or related to our obligations under the common shares or the ADSs.

 

Holders of ADSs and non-Brazilian holders of our common shares may be unable to exercise preemptive rights and tag-along rights with respect to our common shares underlying the ADSs.

 

Holders of ADSs and non-Brazilian holders of our common shares may be unable to exercise the preemptive rights and tag-along rights relating to our common shares (including common shares underlying ADSs) unless a registration statement under the U.S. Securities Act of 1933, as amended, or the “Securities Act,” is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares relating to these preemptive rights, and we cannot assure you that we will file any such registration statement. Unless we file a registration statement or an exemption from registration is available, a holder may receive only the net proceeds from the sale of his or her preemptive rights or tag-along, or if these rights cannot be sold, they will lapse and the holder will receive no value from them.

 

Provisions in our by-laws may prevent efforts by our shareholders to change our control or management.

 

Our by-laws contain provisions that may discourage, delay or make more difficult a change in control of our company or removal of our directors. Subject to limited exceptions, these provisions require any

 

Risk factors

 

 

shareholder that acquires shares representing 20% or more of our share capital to, within 30 days from the date of such acquisition, commence a tender offer with respect to all of our share capital for a price per share equivalent to the greatest of: (1) the economic value of our company, which shall be equivalent to the arithmetic average of the mean points of the economic value ranges obtained in two appraisal reports prepared based on the discounted cash flow method, as long as the variation between these mean points shall not exceed 10%, in which case the economic value shall be determined through arbitration; (2) 135% of the issue price of the shares issued in any capital increase through a public offering that takes place within the 24-month period before the date on which the public offering shall become mandatory, duly adjusted in accordance with the IPCA variation up to the date of payment; and (3) 135% of the unit price of our shares within the 30-day period before the public offering. These provisions of our by-laws may delay, defer or prevent a transaction or a change in control that might otherwise be in the best interests of our shareholders.

 

Holders of ADSs could be subject to Brazilian income tax on capital gains from sales of ADSs.

 

Historically, any capital gain realized on a sale or other disposition of ADSs between non-Brazilian holders outside Brazil was not subject to Brazilian income tax. However, a December 2003 Brazilian law (Law No. 10,833) provides that “the acquirer, individual or legal entity resident or domiciled in Brazil, or the acquirer’s attorney-in-fact, when such acquirer is resident or domiciled abroad, shall be responsible for the retention and payment of the income tax applicable to capital gains earned by the individual or legal entity resident or domiciled abroad who disposes of property located in Brazil.” The Brazilian tax authorities have issued a normative instruction confirming that they intend to assess income tax on capital gains earned by non-Brazilian residents whose assets are located in Brazil. It is unclear whether ADSs representing our common shares, which are issued by the ADR depositary outside Brazil, will be deemed to be “property located in Brazil” for purposes of this law. Accordingly, we cannot determine whether Brazilian tax authorities will attempt to tax any capital gains arising from the sale or other disposition of the ADSs, even when the transaction is consummated outside Brazil between non-Brazilian residents.

 

Brazilian taxes may apply to a gain realized by a non-Brazilian holder on the disposition of common shares to another non-Brazilian holder.

 

The gain realized by a non-Brazilian holder on the disposition of common shares to another non-Brazilian holder (other than a disposition of shares held pursuant to Resolution No. 2,689, as amended, of the Brazilian Monetary Councel ( Conselho Monetário Nacional , or “CMN”)) is generally viewed as being subject to taxation in Brazil. Pursuant to Law No. 10,833/03, Brazilian tax authorities may assess income tax on capital gains earned by non-Brazilian residents in transactions involving assets that are located in Brazil. In this case, the tax rate applicable on the gain would be 15% (or 25% in the case of a non-Brazilian holder organized under the laws of or a resident of a tax haven). For additional discussion of the tax consequences of a disposition of our common shares, see “Item 10. Additional Information-Taxation” of our 2008 Annual Report on Form 20-F.

 

The relative volatility and limited liquidity of the Brazilian securities markets may negatively affect the liquidity and market prices of our common shares and the ADSs.

 

The Brazilian securities markets are substantially smaller, less liquid and more volatile than major securities markets in the United States. The São Paulo Stock Exchange had a total market capitalization of R$1,375.3 billion, or U.S.$588.5 billion, at December 31, 2008 and an average daily trading volume of R$5,525.5 million for 2008. By contrast, the New York Stock Exchange had a market capitalization of U.S.$10.18 trillion at December 31, 2008 (U.S. domestic listed companies) and an average daily trading volume of U.S.$268.2 billion for 2008. The Brazilian securities markets are also characterized by considerable share concentration. The ten largest companies in terms of market capitalization

 

Risk factors

 

 

represented approximately 52.4% of the aggregate market capitalization of the São Paulo Stock Exchange at December 31, 2008. In addition, the ten most widely traded stocks in terms of trading volume accounted for approximately 59.6% of all shares traded on the São Paulo Stock Exchange in 2008. These market characteristics may substantially limit the ability of holders of the ADSs to sell common shares underlying ADSs at a price and at a time when they wish to do so and, as a result, could negatively impact the market prices of these securities.

 

Developments and the perception of risks in other countries, especially emerging market countries, may adversely affect the market prices of our common shares and the ADSs.

 

The market for securities issued by Brazilian companies is influenced, to varying degrees, by economic and market conditions in other emerging market countries. Although economic conditions are different in each country, the reaction of investors to developments in one country may cause the capital markets in other countries to fluctuate. Developments or adverse economic conditions in other emerging market countries have at times resulted in significant outflows of funds from, and declines in the amount of foreign currency invested in, Brazil. For example, in 2001, after a prolonged recession, followed by political instability, Argentina announced that it would no longer continue to service its public debt. The economic crisis in Argentina negatively affected, for several years, investors’ perceptions of Brazilian securities. Economic or political crises in Latin America or other emerging markets may significantly affect perceptions of the risk inherent in investing in the region, including Brazil.

 

The Brazilian economy also is affected by international economic and market conditions generally, especially economic and market conditions in the United States. Share prices on the São Paulo Stock Exchange, for example, have historically been sensitive to fluctuations in U.S. interest rates as well as movements of the major U.S. stock indexes.

 

Developments in other countries and securities markets could adversely affect the market prices of our common shares or the ADSs and could also make it more difficult for us to access the capital markets and finance our operations in the future on acceptable terms or at all.

 

We may become a passive foreign investment company, which could result in adverse U.S. tax consequences to U.S. investors.

 

Based on our financial statements, relevant market and shareholder data, and the projected composition of our income and valuation of our assets, including goodwill, we do not believe that we would be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for 2008, and we do not expect to be a PFIC for 2009 or in the future, although we can provide no assurances in this regard. If we become a PFIC, U.S. holders of our common shares or ADSs may become subject to increased tax liabilities under U.S. tax laws and regulations and will become subject to burdensome reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, for any taxable year we will be classified as a PFIC for U.S. tax purposes if either (i) 75% or more of our gross income in that taxable year is passive income or (ii) the average percentage of our assets (which includes cash) by value in that taxable year which produce or are held for the production of passive income is at least 50%. The calculation of the value of our assets will be based, in part, on the quarterly market value of our common shares and ADSs, which is subject to change. See “U.S. Federal Income Tax Considerations-Passive Foreign Investment Company”.

 

Risk factors

 

 

Actual or anticipated sales of a substantial number of common shares in the future could decrease the market prices of our common shares and the ADSs.

 

Sales of a substantial number of our common shares after the completion of the global offering, or the anticipation of such sales, could negatively affect the market prices of our common shares and the ADSs. Subject to some exceptions, we have agreed not to offer, sell or contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the SEC, or the CVM a registration statement relating to, any additional common shares or ADSs or securities convertible into or exchangeable or exercisable for any common shares of our share capital or ADSs or warrants or other rights to purchase any shares or ADSs, or publicly disclose the making of any such offer, sale, pledge disposition or filing, for a period of 90 days after the date of this prospectus, without the prior written consent of the representatives for the underwriters. Substantially all of our directors and executive officers have agreed to substantially similar lock-up provisions, subject to certain exceptions. If, in the future, substantial sales of shares are made by existing or future holders of common shares, the market prices of our common shares or the ADSs may decrease significantly. As a result, holders of ADSs may not be able to sell their ADSs at or above the price they paid for them.

 

This prospectus supplement and the accompanying prospectus contain or incorporated by reference forward-looking statements. Some of the matters discussed concerning our business operations and financial performance include forward-looking statements within the meaning of the U.S. Securities Act of 1933, as amended (the “Securities Act”) and the U.S. Securities Exchange Act of 1934, or the “Exchange Act.”

 

Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” and similar expressions are forward-looking statements. Although we believe that these forward-looking statements are based upon reasonable assumptions, these statements are subject to several risks and uncertainties and are made in light of information currently available to us.

 

Our forward-looking statements may be influenced by factors, including the following:

 

 

Because they involve risks and uncertainties, our forward-looking statements are not guarantees of future performance, and the actual results or developments may differ materially from the expectations expressed in the forward-looking statements. As for the forward-looking statements that relate to future financial results and other projections, actual results will be different due to the inherent uncertainty of estimates, forecasts and projections. Because of these uncertainties, potential investors should not rely on these forward-looking statements.

 

We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

 

All references in this prospectus supplement to the “ real ,” “ reais ” or “R$” are to the Brazilian real , the official currency of Brazil. All references to “U.S. dollars,” “dollars” or “U.S.$” are to U.S. dollars.

 

The exchange rate for reais into U.S. dollars based on the selling rate as reported by the Central Bank was R$2.3370 to U.S.$1.00 at December 31, 2008, R$1.7713 to U.S.$1.00 at December 31, 2007 and R$2.1380 to U.S.$1.00 at December 31, 2006. On July 8, 2009, the selling rate was R$2.01 to U.S.$1.00. The real /dollar exchange rate fluctuates widely, and the selling rate at July 8, 2009 may not be indicative of future exchange rates. See “Exchange rates” for information regarding exchange rates for the Brazilian currency since January 1, 2004.

 

Solely for the convenience of the reader, we have translated some amounts included in “Capitalization” and elsewhere in this prospectus supplement from reais into U.S. dollars using the selling rate as reported by the Central Bank at July 8, 2009 of R$2.01 to U.S.$1.00. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange rate. In addition, translations should not be construed as representations that the real amounts represent or have been or could be converted into U.S. dollars as of that or any other date.

 

FINANCIAL STATEMENTS OF PERDIGÃO S.A.

 

We maintain our books and records in reais .

 

Our Brazilian GAAP consolidated financial statements at and for each of the years ended December 31, 2008, 2007 and 2006 have been audited, as stated in the report of the independent registered public accounting firm. These audited annual consolidated financial statements are set forth in Item 18 of our 2008 Annual Report on Form 20-F and are incorporated by reference in this prospectus.

 

Our Brazilian GAAP unaudited consolidated interim financial statements at and for the three months ended March 31, 2009 and 2008 are set forth in Exhibit 99.3 of our second Current Report on Form 6-K filed on July 10, 2009 and are incorporated by reference in this prospectus.

 

We prepare our consolidated financial statements in accordance with Brazilian GAAP, each are based on:

 

 

Brazilian GAAP differs in significant respects from U.S. GAAP and IFRS. For more information about the difference between Brazilian GAAP and U.S. GAAP and a reconciliation of our net income and shareholders’ equity from Brazilian GAAP to U.S. GAAP, see note 24 to our annual consolidated financial statements incorporated by reference in this prospectus supplement.

 

The report covering the December 31, 2008 consolidated financial statements of our company contains emphasis paragraphs referring to the following: (1) changes in our consolidated accounting principles due to the introduction of Law No. 11.638/07 Provisional Executive Act No. 449/08 as discussed in note 2 to the consolidated financial statements; and (2) subsequent to year end, we have entered into a merger agreement with Sadia S.A., in order to allow the business combination of the companies as discussed in note 25 (iv) to the consolidated financial statements

 

Our consolidated financial statements and financial data for the year ended December 31, 2006 reflect reclassifications relating to breeder chicks, which were previously recorded as inventories and are now

 

Presentation of financial and other information

 

 

recorded as property, plant and equipment. These reclassifications did not affect our consolidated statement of income for any year. As a result of these reclassifications, the consolidated financial statements and other financial data (other than consolidated statement of income and statement of income data) presented in this document differ from the financial statements published by us in prior years.

 

Unless otherwise indicated, all financial information of our company included in this document is derived from our financial statements in accordance with Brazilian GAAP.

 

FINANCIAL STATEMENTS OF SADIA S.A.

 

Sadia maintains its books and records in reais .

 

Sadia’s U.S. GAAP consolidated financial statements at and for each of the years ended December 31, 2008, 2007 and 2006 included in Exhibit 99.2 of our second Current Report on Form 6-K filed on July 10, 2009 have been audited, as stated in the report of the independent registered public accounting firm appearing therein, and are incorporated by reference in this prospectus. These audited consolidated financial statements have been prepared in accordance with U.S. GAAP.

 

The unaudited consolidated interim financial statements of Sadia at March 31, 2009 and for the three months ended March 31, 2009 and 2008 have been prepared in accordance with Brazilian GAAP and are included in Exhibit 99.4 of our second Current Report on Form 6-K filed on July 10, 2009, which is incorporated by reference in this prospectus.

 

PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

 

We have incorporated by reference into this prospectus unaudited pro forma consolidated financial information at and for the three months ended March 31, 2009 and for the year ended December 31, 2008 in order to illustrate the effects of our proposed business combination with Sadia and the offering and use of proceeds contemplated herein on our results of operations and financial condition. See Exhibit 99.1 of our second Current Report on Form 6-K filed on July 10, 2009. The unaudited pro forma consolidated balance sheet data at March 31, 2009 and December 31, 2008 give effect to our proposed business combination with Sadia and the offering and use of proceeds contemplated herein as if they had occurred on such dates. The unaudited pro forma consolidated statement of operations data for the three months ended March 31, 2009 and the year ended December 31, 2008 give effect to our proposed business combination with Sadia and the offering and use of proceeds contemplated herein as if they had occurred on January 1, 2008.

 

The unaudited pro forma consolidated financial information at and for the year ended December 31, 2008 has been prepared in accordance with U.S. GAAP, and the unaudited pro forma consolidated financial information at and for the three months ended March 31, 2009 has been prepared in accordance with Brazilian GAAP. The unaudited pro forma consolidated financial information is presented for informational purposes only and does not purport to represent our financial condition or results of operations had our proposed business combination with Sadia and the offering and use of proceeds contemplated herein occurred as of the respective dates indicated above. In addition, the unaudited pro forma consolidated financial information does not purport to project our future financial position or results of operations as of any future date or for any future period.

 

Assuming an offering price of R$40.00 per common share (the closing sales price on the São Paulo Stock Exchange on July 7, 2009), we estimate that the net proceeds from the global offering will be approximately R$4,483.37 million (U.S.$2,230.53 million, based upon the selling rate of R$2.01 to U.S.$1.00 on July 8, 2009), after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The final offering price will be set forth in the final prospectus supplement and the pricing term sheet and could differ from the numbers given above.

 

We intend to use the net proceeds from the global offering, without taking into account the proceeds of any common shares sold upon exercise of the overallotment option, to reduce short-term debt following the business combination with Sadia, and for general corporate purposes, which may include, without limitation, repayment or refinancing of other indebtedness, acquisitions, investments or other purposes. We currently intend to use the net proceeds to repay the following short-term indebtedness of Sadia:

 

 

The total indebtedness of Sadia and its subsidiaries, including the indebtedness set forth in the table above, was R$8.0 billion as of March 31, 2009, with maturities varying from one to 132 months and interest rates varying from 5.0% to 12.5% per year. For more information on Sadia’s debt instruments, including indebtedness that we intend to repay with the net proceeds of this offering, see the description under the caption “Liquidity and Sources of Funding—Indebtedness and Debt Profile” set forth in Exhibit 99.6 (Sadia S.A.: Management’s Discussion and Analysis of Financial Condition and Results of Operations as of and for the Three Months Ended March 31, 2009) to the second Current Report on Form 6-K filed on July 10, 2009, which description is incorporated by reference into this section of the prospectus supplement.

 

The allocation of proceeds from the global offering may differ from the above estimate due to changes in market and industry conditions, changes affecting our costs and investments, opportunities to make acquisitions or investments well as other factors described under “Forward-looking statements.” Our management will retain broad discretion over the use of proceeds, and we may ultimately use the proceeds for different purposes than what we currently intend. In the event that the net proceeds from the global offering are less than the total amount of short-term indebtedness of Sadia listed above, we expect to gradually reduce Sadia’s short-term debt with other sources of liquidity, including cash flows

 

Use of proceeds

 

 

from operations. Pending any specific application, we may invest the net proceeds of this offering in cash, cash equivalents or marketable securities.

 

An increase (reduction) of R$1.00 in the price per share of R$40.00 corresponding to the closing sales price for our common shares on the São Paulo Stock Exchange on July 7, 2009, would increase (reduce) the value of our net proceeds form the global offering by R$112.3 million.

 

The principal trading market for our common shares is the São Paulo Stock Exchange.

 

SHARE RECLASSIFICATION AND RELATED SHARE SPLIT

 

In March 2006, our shareholders approved (1) a share reclassification, under which our previously issued and outstanding preferred shares were converted on a one-for-one basis into common shares and (2) a three-for-one share split of our common shares. The conversion and related share split became effective on April 12, 2006. We undertook the conversion in connection with our voluntary adherence to the higher corporate governance and disclosure requirements of the São Paulo Stock Exchange’s Novo Mercado . As a result of the share reclassification and share split, our share capital consists solely of common shares, and each of our common shares was split into three common shares. In accordance with Brazilian GAAP, per share data and other information in this document have not been adjusted to give effect to the reclassification and related share split. However, the per share data in accordance with U.S. GAAP that is presented in “Item 3. Key Information-Selected Financial Data” and Note 24 to the audited consolidated financial statements in our 2008 Annual Report on Form 20-F have been adjusted to reflect the share reclassification and the share split.

 

On October 20, 2000, ADSs representing our preferred shares began trading on the NYSE. On May 31, 2009, there were 6,107,195 ADSs outstanding, representing 12,214,390 common shares, or 5.9% of our outstanding common shares. On May 31, 2009, we had approximately 20,000 shareholders, including 83 U.S. resident holders of our common shares (including The Bank of New York, as depositary). On May 31, 2009, there were 206,527,618 common shares issued and outstanding (excluding 430,485 common shares held in treasury).

 

PRICE HISTORY OF OUR COMMON SHARES AND PREFERRED SHARES AND THE ADSS

 

The tables below set forth the high and low closing sales prices for our common shares and preferred shares on the São Paulo Stock Exchange and the high and low closing sales prices for the ADSs on the NYSE for the periods indicated. The sales prices for our common shares and preferred shares, and the ADSs, have been adjusted to give effect to the three-for-one share split that became effective on April 12, 2006.

 

 

 

Market information

 

 

 

 

 

Source: Bloomberg

 

 

On July 8, 2009, the closing sales price of:

 

 

TRADING ON THE SÃO PAULO STOCK EXCHANGE

 

The São Paulo Stock Exchange is a public company which resulted from the merger, in 2008, among Bolsa de Mercadorias e Futuros (BM&F, the Brazilian commodities and futures exchange), Bolsa de Valores de São Paulo (BOVESPA, the São Paulo stock exchange), and Companhia Brasileira de Liquidação e Custódia (CBLC, a clearinghouse). Before the merger, BM&F and BOVESPA, which were non-profit entities owned by their member brokerage firms until 2007, conducted their initial public offerings and became public companies. The integration process among such companies was fully completed in November 2008. Trading on the São Paulo Stock Exchange is limited to member brokerage firms and a limited number of authorized non-members. The São Paulo Stock Exchange currently has open outcry trading sessions, from 10:00 a.m. to 5:00 p.m. or from 11:00 a.m. to 6:00 p.m. during Brazilian summer time. There is also trading in the so-called After-Market, only through the automated quotation system of the São Paulo Stock Exchange, from 5:45 p.m. to 7:00 p.m.

 

Market information

 

 

or from 6:45 p.m. to 7:45 p.m. during Brazilian summer time. Only shares that were traded during the regular trading session of the day may be traded in the After-Market of the same day. Trades are made by entering orders in the Mega Bolsa electronic trading system, created and operated by BOVESPA.

 

Settlement of transactions conducted on the São Paulo Stock Exchange is effected three business days after the trade date without any adjustment for inflation. Delivery of and payment for shares is made through the São Paulo Stock Exchange’s securities clearing system. The seller is ordinarily required to deliver the shares to the exchange on the second business day following the trade date.

 

In order to maintain better control over the fluctuation of the São Paulo Stock Exchange index, in 2003 the São Paulo Stock Exchange adopted a “circuit breaker” system in which the trading session is suspended for a period of 30 minutes or one hour in the event the São Paulo Stock Exchange index were to fall below the limit of 10.0% or 15.0%, respectively, in relation to the closing rate of the index of the previous trading session.

 

From September to October of 2008, due to high volatility in the São Paulo Stock Exchange, the “circuit breaker” system was activated six times, in some cases right after the opening of the session and in others, after the dissemination of news that contradicted market expectations that resulted in investor panic. On October 6, 2008, the opening of the São Paulo Stock Exchange was stopped twice, forcing the exchange to disclose special rules for halting trades if the São Paulo Stock Exchange index fell 20%. Ultimately, the market did not fall to such extent.

 

The São Paulo Stock Exchange is significantly less liquid than the NYSE and many other of the world’s major stock exchanges. While all of the outstanding shares of a listed company may trade on the São Paulo Stock Exchange, in most cases fewer than half of the listed shares are actually available for trading by the public. The remaining shares are often held by a single or small group of controlling persons or by governmental entities.

 

Trading on the São Paulo Stock Exchange by a holder not deemed to be domiciled in Brazil for Brazilian tax and regulatory purposes, or a non-Brazilian holder, is subject to certain limitations under Brazilian foreign investment regulations. With limited exceptions, non-Brazilian holders may trade on the São Paulo Stock Exchange only in accordance with the requirements of Resolution No. 2,689 of January 26, 2000 of the CMN. Resolution No. 2,689 requires securities held by non-Brazilian holders to be maintained in the custody of, or in deposit accounts with, financial institutions that are authorized by the Central Bank and the Brazilian Securities Commission. In addition, Resolution No. 2,689 requires non-Brazilian holders to restrict their securities trading to transactions on the São Paulo Stock Exchange or organized over-the-counter markets. With limited exceptions, non-Brazilian holders may not transfer the ownership of investments made under Resolution No. 2,689 to other non-Brazilian holders through private transactions. For more information, see “Description of Share Capital—Regulation of Foreign Investment” in the accompanying prospectus.

 

REGULATION OF BRAZILIAN SECURITIES MARKETS

 

The Brazilian securities markets are regulated by the CVM, which has authority over stock exchanges and the securities markets generally, by the CMN and by the Central Bank, which has, among other powers, licensing authority over brokerage firms and which regulates foreign investment and foreign exchange transactions. The Brazilian securities market is governed by Brazilian Law No. 6,385/76, as amended, and by the Brazilian Corporation Law and other CVM rulings and regulations.

 

Under the Brazilian Corporation Law, a company may be either public (companhia aberta), as we are, or closely held (companhia fechada) . All public companies are registered with the CVM and are subject to periodic reporting requirements. A company registered with the CVM may have its securities traded on the Brazilian stock exchanges or in the Brazilian over-the-counter market. The shares of a listed company, like those of our company, also may be traded privately subject to certain limitations.

 

Market information

 

 

The Brazilian over-the-counter market consists of direct trades between persons in which a financial institution registered with the CVM serves as intermediary. No special application, other than registration with the CVM, is necessary for securities of a public company to be traded in this market. The CVM must receive notice of all trades carried out in the Brazilian over-the-counter market by the respective intermediaries.

 

Trading of a company’s securities on the São Paulo Stock Exchange may be suspended in anticipation of a material announcement. A company must also suspend trading of its securities on international stock exchanges on which its securities are traded. Trading may also be suspended by the São Paulo Stock Exchange or the CVM, among other reasons, based on or due to a belief that a company has provided inadequate information regarding a material event or has provided inadequate responses to an inquiry by the CVM or the relevant stock exchange.

 

Brazilian Law No. 6,385/76, as amended, the Brazilian Corporation Law and regulations issued by the CVM provide for, among other things, disclosure obligations, restrictions on insider trading and price manipulation and protections for minority shareholders. However, the Brazilian securities markets are not as highly regulated and supervised as securities markets in the United States and some other jurisdictions. In addition, rules and policies against self-dealing or for preserving shareholder interests may be less well-defined and enforced in Brazil than in the United States, which may put holders of our common shares and the ADSs at a disadvantage. Corporate disclosures also may be less complete than for public companies in the United States and certain other jurisdictions.

 

SÃO PAULO STOCK EXCHANGE CORPORATE GOVERNANCE STANDARDS

 

The São Paulo Stock Exchange has listing segments:

 

 

These listing segments have been designed for the trading of shares issued by companies that voluntarily undertake to abide by corporate governance practices and disclosure requirements in addition to those already required under the Brazilian Corporation Law. The inclusion of a company in any of the new segments requires adherence to a series of corporate governance rules. These rules are designed to increase shareholders’ rights and enhance the quality of information provided by Brazilian corporations.

 

In April 2006, we entered into a listing agreement with the São Paulo Stock Exchange, under which we agreed to comply with stricter corporate governance and disclosure requirements established by the São Paulo Stock Exchange in order to qualify as a company admitted to the Novo Mercado .

 

When we became a company within the Novo Mercado , we agreed, among other things, to:

 

 

Market information

 

 

 

 

All members of our board of directors, our board of executive officers and our fiscal council signed a management compliance statement (Termo de Anuência dos Administradores) under which they take personal responsibility for compliance with the Novo Mercado listing agreement, the rules of the Market Arbitration Chamber and the regulations of the Novo Mercado .

 

Until March 4, 2005, there were two legal foreign exchange markets in Brazil: the commercial rate exchange market, or the “Commercial Market”; and the floating rate exchange market, or the “Floating Market.” The Commercial Market was reserved primarily for foreign trade transactions and transactions that generally required prior approval from Brazilian monetary authorities, such as registered investments by foreign persons and related remittances of funds abroad (including the payment of principal and interest on loans, notes, bonds and other debt instruments denominated in foreign currencies and registered with the Central Bank). The Floating Market rate generally applied to specific transactions for which Central Bank approval was not required. Both the Commercial Market rate and the Floating Market rate were reported by the Central Bank on a daily basis.

 

On March 4, 2005, the Central Bank issued Resolution No. 3,265, providing for several changes in Brazilian foreign exchange regulation, including (1) the unification of the foreign exchange markets into a single exchange market, (2) the easing of several rules for acquisition of foreign currency by Brazilian residents and (3) the extension of the term for converting foreign currency derived from Brazilian exports. The Central Bank may issue further regulations in relation to foreign exchange transactions, as well as on payments and transfers of Brazilian currency between Brazilian residents and non-residents (such transfers being commonly known as the international transfer of reais) , including those made through the so-called non-resident accounts (also known as CC5 accounts).

 

Since the beginning of 2001, the Brazilian exchange market has been increasingly volatile, and, until early 2003, the value of the real declined relative to the U.S. dollar, primarily due to financial and political instability in Brazil and Argentina. In 2005, 2006 and 2007, however, on average the real appreciated in relation to the U.S. dollar 13.4%, 9.5% and 16.3%, respectively. In 2008, the real depreciated against the U.S. dollar by 31.9%. Although the Central Bank has intervened occasionally to control unstable movements in the foreign exchange rates, the exchange market has continued to be volatile in 2009 and may continue to be volatile in the future.

 

The following table shows the selling rate for U.S. dollars for the periods and dates indicated. The information in the “Average” column represents the average of the daily exchange rates during the periods presented. The numbers in the “Period End” column are the quotes for the exchange rate as of the last business day of the period in question.

 

 

 

Source: Central Bank/Bloomberg

 

The following table sets forth our consolidated debt and capitalization at March 31, 2009, derived from our consolidated financial statements prepared in accordance with Brazilian GAAP:

 

 

You should read this table in conjunction with our consolidated financial statements incorporated by reference in this prospectus supplement.

 

 

 

 

Capitalization

 

 

 

 

We (the parent company) have guaranteed debt of our subsidiaries in an aggregate principal amount of R$3,838.7 million at March 31, 2009.

 

The following summary contains a description of Brazilian and U.S. federal income tax consequences of the acquisition, ownership and disposition of common shares or ADSs. It does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase our common shares or ADSs. It is not applicable to all categories of investors, some of which may be subject to special rules and does not specifically address all of the Brazilian and U.S. federal income tax considerations applicable to any particular holder. This summary is based upon the tax laws of Brazil and regulations thereunder and on the tax laws of the United States and regulations thereunder as in effect on the date hereof, which are subject to change, possibly with retroactive effect, and to differing interpretations. Prospective purchasers of common shares or ADSs should consult their own tax advisors as to the tax consequences of the acquisition, ownership and disposition of common shares or ADSs.

 

Although there is at present no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may culminate in such a treaty. No assurance can be given, however, as to whether or when a treaty will enter into force or how it will affect the U.S. Holders (as defined below) of our common shares or ADSs. Prospective holders of common shares or ADSs should consult their own tax advisors as to the tax consequences of the acquisition, ownership and disposition of common shares or ADSs in their particular circumstances.

 

BRAZILIAN TAX CONSIDERATIONS

 

The following discussion summarizes the material Brazilian tax consequences of the acquisition, ownership and disposition of our common shares or ADSs by a holder that is not domiciled in Brazil for purposes of Brazilian taxation (a “Non-Resident Holder”) and does not specifically address all of the Brazilian tax considerations applicable to any particular Non-Resident Holder. The tax consequences described below do not take into account the effects of any tax treaties or reciprocity of tax treatment entered into by Brazil and other countries. The discussion also does not address any tax consequences under the tax laws of any state or locality of Brazil. Each Non-Resident Holder should consult its own tax adviser concerning the Brazilian tax consequences of an investment in common shares or ADSs. The discussion below is based on Brazilian tax law and regulations as currently in effect, which are subject to change, possibly with retroactive effect, and to differing interpretations. Any change in that law may change the consequences described below.

 

Income Tax

 

Dividends

Dividends paid by a Brazilian corporation, such as our company, including stock dividends and other dividends, to a Non-Resident Holder of common shares or ADSs are currently not subject to Brazilian withholding income tax, to the extent that such amounts are related to profits generated on or after January 1, 1996.

 

Interest on Shareholder’s Equity

Law No. 9,249, dated December 26, 1995, as amended, allows a Brazilian corporation, such as ourselves, to make distributions to shareholders of interest on shareholders’ equity. These distributions may be paid in cash. Such payments represent a deductible expense from the payer’s corporate income tax and social contribution on net profits tax basis. For tax purposes, this interest is limited to the daily

 

Taxation

 

 

pro rata variation of the Brazilian Federal Government’s Long-Term Interest Rate (“TJLP”), as determined by the Central Bank from time to time, and may not exceed the greater of:

 

 

Payment of interest on shareholders’ equity to a Non-Resident Holder is subject to withholding income tax at the rate of 15%, or 25% if the Non-Resident Holder is domiciled in a country or location (1) that does not impose income tax, or (2) where the maximum income tax rate is lower than 20%, or (3) where the applicable local legislation imposes restrictions on disclosing the shareholding composition or the ownership of the investment (“Tax Haven Residents”).

 

In addition, Law No. 11,727, of June 23, 2008, or Law No. 11,727, introduced a broader concept of tax haven jurisdiction (which would incorporate any “privileged tax regime”) applicable to transactions subject to Brazilian transfer pricing rules.

 

Due to the recent enactment of this Law and the lack of relevant regulations issued by the Brazilian tax authorities, we are not able to ascertain if this privileged tax regime concept will also be applied to non-resident investors such as a Non-Resident Holder. We recommend that prospective investors consult their own tax advisors from time to time about the changes implemented by Law No. 11,727 and by any Brazilian tax law or regulation with respect to the concept of tax haven jurisdiction.

 

If the tax authorities determine that payments of interest on shareholders’ equity made to a Non-Resident Holder will benefit from a privileged tax regime, the withholding income tax rate applicable to such payments could be 25%.

 

These payments of interest on shareholders’ equity may be included, at their net value, as part of any mandatory dividend. To the extent payment of interest on shareholders’ equity is so included, the corporation is required to distribute to shareholders an additional amount to ensure that the net amount received by them, after payment of the applicable Brazilian withholding income tax, plus the amount of declared dividends is at least equal to the mandatory dividend.

 

Gains

 

According to Law No. 10,833 dated December 29, 2003, as amended, gains recognized on a disposition or sale of assets located in Brazil, such as our common shares, are subject to income tax in Brazil, regardless of whether the disposition or sale is made by the Non-Resident Holder to a Brazilian resident or to another non-resident of Brazil.

 

As a general rule, capital gains realized as a result of a disposition or sale of shares are the positive difference between the amount realized on the disposition of the relevant shares and their acquisition cost.

 

Capital gains realized by Non-Resident Holders on the disposition or sale of common shares carried out on a Brazilian stock exchange (which includes the transactions carried out on the organized over-the-counter market) are:

 

 

Taxation

 

 

 

Any other gains realized on the disposition of common shares that are not carried out on a Brazilian stock exchange are:

 

 

In the cases described above, if the gains are related to transactions conducted on the Brazilian non-organized over-the-counter market with intermediation, the withholding income tax of 0.005% shall also be applicable and can be offset against any income tax due on the capital gain.

 

Any exercise of preemptive rights relating to common shares will not be subject to Brazilian taxation. Gains realized by a Non-Resident Holder on the disposition of preemptive rights will be subject to Brazilian income tax according to the same rules applicable to disposition or sale of common shares.

 

In the case of a redemption of common shares or a capital reduction, the positive difference between the amount received by the Non- Resident Holder and the acquisition cost of the common shares redeemed is treated as capital gain derived from the sale or exchange of shares not carried out on a Brazilian stock exchange and is therefore subject to income tax at the rate of 15%, or 25%, in the case of Tax Haven Residents.

 

There can be no assurance that the current favorable tax treatment of 2,689 Holders will continue in the future.

 

Sale of ADSs by U.S. Holders to Other Non-Residents in Brazil

As discussed above, the sale of property located in Brazil involving Non-Resident Holders is subject to Brazilian income tax. We have been advised that ADSs do not qualify as property located in Brazil and, thus, should not be subject to the Brazilian withholding tax. However, due to the lack of any administrative or judicial guidance, there is no assurance that such position would prevail.

 

Gains on the Exchange of ADSs for Common Shares

The exchange of ADSs for common shares should not be subject to Brazilian withholding tax. Non-Resident Holders may exchange ADSs for the underlying common shares, sell the common shares on a Brazilian stock exchange and remit abroad the proceeds of the sale within five business days from the date of exchange (in reliance on the depositary’s electronic registration) with no tax consequences.

 

Upon receipt of the underlying common shares in exchange for ADSs, Non-Resident Holders may also elect to register with the Central Bank the U.S. dollar value of such common shares as a foreign portfolio investment under Resolution No. 2,689/00, which will entitle them to the tax treatment discussed above.

 

Alternatively, the Non-Resident Holder is also entitled to register with the Central Bank the U.S. dollar value of such common shares as a foreign direct investment under Law No. 4,131/62, in which case capital gains will be taxed at a rate of 15%, or 25% if the Non-Resident Holder is a Tax Haven Resident.

 

Taxation

 

 

Gains on the Exchange of Common Shares for ADSs

The deposit of common shares in exchange for the ADSs may be subject to Brazilian income tax on capital gains if the acquisition cost of the common shares is lower than:

 

 

In such case, the difference between the acquisition cost and the average price of the common shares, calculated as set forth above, will be considered a capital gain subject to income tax at a rate of 15%, or 25% for Tax Haven Residents.

 

Tax on Foreign Exchange and Financial Transactions

 

Foreign Exchange Transactions

Brazilian law imposes a Tax on Foreign Exchange Transactions, or “IOF/Exchange Tax,” due on the conversion of reais into foreign currency and on the conversion of foreign currency into reais . Currently, IOF rates for almost all foreign currency exchange transactions is 0.38%. However, foreign exchange transactions carried out by a non-resident of Brazil for investments in the Brazilian financial and capital markets under the rules of the Brazilian Monetary Council are currently subject to IOF/Exchange Tax at a zero rate, including foreign exchange transactions in connection with payment of dividends and interest on shareholders’ equity with respect to common shares and ADSs. Nevertheless, IOF/Exchange Tax will be levied at a rate of 0.38% on payments of dividends and interest on shareholders’ equity made to a Non-Resident Holder with respect to common shares in case such Non-Brazilian Holder chooses to register the common shares with the Central Bank as a foreign direct investment. In any situation, the Brazilian government may increase the rate at any time up to 25% on the foreign exchange transaction amount. However, any such increase in rates may only apply to future transactions.

 

Tax on Transactions Involving Bonds and Securities

Brazilian law imposes a Tax on Transactions Involving Bonds and Securities, or “IOF/Bonds Tax,” including those carried out on a Brazilian stock exchange. The rate of IOF/Bonds Tax applicable to transactions involving common shares is currently zero, but the Brazilian government may increase such rate at any time up to 1.5% of the transaction amount per day. However, any increase in such rate may only apply to future transactions.

 

Other Brazilian Taxes

 

There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of common shares or ADSs by individuals or entities not domiciled in Brazil, except for gift and inheritance taxes imposed by some Brazilian states on gifts or bequests by these individuals or entities not domiciled or residing in Brazil to individuals or entities domiciled or residing within such states. There are no Brazilian stamp, issue, registration or similar taxes or duties payable by holders of common shares or ADSs.

 

U.S. FEDERAL INCOME TAX CONSIDERATIONS

 

The following summary describes U.S. federal income tax consequences of the acquisition, ownership and disposition of our common shares and ADSs as of the date hereof. Except where noted, this summary deals only with U.S. Holders (as defined below) that hold our common shares or ADSs as capital assets for U.S. federal income tax purposes (generally, property held for investment). As used in

 

Taxation

 

 

this summary, the term “U.S. Holder” means a holder of our common shares or ADSs that is for U.S. federal income tax purposes:

 

 

This summary does not represent a detailed description of the U.S. federal income tax consequences applicable to you if you are subject to special treatment under the U.S. federal income tax laws, including if you are:

 

 

The discussion below is based upon the provisions of the Code, and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be replaced, revoked or modified so as to result in U.S. federal income tax consequences different from those discussed below. In addition, this summary is based, in part, upon representations made by the depositary to us and assumes that the deposit agreement relating to the ADSs, and all other related agreements, will be performed in accordance with their terms.

 

If a partnership holds our common shares or ADSs, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our common shares or ADSs, you should consult your tax advisors.

 

This summary does not contain a detailed description of all the U.S. federal income tax consequences to you in light of your particular circumstances and does not address the effects of any state, local or non-United States tax laws. If you are considering the purchase, ownership or disposition of our common shares or ADSs, you should consult your own tax advisors concerning the U.S. federal income tax consequences to you in light of your particular situation, as well as any consequences arising under the laws of any other taxing jurisdiction.

 

Taxation

 

 

The U.S. Treasury has expressed concerns that intermediaries in the chain of ownership between the holder of an ADS and the issuer of the security underlying the ADS may be taking actions that are inconsistent with the claiming of foreign tax credits for U.S. Holders of ADSs. Such actions would also be inconsistent with the claiming of the reduced rate of tax, described below, applicable to dividends received by certain non-corporate holders. Accordingly, the analysis of the creditability of Brazilian taxes and the availability of the reduced tax rate for dividends received by certain non-corporate holders, each described below, could be affected by actions taken by intermediaries in the chain of ownership between the holder of an ADS and the Company.

 

ADSs

 

If you hold ADSs, for U.S. federal income tax purposes, you generally will be treated as the owner of the underlying common shares that are represented by the ADSs. Accordingly, deposits or withdrawals of common shares for ADSs will not be subject to U.S. federal income tax.

 

Taxation of Dividends

 

Subject to the discussion under “—Passive Foreign Investment Company” below, the gross amount of distributions on the ADSs or our common shares (including amounts withheld to reflect Brazilian withholding taxes and distributions of interest on shareholders’ equity, as described above under “—Brazilian Tax Considerations”) will be taxable as dividends, to the extent paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Such income (including withheld taxes) will be includable in your gross income as ordinary income on the day actually or constructively received by you, in the case of our common shares, or by the depositary, in the case of ADSs. Such dividends will not be eligible for the dividends received deduction allowed to corporations under the Code.

 

With respect to non-corporate U.S. Holders, certain dividends received in taxable years before January 1, 2011 from a qualified foreign corporation may be subject to reduced rates of taxation. Subject to certain limitations, a foreign corporation is treated as a qualified foreign corporation with respect to dividends received from that corporation on shares (or ADSs backed by such shares) that are readily tradable on an established securities market in the United States. U.S. Treasury Department guidance indicates that the ADSs (which are listed on the NYSE), but not our common shares, are readily tradable on an established securities market in the United States. Thus, although we believe that dividends received with respect to ADSs currently meet the conditions required for those reduced tax rates, we do not believe that dividends received with respect to common shares (rather than ADSs) currently meet the conditions required for those reduced tax rates. We cannot assure you that the ADSs will be considered readily tradable on an established securities market in later years. Non-corporate holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign corporation. In addition, the rate reduction will not apply to a dividend if the recipient of the dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. Furthermore, non-corporate U.S. Holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a passive foreign investment company (as discussed below under “—Passive Foreign Investment Company”) in the taxable year in which such dividends are paid or in the preceding taxable year. You should consult your own tax advisors regarding the application of these rules given your particular circumstances.

 

The amount of any dividend paid in reais will equal the U.S. dollar value of the reais received calculated by reference to the exchange rate in effect on the date the dividend is received by you, in the case of common shares, or by the depositary, in the case of ADSs, regardless of whether the reais are

 

Taxation

 

 

converted into U.S. dollars. If the reais received as a dividend are converted into U.S. dollars on the date they are received, you generally will not be required to recognize foreign currency gain or loss in respect of the dividend income. If the reais received as a dividend are not converted into U.S. dollars on the date of receipt, you will have a basis in the reais equal to their U.S. dollar value on the date of receipt. Any gain or loss realized on a subsequent conversion or other disposition of the reais will be treated as U.S. source ordinary income or loss.

 

Subject to certain conditions and limitations, Brazilian withholding taxes on distributions (including distribution of interest on shareholders’ equity) will be treated as foreign taxes eligible for credit against your U.S. federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on the ADSs or our common shares will be treated as income from sources outside the United States and will generally constitute passive category income. In addition, in certain circumstances, if you have held ADSs or common shares for less than a specified minimum period during which you are not protected from risk of loss, or are obligated to make payments related to the dividends, you will not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on the ADSs or common shares. The rules governing the foreign tax credit are complex. You are urged to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances. Instead of claiming a credit, you may, at your election, deduct such otherwise creditable Brazilian withholding taxes in computing your taxable income, but only for a taxable year in which you elect to do so with respect to all foreign income taxes paid or accrued in such taxable year and subject to generally applicable limitations under U.S. law.

 

To the extent that the amount of any distribution (including amounts withheld to reflect Brazilian withholding taxes and distributions of interest on shareholders’ equity, as described above under “—Brazilian Tax Considerations”) exceeds our current and accumulated earnings and profits for a taxable year, as determined under U.S. federal income tax principles, the distribution will first be treated as a tax-free return of capital, causing a reduction in the adjusted basis of the ADSs or common shares (thereby increasing the amount of gain, or decreasing the amount of loss, to be recognized by you on a subsequent disposition of the ADSs or common shares), and the balance in excess of adjusted basis will be taxed as capital gain recognized on a sale or exchange (as discussed below under “—Taxation of Capital Gains”). Consequently, any distributions in excess of our current and accumulated earnings and profits would generally not give rise to income from sources outside the United States and you would generally not be able to use the foreign tax credit arising from any Brazilian withholding tax imposed on such distributions unless such credit could be applied (subject to applicable limitations) against U.S. federal income tax due on other income from sources outside the United States in the appropriate category for foreign tax credit purposes. However, we do not expect to calculate earnings and profits in accordance with U.S. federal income tax principles. Therefore, you should assume that a distribution will generally be treated as a dividend (as discussed above).

 

Distributions of common shares or ADSs, or rights to subscribe for common shares or ADSs, which are received as part of a pro rata distribution to all of our shareholders generally will not be subject to U.S. federal income tax.

 

Passive Foreign Investment Company

 

Based on our financial statements, relevant market and shareholder data, and the projected composition of our income and valuation of our assets, including goodwill, we do not believe we would be a passive foreign investment company, or “PFIC,” for U.S. federal income tax purposes for 2008, and we do not expect to be a PFIC for 2009 or in the future, although we can provide no assurances in this regard.

 

In general, we will be a PFIC for any taxable year in which:

 

 

Taxation

 

 

 

For this purpose, cash is a passive asset and passive income generally includes dividends, interest, royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person). If we own at least 25% (by value) of the stock of another corporation, we will be treated, for purposes of the PFIC tests, as owning our proportionate share of the other corporation’s assets and receiving our proportionate share of the other corporation’s income.

 

The determination of whether we are a PFIC must be made annually. Accordingly, it is possible that we may become a PFIC in the current or any future taxable year due to changes in our income or asset composition. Because we have valued our goodwill based on the market value of our equity, a decrease in the price of our ADSs or common shares may also result in our becoming a PFIC. If we are a PFIC for any taxable year during which you hold our ADSs or common shares, you will be subject to special tax rules discussed below and could suffer adverse tax consequences.

 

If we are a PFIC for any taxable year during which you hold our ADSs or common shares, you will be subject to special tax rules with respect to any “excess distribution” received and any gain realized from a sale or other disposition, including a pledge, of ADSs or common shares. Distributions received in a taxable year that are greater than 125% of the average annual distributions received during the shorter of the three preceding taxable years or your holding period for the ADSs or common shares will be treated as excess distributions. Under these special tax rules:

 

 

In addition, non-corporate U.S. Holders will not be eligible for reduced rates of taxation on any dividends received from us in taxable years beginning prior to January 1, 2011, if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year. You will be required to file Internal Revenue Service Form 8621 if you hold our ADSs or common shares in any year in which we are classified as a PFIC.

 

If we are a PFIC for any taxable year and any of our non-United States subsidiaries is also a PFIC, a U.S. Holder would be treated as owning a proportionate amount (by value) of the common shares of the lower-tier PFIC for purposes of the application of these rules. You are urged to consult your tax advisors about the application of the PFIC rules to any of our subsidiaries.

 

In certain circumstances, in lieu of being subject to the excess distribution rules discussed above, you may make an election to include gain on the stock of a PFIC as ordinary income under a mark-to-market method, provided that such stock is regularly traded on a qualified exchange. Under current law, the mark-to-market election may be available to holders of ADSs because the ADSs are listed on the NYSE, which constitutes a qualified exchange, although there can be no assurance that the ADSs will be “regularly traded” for purposes of the mark-to-market election. It should also be noted that only the ADSs and not the common shares are listed on the NYSE. Our common shares are listed on the Novo Mercado (New Market) of the São Paulo Stock Exchange, which must meet certain trading, listing, financial disclosure and other requirements to be treated as a qualified exchange under applicable Treasury regulations for purposes of the mark-to-market election, and no assurance can be given that the common shares will be “regularly traded” for purposes of the mark-to-market election.

 

Taxation

 

 

If you make an effective mark-to-market election, you will include in each year as ordinary income the excess of the fair market value of your ADSs or common shares at the end of the year over your adjusted tax basis in the ADSs or common shares. You will be entitled to deduct as an ordinary loss each year the excess of your adjusted tax basis in the ADSs or common shares over their fair market value at the end of the year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. If you make an effective mark-to-market election, any gain you recognize upon the sale or other disposition of your ADSs or common shares will be treated as ordinary income and any loss will be treated as ordinary loss, but only to the extent of the net amount previously included in income as a result of the mark-to-market election.

 

Your adjusted tax basis in the ADSs or common shares will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark-to-market rules. If you make a mark-to-market election it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the ADSs or common shares are no longer regularly traded on a qualified exchange or the Internal Revenue Service consents to the revocation of the election. You are urged to consult your tax advisor about the availability of the mark-to-market election, and whether making the election would be advisable in your particular circumstances.

 

Alternatively, you can sometimes avoid the rules described above by electing to treat us as a “qualified electing fund” under Section 1295 of the Code. This option is not available to you because we do not intend to comply with the requirements necessary to permit you to make this election. You are urged to consult your tax advisors concerning the United States federal income tax consequences of holding ADSs or common shares if we are considered a PFIC in any taxable year.

 

Taxation of Capital Gains

 

For U.S. federal income tax purposes and subject to the discussion under “—Passive Foreign Investment Company” above, you will recognize taxable gain or loss on any sale, exchange or redemption of common shares or ADSs in an amount equal to the difference between the amount realized for the common shares or ADSs (including any amounts withheld to reflect Brazilian withholding taxes) and your tax basis in the common shares or ADSs, both determined in U.S. dollars. Such gain or loss will generally be capital gain or loss. Capital gains of non-corporate holders derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any gain or loss recognized by you will generally be treated as U.S. source gain or loss. Consequently, you may not be able to use the foreign tax credit arising from any Brazilian tax imposed on the disposition of our common shares or ADSs unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived from sources outside the United States in the appropriate category for foreign tax credit purposes.

 

Other Brazilian Taxes

 

You should note that any Brazilian IOF/Exchange Tax or IOF/Bonds Tax (as discussed above under “—Brazilian Tax Considerations”) will not be treated as a creditable foreign tax for U.S. federal income tax purposes, although you may be entitled to deduct such taxes, subject to applicable limitations under the Code. You should consult your tax advisors regarding the U.S. federal income tax consequences of these other Brazilian taxes.

 

Information Reporting and Backup Withholding

 

In general, information reporting will apply to dividends in respect of common shares or ADSs and the proceeds from the sale, exchange or redemption of common shares or ADSs that are paid to you within the United States (and in certain cases, outside the United States), unless you are an exempt recipient such as a corporation. Backup withholding may apply to such payments if you fail to provide a

 

Taxation

 

 

taxpayer identification number or certification of other exempt status or fail to report in full dividend and interest income.

 

Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information is furnished to the Internal Revenue Service.

 

We are offering the common shares and the ADSs described in this prospectus supplement and the accompanying prospectus through the international underwriters named below (which, in the case of the common shares, will act as placement agents on behalf of the Brazilian underwriters). UBS Securities LLC, J.P. Morgan Securities Inc. and Santander Investment Securities Inc. are the representatives of the international underwriters in the United States and other countries outside Brazil. BB Securities Limited is acting as placement agent only in respect of common shares sold to investors located outside Brazil and the United States. BB Securities Limited is not a U.S. registered broker-dealer and therefore does not intend to effect any sales of common shares or ADSs in the United States. In addition, Raymond James & Associates, Inc. is acting as placement agent in respect of common shares and ADSs sold to investors located outside Brazil. The common shares are being offered directly or in the form of ADSs. The common shares purchased by investors outside Brazil will be settled in Brazil and paid for in reais , and the offering of these common shares is being underwritten by the Brazilian underwriters named on the following page.

 

We have entered into an international underwriting agreement with the international underwriters. Subject to the terms and conditions of the international underwriting agreement, each of the international underwriters has severally agreed to purchase the number of ADSs listed next to its name in the following table:

 

 

The international underwriting agreement provides that the international underwriters are obligated to purchase all the ADSs in the international offering if any are purchased. The international underwriting agreement also provides that if an international underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated. We have entered into an underwriting agreement with a syndicate of Brazilian underwriters providing for the concurrent offering of          common shares in Brazil. The international and the Brazilian offerings are conditioned on the closing of each other.

 

Pursuant to the terms of the international underwriting agreement, the international underwriters, together with BB Securities Limited and Raymond James & Associates, Inc., will act as placement agents on behalf of the Brazilian underwriters identified below with respect to the offering of common shares sold to investors located outside Brazil. In addition, the Brazilian underwriters will sell common shares to investors located inside Brazil and U.S. and other international investors that are authorized to invest in Brazilian securities under the requirements established by the CMN and the CVM. The Brazilian underwriting agreement provides that, if any of the firm shares are not placed, the Brazilian underwriters are obligated to purchase them on a firm commitment basis on the settlement date, subject to certain conditions and exceptions. Subject to the terms and conditions of the Brazilian underwriting

 

Underwriting

 

 

agreement, each of the Brazilian underwriters has severally agreed to place the number of common shares listed next to its name in the following table:

 

 

OVER-ALLOTMENT OPTION

 

We have granted to Banco UBS Pactual S.A. an option to purchase up to 17,250,000 additional common shares within 30 days from the date of the publication, in Brazil, of the announcement of commencement of the offering, solely to cover over-allotments, if any.

 

COMMISSIONS AND DISCOUNTS

 

Shares and ADSs sold by the underwriters to the public will initially be offered at the offering price set forth on the cover of this prospectus supplement. Any shares and ADSs sold by the underwriters to securities dealers may be sold at a discount of up to R$      per common share and U.S.$      per ADS from the public offering price. Any of these securities dealers may resell any shares purchased from the underwriters to other brokers or dealers at a discount of up to R$      per common share and U.S.$      per ADS from the public offering price. If all the shares are not sold at the public offering price, the representatives may change the offering price and the other selling terms. Sales of shares made outside of the United States may be made by affiliates of the underwriters.

 

The following table shows the per share and total underwriting discounts and commissions we will pay to the underwriters and estimated expenses we will pay in connection with the global offering, assuming both no exercise and full exercise of the over-allotment option.

 

 

In compliance with Financial Industry Regulatory Authority (“FINRA”) guidelines, the maximum commission or discount to be received by any FINRA member or independent broker-dealer may not exceed 8% of the aggregate amount of the securities offered pursuant to this prospectus supplement.

 

The underwriting discounts and commissions per common share are     % of the public offering price per common share on the cover page of this prospectus supplement. The underwriting discounts and commissions per ADS are     % of the public offering price per ADS on the cover page of this prospectus supplement. The underwriting discounts and commissions payable to the international underwriters for the sale of ADSs in the international offering will be paid by us in Brazil to the Brazilian affiliates of each international underwriter.

 

Shareholders of our company that are residents of or domiciled in Brazil will be given the opportunity to subscribe for shares in the Brazilian offering on a priority basis at the price to the public to the extent necessary to preserve their ownership percentages as of a record date to be determined and,

 

Underwriting

 

 

subject to certain terms and conditions, to subscribe for shares the priority right in respect of which is not exercised. The priority subscription procedure will not be made available to shareholders of our company and shareholders of Sadia that are not residents of or domiciled in Brazil because the offer and sale of the common shares and ADSs in the international offering will be subject to the registration requirements of the U.S. federal securities laws, and certain features of this priority subscription procedure may not be consistent with those requirements. The number of common shares available for sale in the global offering to investors that are not residents of or domiciled in Brazil will be reduced to the extent that existing shareholders of our company and shareholders of Sadia that are residents of or domiciled in Brazil subscribe on the priority basis for common shares in the Brazilian offering.

 

NO SALES OF SIMILAR SECURITIES

 

We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file a registration statement with the SEC under the Securities Act or the CVM relating to, any shares of our share capital or ADSs representing those shares or securities convertible into or exchangeable or exercisable for any shares of our share capital or ADSs representing those shares, or warrants or other rights to purchase any shares of our share capital or ADSs representing those shares, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of UBS Securities LLC, J.P. Morgan Securities Inc. and Santander Investment Securities Inc., as representatives of the international underwriters, for a period of 90 days after the date of this prospectus supplement; provided, however, that if (1) during the last 17 days of such 90-day period, we release earnings results or material news or a material event relating to our company occurs or (2) prior to the expiration of such 90-day period, we announce that we will release earnings results during the 16-day period beginning on the last day of such 90-day period, then in each case the lock-up period will be extended until the expiration of the 18-day period beginning on the date of release of the earnings results or the occurrence of the material news or material event, as applicable, unless the representatives waive, in writing, such extension. The restrictions described above are subject to limited exceptions, including the issuance of our common shares and ADSs (i) to HFF Participações S.A.’s and Sadia’s shareholders in accordance with the terms of the merger agreement between us and Sadia dated May 19, 2009 and (ii) in connection with the acquisition of another company, so long as (A) the shares issued do not represent more than 20% of our worldwide market capitalization after the issuance and (B) each recipient agrees in writing to be subject to the lock-up restrictions prior to consummation of the transaction and delivers an executed agreement to the representatives of the international underwriters.

 

Substantially all of our directors and executive officers have agreed that they will not offer, sell, contract to sell, grant an option to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our share capital or ADSs representing those shares or securities convertible into or exchangeable or exercisable for any shares of our share capital or ADSs representing those shares, or warrants or other rights to purchase any shares of our share capital or ADSs representing those shares, or enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of the shares of our share capital or ADSs representing those shares, whether any of these transactions are to be settled by delivery of shares of our share capital, ADSs representing those shares or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement without, in each case, the prior written consent of the representatives of the international underwriters, for a period of 90 days after the date of this prospectus supplement.

 

Underwriting

 

 

INDEMNIFICATION AND CONTRIBUTION

 

We have agreed to indemnify the underwriters and their controlling persons against certain liabilities, including liabilities under the Securities Act. If we are unable to provide this indemnification, we will contribute to payments the underwriters and their controlling persons may be required to make in respect of those liabilities.

 

LISTING

 

Our common shares are listed on the São Paulo Stock Exchange under the symbol “PRGA3”. The ADSs are listed on the NYSE under the symbol “PDA”.

 

PRICE STABILIZATION, SHORT POSITIONS

 

In connection with the global offering, the underwriters may engage in activities that stabilize, maintain or otherwise affect the price of our common shares and ADSs, including:

 

 

Stabilizing transactions consist of bids or purchases made for the purpose of preventing or retarding a decline in the market price of our common shares and ADSs while this offering is in progress. These transactions may also include making short sales of our common shares and ADSs, which involve the sale by the underwriters of a greater number of common shares and ADSs than they are required to purchase in this offering. Short sales may be “covered short sales,” which are short positions in an amount not greater than the over-allotment option referred to above, or may be “naked short sales,” which are short positions in excess of that amount.

 

Banco UBS Pactual S.A. may close out any covered short position either by exercising its over-allotment option, in whole or in part, or by purchasing common shares in the open market. In making this determination, Banco UBS Pactual S.A. will consider, among other things, the price of common shares available for purchase in the open market compared to the price at which they may purchase common shares through the over-allotment option. Banco UBS Pactual S.A. must close out any naked short position by purchasing common shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common shares in the open market that could adversely affect investors who purchased in this offering.

 

The international underwriters may close out any covered short position by purchasing ADSs in the open market. In making this determination, the international underwriters will consider, among other things, the price of ADSs available for purchase in the open market. The international underwriters must close out any naked short position by purchasing ADSs in the open market. A naked short position is more likely to be created if the international underwriters are concerned that there may be downward pressure on the price of the ADSs in the open market that could adversely affect investors who purchased in this offering.

 

The international underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the international underwriters a portion of the underwriting discount received by it because the representatives have repurchased ADSs sold by or for the account of that international underwriter in stabilizing or short covering transactions.

 

Underwriting

 

 

As a result of these activities, the price of our common shares and ADSs may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. The underwriters may carry out these transactions on the New York Stock Exchange, the São Paulo Stock Exchange, in the over-the-counter market or otherwise.

 

In connection with the Brazilian offering, UBS Pactual Corretora de Títulos e Valores Mobiliários S.A., on behalf of the Brazilian underwriters, may engage in transactions in the São Paulo Stock Exchange that stabilize, maintain or otherwise affect the price of our common shares. In addition, it may bid for, and purchase, common shares in the open market to cover syndicate short positions or stabilize the price of our common shares.

 

The underwriters and/or their affiliates may enter into derivative transactions with clients, at their request, in connection with our common shares, pursuant to which they will pay their clients the same return as our common shares. The underwriters and/or their affiliates may purchase some of our common shares offered hereby to hedge their risk exposure in connection with such transactions. Such transactions may have an effect on demand, price or other terms of the offering.

 

PROSPECTUS IN ELECTRONIC FORMAT

 

A prospectus in electronic format may be made available on the web sites maintained by one or more of the underwriters, or selling group members, if any, participating in this offering. The representatives may agree to allocate a number of ADSs to international underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the international underwriters and selling group members that will make internet distributions on the same basis as other allocations.

 

SALES OUTSIDE THE UNITED STATES

 

This prospectus supplement does not constitute an offer of, or an invitation by or on behalf of, our company or by or on behalf of the international underwriters to subscribe for or purchase any common shares and ADSs in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation in that jurisdiction. The distribution of this prospectus supplement and the offering of the common shares and ADSs in certain jurisdictions may be restricted by law. We and the international underwriters require persons into whose possession this prospectus supplement comes to inform themselves about and to observe any such restrictions.

 

Canada

 

This prospectus supplement is not, and under no circumstance is to be construed as, an advertisement or a public offering of the common shares or ADSs in Canada or any province or territory thereof. Any offer or sale of the common shares or ADSs in Canada will be made only pursuant to an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable provincial securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made.

 

European Economic Area

 

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date), our common shares and ADSs will not be offered to the public in that Relevant Member State prior to the publication of a prospectus in relation to our common shares and ADSs which has been approved by the competent authority in that Relevant Member State and notified to the competent

 

Underwriting

 

 

authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that, with effect from and including the Relevant Implementation Date, our common shares and ADSs may be offered to the public in that Member State at any time:

 

 

For the purposes of this provision, the expression “our common shares and ADSs may be offered to the public” in relation to any of our common shares or ADSs in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and our common shares or ADSs to be offered so as to enable an investor to decide to purchase our common shares or ADSs, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

 

The EEA selling restriction is in addition to other selling restrictions for European jurisdictions set out below.

 

United Kingdom

 

All applicable provisions of the Financial Services and Markets Act 2000, or FSMA, must be complied with in respect of anything done in relation to our common shares or ADSs, including the common shares or ADSs in, from or otherwise involving the United Kingdom. In addition, each underwriter has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of our common shares that are the subject of the offering contemplated by this prospectus supplement in circumstances in which Section 21(1) of the FSMA does not apply to us. Without limitation to the other restrictions referred to herein, this prospectus supplement is only being distributed to and is directed only at: (1) persons who are outside the United Kingdom; (2) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”); (3) high net worth entities and others falling within Article 49(2) of the Order or (4) to persons to whom an invitation or inducement to engage in investment activity may be communicated without a breach of section 21 of the Financial Services and Markets Act 2000 (all such persons together being referred to as “relevant persons”). Our common shares are only available to, and any invitation, offer or agreement to subscribe, purchase or acquire such common shares will only be engaged in with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

 

France

 

No prospectus (including any amendment, supplement or replacement thereto) has been prepared in connection with the offering of our common shares and ADSs that has been approved by the Autorité des marchés financiers or by the competent authority of another State that is a contracting party to the Agreement on the European Economic Area and notified to the Autorité des marchés financiers; no common shares or ADSs have been offered or sold and will be offered or sold, directly or indirectly, to the public in France except to permitted investors (“Permitted Investors”) consisting of persons licensed to provide the investment service of portfolio management for the account of third parties, qualified

 

Underwriting

 

 

investors (investisseurs qualifiés) acting for their own account and/or corporate investors meeting one of the four criteria provided in article D. 341-1 of the French Code Monétaire et Financier and belonging to a limited circle of investors (cercle restreint d’investisseurs) acting for their own account, with “qualified investors” and “limited circle of investors” having the meaning ascribed to them in Article L. 411-2, D. 411-1, D. 411-2, D. 734-1, D. 744- 1, D. 754-1 and D. 764-1 of the French Code Monétaire et Financier; none of this prospectus supplement or any other materials related to the offer or information contained therein relating to the common shares and ADSs has been released, issued or distributed to the public in France except to Permitted Investors; and the direct or indirect resale to the public in France of any common shares acquired by any Permitted Investors may be made only as provided by articles L. 411-1, L. 411-2, L. 412-1 and L. 621-8 to L. 621-8-3 of the French Code Monétaire et Financier and applicable regulations thereunder.

 

Germany

 

The common shares and ADSs will not be offered, sold or publicly promoted or advertised in the Federal Republic of Germany other than in compliance with the German Securities Prospectus Act (Gesetz über die Erstellung, Billigung und Veröffentlichung des Prospekts, der beim öffentlicken Angebot von Wertpapieren oder bei der Zulassung von Wertpapieren zum Handel an einem organisierten Markt zu veröffenlichen ist—Wertpapierprospektgesetz) as of 22 June 2005, effective as of 1 July 2005, as amended, or any other laws and regulations applicable in the Federal Republic of Germany governing the issue, offering and sale of securities. No selling prospectus (Verkaufsprospeckt) within the meaning of the German Securities Selling Prospectus Act has been or will be registered within the Financial Supervisory Authority of the Federal Republic of Germany or otherwise published in Germany.

 

Italy

 

The offering of our common shares and ADSs has not been cleared by the Italian Securities Exchange Commission (Commissione Nazionale per le Società e la Borsa), or the CONSOB, pursuant to Italian securities legislation and, accordingly, our common shares and ADSs may not and will not be offered, sold or delivered, nor may or will copies of this prospectus supplement or any other documents relating to our common shares or ADSs or the offer be distributed in Italy other than to professional investors (operatori qualificati), as defined in Article 31, paragraph 2 of CONSOB Regulation No. 11522 of July 1, 1998, as amended (“Regulation No. 11522”) or in other circumstances where an exemption from the rules governing solicitations to the public at large applies in accordance with Article 100 of Legislative Decree No. 58 of February 24, 1998, as amended (the “Italian Financial Law”) and Article 33 of CONSOB Regulation No. 11971 of May 14, 1999, as amended. Any offer, sale or delivery of our common shares or ADSs or distribution of copies of this prospectus supplement or any other document relating to our common shares and ADSs or the offer in Italy may and will be effected in accordance with all Italian securities, tax, exchange control and other applicable laws and regulations, and, in particular, will be: (1) made by an investment firm, bank or financial intermediary permitted to conduct such activities in Italy in accordance with the Legislative Decree No. 385 of September 1, 1993, as amended (the “Italian Banking Law”), the Italian Financial Law, Regulation No. 11522, and any other applicable laws and regulations; (2) in compliance with Article 129 of the Italian Banking Law and the implementing guidelines of the Bank of Italy; and (3) in compliance with any other applicable notification requirement or limitation which may be imposed by CONSOB or the Bank of Italy. Any investor purchasing our common shares or ADSs in the offer is solely responsible for ensuring that any offer or resale of common shares or ADSs it purchased in the offer occurs in compliance with applicable laws and regulations. This prospectus supplement and the information contained herein are intended only for the use of its recipient and are not to be distributed to any third party resident or located in Italy for any reason. No person resident or located in Italy other than the original recipients of this document may rely on it or its content. In addition to the above (which shall continue to apply to the

 

Underwriting

 

 

extent not inconsistent with the implementing measures of the Prospective Directive in Italy), after the implementation of the Prospectus Directive in Italy, the restrictions, warranties and representations set out under the heading “European Economic Area” above shall apply to Italy.

 

Netherlands

 

Our common shares and ADSs (a) will be offered by a professional market party (or PMP) within the meaning of Section 1(e) of the Exemption Regulation of 26 June 2002 in respect of the Act on the Supervision of the Credit System 1992 (Vrijstellingsregeling Wet toezicht kredietwezen 1992), as amended from time to time (or Exemption Regulation), where applicable read in conjunction with the policy rules of the Dutch Central Bank (de Nederlandsche Bank N.V.) on key concepts of market access and enforcement of the Act on the Supervision of the Credit System 1992 (Wet towzicht kredietwezen 1992) published on 29 December 2004 (Beleidsregel 2005 kernbegrippen markttoetreding en handhaving Wtk 1992) (or Policy Rules), and Section 2 of the Policy Rules, as amended, supplemented and restated from time to time and (b) have been offered or sold and will be offered or sold, directly or indirectly, as part of the initial distribution or at any time thereafter, the shares exclusively (1) to PMPs as reasonably identified by the issuer on the closing date, provided that the shares have a denomination of 100,000 (or the equivalent in other currency) and shall upon their issuance be included in a clearing institution that is established in an EU Member State, the United States of America, Japan, Australia, Canada or Switzerland; so that it can reasonably be expected that the agents will transfer the common shares or ADSs exclusively to other PMPs.

 

Spain

 

Neither the common shares, the ADSs nor this prospectus supplement have been approved or registered in the administrative registries of the Spanish National Securities Exchange Commission (Comisión Nacional del Mercado de Valores). Accordingly, the common shares and ADSs may not be offered in Spain except in circumstances which do not constitute a public offer of securities in Spain within the meaning of articles 30bis of the Spanish Securities Market Law of 28 July 1988 (Ley 24/1988, de 28 de Julio, del Mercado de Valores), as amended and restated, and supplemental rules enacted thereunder.

 

Switzerland

 

The common shares and ADSs may not and will not be publicly offered distributed or re-distributed on a professional basis in or from Switzerland and neither this prospectus supplement nor any other solicitation for investments in the common shares and ADSs may be communicated or distributed in Switzerland in any way that could constitute a public offering within the meaning of Articles 1156 or 652a of the Swiss Code of Obligations or of Article 2 of the Federal Act on Investment Funds of March 18, 1994. This prospectus supplement may not be copied, reproduced, distributed or passed on to others without the Brazilian underwriters’ prior written consent. This prospectus supplement is not a prospectus within the meaning of Articles 1156 and 652a of the Swiss Code of Obligations or a listing prospectus according to article 32 of the Listing Rules of the Swiss exchange and may not comply with the information standards required thereunder. We will not apply for a listing of our common shares or ADSs on any Swiss stock exchange or other Swiss regulated market and this prospectus supplement may not comply with the information required under the relevant listing rules. The common shares and ADSs have not and will not be registered with the Swiss Federal Banking Commission and have not and will not be authorized under the Federal Act on Investment Funds of March 18,1994. The investor protection afforded to acquirers of investment fund certificates by the Federal Act on Investment Funds of March 18, 1994 does not extend to acquirers of the common shares and ADSs.

 

Underwriting

 

 

Kuwait

 

Unless all necessary approvals from the Kuwait Ministry of Commerce and Industry required by Law No. 31/1990, its Executive Regulations and the various Ministerial Orders issued pursuant thereto or in connection therewith, as amended, have been given in relation to the marketing, of and sale of the common shares and ADSs in Kuwait, these may not be offered for sale, sold nor may any marketing or solicitation or inducement to buy any common share and ADSs may be made in Kuwait. Neither this prospectus supplement, any related document nor any of the information contained therein is intended to lead to the conclusion of any contract of any nature whatsoever within Kuwait.

 

Qatar

 

This offering of common shares and ADSs do not constitute a public offer of common shares and ADSs in the State of Qatar under Law No. 5 of 2002 (the “Commercial Companies Law”). The common shares and ADSs are only being offered to a limited number of investors who are willing and able to conduct an independent investigation of the risks involved in an investment in such common shares and ADSs, or have sufficient knowledge of the risks involved in an investment in such common shares and ADSs or are benefiting from preferential terms under a directed share program for directors, officers and employees. No transaction will be concluded in the jurisdiction of the State of Qatar.

 

Saudi Arabia

 

Any investor in the Kingdom of Saudi Arabia or who is a Saudi person (a “Saudi Investor”) who acquires the common shares and ADSs pursuant to the offering should note that the offer of common shares and ADSs is an exempt offer under sub-paragraph (3) of paragraph (a) of Article 16 of the “Offer of Securities Regulations” as issued by the Board of the Capital Market Authority resolution number 2-11-2004 dated October 4, 2004 and amended by the resolution of the Board of Capital Market Authority resolution number 1-33-2004 dated December 21, 2004 (the “KSA Regulations”). The common shares and ADSs may be offered to no more than 60 Saudi Investors and the minimum amount payable per Saudi Investor must not be less than Saudi Riyal (“SR”) 1 million or an equivalent amount. The offer of the common shares and ADSs is therefore exempt from the public offer provisions of the KSA Regulations, but is subject to the following restrictions on secondary market activity: (a) A Saudi Investor (the “transferor”) who has acquired common shares and ADSs pursuant to this exempt offer may not offer or sell common shares or ADSs to any person (referred to as a “transferee”) unless the price to be paid by the transferee for such common shares and ADSs equals or exceeds SR1 million. (b) If the provisions of paragraph (a) cannot be fulfilled because the price of the common shares and ADSs being offered or sold to the transferee has declined since the date of the original exempt offer, the transferor may offer or sell the common shares and ADSs to the transferee if their purchase price during the period of the original exempt offer was equal to or exceeded SR1 million. (c) If the provisions of paragraphs (a) and (b) cannot be fulfilled, the transferor may offer or sell the common shares and ADSs if he/she sells his entire holding of the common shares and ADSs to one transferee. The provisions of paragraphs (a), (b) and (c) shall apply to all subsequent transferees of the common shares and ADSs.

 

United Arab Emirates

 

This prospectus supplement has not been reviewed, approved or licensed by the Central Bank of the United Arab Emirates (the “UAE”), Emirates Securities and Commodities Authority or any other relevant licensing authority in the UAE including any licensing authority incorporated under the laws and regulations of any of the free zones established and operating in the territory of the UAE, in particular the Dubai Financial Services Authority (the “DFSA”), a regulatory authority of the Dubai International Financial Centre (the “DIFC”). The issue of shares does not constitute a public offer of securities in the UAE, DIFC and/or any other free zone in accordance with the Commercial Companies Law, Federal Law No. 8 of 1984 (as amended), DFSA Offered Securities Rules and the Dubai

 

Underwriting

 

 

International Financial Exchange Listing Rules, accordingly, or otherwise. The shares may not be offered to the public in the UAE and/or any of the free zones including, in particular, the DIFC. The shares may be offered and this prospectus supplement may be issued, only to a limited number of investors in the UAE or any of its free zones (including, in particular, the DIFC) who qualify as sophisticated investors under the relevant laws and regulations of the UAE or the free zone concerned. The common shares or ADSs will not be offered, sold, transferred or delivered to the public in the UAE or any of its free zones including, in particular, the DIFC.

 

Hong Kong

 

The common shares and ADSs may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), and no advertisement, invitation or document relating to the common shares or ADSs may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to common shares and ADSs which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

 

Japan

 

The common shares and ADSs have not been and will not be registered under the Securities and Exchange Law of Japan (the Securities and Exchange Law) and the common shares and the ADSs are not to be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.

 

Singapore

 

This prospectus supplement has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus supplement and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the common shares or the ADSs may not be circulated or distributed, nor may the common shares or ADSs be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. Where the common shares or ADSs are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has

 

Underwriting

 

 

acquired the common shares or ADSs under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.

 

RELATIONSHIPS WITH UNDERWRITERS

 

The underwriters and their affiliates have provided and may provide certain commercial banking, financial advisory and investment banking services for us for which they have received or will receive fees. Banco UBS Pactual S.A. and BB Banco de Investimento S.A., both Brazilian underwriters, are acting as our financial advisors in connection with the business combination with Sadia and will receive fees.

 

The underwriters and their affiliates may from time to time in the future engage in transactions with us and perform services for us in the ordinary course of their business.

 

The underwriters or their affiliates hold certain equity positions in our company, which in the aggregate did not exceed 5% of our outstanding capital stock during the past 12 months. In addition, we have entered into hedging transactions with UBS Securities LLC or its affiliates, with an aggregate of R$10.0 million outstanding as of May 25, 2009. Also, we are a debtor of Banco do Brasil S.A., the controlling shareholder of BB Securities Limited, in the aggregate amount of R$738.5 million as of May 29, 2009, as a debtor of Banco Santander (Brasil) S.A., an affiliate of Santander Investment Securities Inc., in the aggregate amount of R$870.4 million and a debtor of JPMorgan Chase Bank, N.A., an affiliate of J.P. Morgan Securities Inc., in the aggregate amount of US$25 million.

 

The underwriters or their affiliates also hold certain equity positions in Sadia, which in the aggregate did not exceed 5% of Sadia’s outstanding capital stock during the past 12 months. In addition, Sadia has entered into hedging transactions with affiliates of J.P. Morgan Securities Inc., with U.S.$43.4 million outstanding as of March 31, 2009. Sadia is also a debtor of Banco do Brasil S.A., the controlling shareholder of BB Securities Limited, in the aggregate amount of approximately R$1,682.1 million as of May 29, 2009, and a debtor of Banco Santander (Brasil) S.A., an affiliate of Santander Investment Securities Inc., in the aggregate amount of approximately R$793.1 million.

 

We may use more than 10% of the net proceeds from this offering to reduce indebtedness owed by us or Sadia to these lenders. Accordingly, the offering is being made in compliance with the requirements of Rule 5110(h) of the FINRA Conduct Rules.

 

PREVI — Caixa de Previdência dos Funcionários do Banco do Brasil (“PREVI”), which held 14.2% of our common shares as of May 31, 2009 and is also one of Sadia’s principal shareholders, is the pension fund for employees of Banco do Brasil S.A., the controlling shareholder of BB Securities Limited. Although Banco do Brasil S.A. is the sponsor of PREVI, PREVI is independently managed.

 

Our company’s and Sadia’s outgrowers of poultry and hogs may also obtain federal government-subsidized rural credit financing from Banco do Brasil S.A. or Banco Santander (Brasil) S.A. to fund capital expenditures. We and Sadia assist our respective outgrowers in arranging this long-term financing. We currently do not guarantee or are not financially responsible for these financing arrangements; however, we pay part of the payments that we would otherwise make to the outgrowers directly to a mutual fund operated by Banco do Brasil S.A. to support repayment of these financings. Sadia currently guarantees certain of these financing arrangements involving Banco do Brasil S.A.

 

We estimate our expenses in connection with the global offering, other than underwriting discounts and commissions, are as set forth in the following table. The total underwriting discounts and commissions that we are required to pay will be U.S.$      million, or approximately     % of the gross proceeds of the global offering.

 

 

 

 

All amounts in the above table are estimated, except for the SEC registration fee and the Brazilian fees.

 

The validity of our common shares and certain other matters of Brazilian law will be passed upon for us by Machado, Meyer, Sendacz e Opice Advogados, located in the City of São Paulo, State of São Paulo, Brazil, our Brazilian counsel, and for the international underwriters by Pinheiro Guimarães-Advogados, located in the City of São Paulo, State of São Paulo, Brazil, Brazilian counsel to the international underwriters.

 

Certain matters of U.S. federal and New York State law will be passed upon for us by Simpson Thacher & Bartlett LLP, New York, New York, our U.S. counsel, and for the international underwriters by Davis Polk & Wardwell LLP, New York, New York, U.S. counsel to the international underwriters.

 

The addresses of the above law firms are as follows: Machado, Meyer, Sendacz & Opice Advogados, Rua da Consolação, São Paulo, SP—01301-903, Brazil; Pinheiro Guimarães-Advogados, Av. Paulista 1842, 24th Floor, São Paulo, SP-01310-923, Brazil; Simpson Thacher & Bartlett LLP, 425 Lexington Avenue, New York, New York 10017, United States; and Davis Polk & Wardwell LLP, 450 Lexington Avenue, New York, New York 10017, United States.

Experts

 

Our consolidated financial statements as of and for the years ended December 31, 2008 and 2007, and management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2008, have been incorporated by reference herein in reliance upon the reports of KPMG Auditores Independentes, an independent registered public accounting firm, which are incorporated by reference herein, and upon the authority of KPMG Auditores Independentes as experts in accounting and auditing. The report covering the December 31, 2008 and 2007 consolidated financial statements of our company contains emphasis paragraphs referring to: (1) changes in our accounting principles due to the introduction of Law No. 11.638/07 Provisional Executive Act No. 449/08 as discussed in note 2 to the consolidated financial statements; and (2) subsequent to year-end 2008, our entry into a merger agreement with Sadia S.A., in order to allow the business combination of the companies as discussed in note 25(iv) to the consolidated financial statements

 

KPMG Auditores Independentes is a member of the Conselho Regional de Contabilidade—CRC (Regional Accounting Council). The address of KPMG Auditores Independentes is Rua Dr. Renato Paes de Barros, 33, São Paulo, SP—04530-904, Brazil.

 

Our consolidated financial statements for the year ended December 31, 2006 have been incorporated by reference into the prospectus and into the registration statement of which the prospectus is a part in reliance upon the report of Ernst & Young Auditores Independentes S.S., independent registered public accounting firm, incorporated by reference into the prospectus, and upon the authority of said firm as experts in accounting and auditing. This report contains emphasis language referring to the fact that (1) the financial statements of Batávia S.A. Indústria de Alimentos, a subsidiary acquired on May 26, 2006 in which we held a 51% interest as of December 31, 2006, were audited by other auditors who issued an unqualified opinion thereon and (2) its opinion, insofar as it relates to the amounts included for Batávia S.A Indústria de Alimentos, is based solely on the report of such other auditors.

 

Ernst & Young Auditores Independentes S.S.is a member of the Conselho Regional de Contabilidade—CRC (Regional Accounting Council). The address of Ernst & Young Auditores Independentes S.S. is Av. President Juscelino Kubitschek, 1830, São Paulo, SP—04543-900, Brazil.

 

The consolidated financial statements of Sadia S.A. and subsidiaries as of December 31, 2008 and 2007 and for each of the years in the three-year period ended December 31, 2008, and management’s assessments of the effectiveness of internal control over financial reporting as of December 31, 2008, have been incorporated by reference herein in reliance upon the reports of KPMG Auditores Independentes, an independent registered public accounting firm, which is incorporated by reference

herein, and upon the authority of KPMG Auditores Independentes as experts in accounting and auditing.

 

The statements of income, changes in shareholders’ equity and changes in financial position of Batávia S.A. Indústria de Alimentos for the period from June 1, 2006 to December 31, 2006 have been incorporated by reference into the prospectus and into the registration statement of which the prospectus is a part, in reliance upon the report of BDO Trevisan Auditores Independentes, independent registered public accounting firm, incorporated by reference into the prospectus, and upon the authority of said firm as experts in accounting and auditing.

 

 

BRF — Brasil Foods S.A.
(formerly named Perdigão S.A.)

 

Common Shares

 

Including Common Shares in the form of American Depositary Shares

 

 

 

This prospectus relates to the sale from time to time by us or any selling shareholders of our common shares, including common shares in the form of American Depositary Shares, or ADSs. We will not receive any proceeds from the sale of common shares and ADSs by any selling shareholder.

 

 

Our common shares are listed on the BM&FBOVESPA S.A. — Bolsa de Valores, Mercadorias e Futuros , or “São Paulo Stock Exchange,” under the symbol “PRGA3.” The ADSs representing our common shares are listed on the New York Stock Exchange, or “NYSE,” under the symbol “PDA.”

 

 

We will offer and sell common shares, including common shares in the form of ADSs, at prices and on the terms to be determined at the time of offering. We may offer and sell common shares and ADSs to or through one or more underwriters, dealers and agents, or directly to purchasers, on a continuous or delayed basis. You should read this prospectus and the applicable prospectus supplement carefully before you invest.

 

 

Investing in the common shares and ADSs involves risks. See “Risk Factors” beginning on page 7 and in the applicable prospectus supplement before you invest .

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is July 10, 2009.

 

TABLE OF CONTENTS

 

 

 

You should rely only on the information contained in this prospectus and the applicable prospectus supplement. We have not authorized anyone to provide you with different information. This prospectus may only be used where it is legal to sell our common shares or the ADSs. You should not assume that the information in this prospectus or the applicable prospectus supplement is accurate as of any date other than the date on the front of those documents.

 

This prospectus is part of a registration statement we filed with the Securities and Exchange Commission, or SEC, using the “shelf” registration process. Under the shelf registration process, using this prospectus, together with a prospectus supplement, we or selling shareholders may sell from time to time the common shares described in this prospectus in one or more offerings. This prospectus provides you with a general description of the common shares that may be offered. Each time we or selling shareholders sell common shares pursuant to this prospectus, we will provide a prospectus supplement that will contain specific information about the terms of the common shares being offered. The applicable prospectus supplement may include a discussion of any risk factors or other special considerations applicable to those securities or to us. The applicable prospectus supplement may also add to, update or change information contained in this prospectus and, accordingly, to the extent inconsistent, the information in this prospectus is superseded by the information in the prospectus supplement. You should read this prospectus, the applicable prospectus supplement and the additional information incorporated by reference in this prospectus described under “Where You Can Find More Information” and “Incorporation by Reference” before making an investment in our common shares.

 

This prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of the documents referred to herein have been filed, or will be filed or incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described below under “Where You Can Find More Information.”

 

Neither the delivery of this prospectus nor any sale made under it implies that there has been no change in our affairs or that the information in this prospectus is correct as of any date after the date of this prospectus. You should not assume that the information in this prospectus, including any information incorporated in this prospectus by reference, the accompanying prospectus supplement or any free writing prospectus prepared by us, is accurate as of any date other than the date on the front of those documents. Our business, financial condition, results of operations and prospects may have changed since that date.

 

You should rely only on the information contained in or incorporated by reference in this prospectus or a prospectus supplement. We have not authorized anyone to provide you with different information. We are not making an offer to sell securities in any jurisdiction where the offer or sale of such securities is not permitted.

 

In this prospectus, unless otherwise indicated, all references in this document to “BRF,” “Perdigão,” “our company,” “we,” “our,” “ours,” “us” or similar terms refer to BRF — Brasil Foods S.A. (formerly named Perdigão S.A.) and its consolidated subsidiaries and jointly controlled companies. References to “Sadia” refer to Sadia S.A. and its consolidated subsidiaries and jointly controlled companies. See “Our Company — Proposed Business Combination with Sadia.”

 

Unless otherwise indicated, all references herein to “common shares” refer to our company’s authorized and outstanding common shares, which are designated ordinary shares ( ações ordinárias ), each without par value. All references herein to the “ real ,” “ reais ” or “R$” are to the Brazilian real, the official currency of Brazil. All references to “U.S. dollars,” “dollars” or “U.S.$” are to United States dollars.

 

This prospectus contains forward-looking statements that are subject to risks and uncertainties. These forward-looking statements are set forth under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” in our most recent annual report on Form 20-F, which annual report is incorporated by reference into this prospectus. Some of the matters discussed concerning our business operations and financial performance include forward-looking statements within the meaning of the Securities Act of 1933, or the “Securities Act”, and the Securities Exchange Act of 1934, or the “Exchange Act.”

 

Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” and similar expressions are forward-looking statements. Although we believe that these forward-looking statements are based upon reasonable assumptions, these statements are subject to several risks and uncertainties and are made in light of information currently available to us.

 

Because they involve risks and uncertainties, our forward-looking statements are not guarantees of future performance, and the actual results or developments may differ materially from the expectations expressed in the forward-looking statements. As for the forward-looking statements that relate to future financial results and other projections, actual results will be different due to the inherent uncertainty of estimates, forecasts and projections. Because of these uncertainties, potential investors should not rely on these forward-looking statements.

 

We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

 

Overview

 

We are one of Brazil’s largest food companies, with a focus on the production and sale of poultry, pork, beef cuts, milk, dairy products and processed food products. We are a vertically integrated business that produces more than 2,500 stock-keeping units, or “SKUs,” which we distribute to customers in Brazil and in more than 110 other countries. Our products currently include:

 

 

 

 

In the domestic market, we operate under such brand names as Perdigão , Chester ^® , Batavo , Elegê and Turma da Mônica (under license), which are among the most recognized brands in Brazil. In August 2007, we acquired from Unilever Brazil Ltda., or “Unilever,” the Doriana , Delicata and Claybom brands, which are used for our margarine products. We have also formed a joint venture with Unilever to manage the Becel and Becel ProActiv branded margarine products and identify other business opportunities. We also have well-established brands in foreign markets, such as Perdix , which is used in most of our export markets; Fazenda , in Russia; and Borella , in Saudi Arabia.

 

On February 21, 2008, we completed the acquisition of Eleva Alimentos S.A., or “Eleva”, a Brazilian company in the food industry, with a focus on milk, dairy products, poultry, pork and processed food products. By acquiring Eleva, we expanded our portfolio of milk and dairy products, which also includes powdered milk and cheeses, and we expanded our production of chickens, pork and processed food products.

 

Proposed Business Combination with Sadia

 

On May 19, 2009, we signed a merger agreement with Sadia S.A. that contemplates a business combination of the two companies. Under the proposed business combination, Sadia is expected to become our wholly owned subsidiary. Holders of common shares and preferred shares of Sadia will receive common shares of our company, and the holders of American depositary shares representing preferred shares of Sadia will receive American Depository Shares, or “ADSs”, representing common shares of our company. The proposed transaction is described under “Item 4. Information on the Company — History and Development of the Company — Proposed Business Combination with Sadia” in our Annual Report on Form 20-F for the year ended December 31, 2008, filed on June 30, 2009, which is incorporated by reference into this prospectus.

The business combination is subject to approval by Brazilian and foreign antitrust authorities. The Brazilian and foreign authorities could impose significant conditions to their approvals affecting our operations in the relevant jurisdictions, particularly where we have significant market share.

 

Principal Executive Offices

 

Our principal executive offices are located at 760 Av. Escola Politécnica, Jaguaré 05350-901 São Paulo — SP, Brazil.

 

Our internet address is www.perdigao.com.br/ri/ . The information on our website is not incorporated by reference into this prospectus.

 

We are subject to risks potentially impacting our business, financial condition, results of operations and cash flows. You are urged to read and consider the risk factors described in any applicable prospectus supplement, as well as those described in our most recent annual report on Form 20-F under “Part I, Item 3D: Key Information — Risk Factors” and any other documents incorporated by reference into this prospectus. See “Where You Can Find More Information” in this prospectus.

 

Except as may otherwise be described in the applicable prospectus supplement, we expect to use the net proceeds from any sale of common shares, including common shares in the form of ADSs, that we undertake using this prospectus for general corporate purposes, which may include repayment of indebtedness and acquisitions.

 

We may designate a specific allocation of the net proceeds of an offering of common shares by us to a specific purpose at the time of the offering and will describe any such allocation in the applicable prospectus supplement.

 

We will not receive any of the proceeds from the sale of common shares, including common shares in the form of ADSs, by any selling shareholder.

 

The following is a summary of the material terms of provisions of our common shares, including related provisions of our by-laws, Brazilian Corporation Law and the rules and regulations of the Brazilian Securities Commission ( Comissão de Valores Mobiliários ), or “CVM,” regarding management, reporting and disclosure requirements, and other corporate matters. This description does not purport to be complete and is qualified by reference to our by-laws, Brazilian Corporation Law, the rules and regulations of the CVM and the rules of the Novo Mercado (New Market) of the São Paulo Stock Exchange.

 

General

 

We are currently a publicly held corporation ( sociedade por ações de capital aberto ) incorporated under the laws of Brazil. Our headquarters currently have moved to, as of July 8, 2009, the City of Itajaí, State of Santa Catarina. We are in the process of transferring our registration from the Junta Comercial of the State of São Paulo to the Junta Comercial of the State of Santa Catarina. We are registered with the CVM under No. 01629-2.

 

We increased our share capital in April 2005 through the incorporation of certain reserves, without the issue of new shares, from R$490,000,000.00 to R$800,000,000.00.

 

At a meeting held on February 17, 2006, our board of directors approved convening an annual meeting of our shareholders, that took place on March 8, 2006 to authorize, among other things, the following matters: (1) a share reclassification, under which our previously issued and outstanding preferred shares were converted on a one-for-one basis into common shares; (2) a related three-for-one share split of our share capital; (3) our adherence to the Novo Mercado rules and the transfer of trading of the shares issued by our company to the Novo Mercado ; and (4) changes to our by-laws. There was also a special meeting of holders of our preferred shares on March 8, 2006 that approved the conversion of our preferred shares into common shares. As a result of the above authorizations, we entered into a Novo Mercado listing agreement with the São Paulo Stock Exchange. Through this agreement, which became effective on April 12, 2006, we were obligated to adhere to stricter requirements relating to corporate governance and the disclosure of information to the market. Additionally, as of this date, our common shares commenced trading on the Novo Mercado segment of the São Paulo Stock Exchange. As a result of the share reclassification and related share split, our share capital was R$800,000,000.00, fully subscribed and divided into 133,957,152 common shares.

 

We increased our share capital on October 26, 2006 from R$800,000,000.00 to R$1,600,000,000.00, through the issuance of new 32,000,000 common shares for the price of R$25.00 per common share. At December 31, 2006, our share capital was represented by 165,957,152 common shares (of which 165,526,667 were outstanding common shares and 430,485 were common shares held in treasury), without par value.

 

At the end of 2007, we successfully concluded a primary offering with the issue of 20 million new shares at a price of R$45.00 per share. Ratification and paying-in of funds of R$900.0 million took place on December 18, 2007, priority being given to the settlement of the cash portion of the Eleva Alimentos S.A. acquisition. On January 14, 2008, as a result of demand for the offering, the over-allotment option was partially exercised an additional issuance of 744,200 shares, at the same price in the amount of R$33.5 million, the capital stock increasing to R$2.5 billion, represented by 186,701,352 common book-entry shares.

 

On February 21, 2008, the Board approved the incorporation of 54% of the shares held by the shareholders of Eleva Alimentos in Perdigão S.A., in accordance with the exchange ratio of 1.74308855 shares of Eleva for 1 share of our company, upon issuance of 20.2 million shares. As a result, our outstanding share capital was increased to R$3,445,042,795.00, represented by 206,958,103 common shares, without par value (of which 430,485 are common shares held in treasury).

 

On July 8, 2009, we increased our share capital from R$3,445,042,795.00 to R$4,927,933,697.75, represented by 244,595,660, common shares through the issuance of 37,637,557 common shares for a R$39.40 price per share, all of which were subscribed by means of an exchange for 226,395,405 shares issued by HFF Participações S.A.

 

According to our by-laws, our authorized share capital is 500,000,000 common shares, which may be increased up to that number without an amendment to our by-laws, upon approval by our board of directors, which

will set the terms of the issuance, including the price and the period for payment. Any increase exceeding the authorized capital must be approved at an annual meeting of our shareholders. Under the Novo Mercado listing agreement we entered into with the São Paulo Stock Exchange, we may not issue preferred shares or shares with restricted voting rights. Accordingly, this section does not discuss the Brazilian statutory rights conferred upon holders of preferred shares.

 

Corporate Purpose

 

Article 3 of our by-laws provides that our corporate purpose consists of the following:

 

 

The Brazilian Corporation Law forbids us to engage in any business practices inconsistent with our central corporate purpose and core business, including the granting of pledges, collateral, endorsement or any guarantees not related to our central corporate purpose or contrary to our by-laws, except for those practices already engaged in, and any such practices will be null and void.

 

Rights of Common Shares

 

At our shareholders’ meetings, each share of common stock is generally entitled to one vote. Pursuant to our by-laws and to the Novo Mercado listing agreement, we may not issue shares without voting rights or with restricted voting rights. In addition, our by-laws and the Brazilian Corporation Law provide that holders of our shares are entitled to dividends or other distributions made in respect of our shares ratably in accordance with their respective participation in the total amount of our issued and outstanding shares. See “— Payment of Dividends and Interest on Shareholders’ Equity” for a more complete description of the payment of dividends and other distributions on our shares. In addition, upon our liquidation, holders of our shares are entitled to share our remaining assets, after payment of all of our liabilities, ratably in accordance with their respective participation in the total amount of our issued and outstanding shares. Moreover, in the event of liquidation of our company, common shareholders are entitled to receive reimbursements of equity in an amount proportionate to their participation, after payment of all of our obligations. Common shareholders have, except in certain circumstances listed in the Law of Publicly Held Companies (Lei de Sociedades por Ações) and in our by-laws, the right to participate in our company’s future capital improvements, in proportion to shareholders’ equity, and also the right to dispose of shares in a public tender offer in the case of an acquisition of shares equal to or in excess of 20% of our total shares, in compliance with the terms and conditions provided in Article 37 of our by-laws.

 

According to the Brazilian Corporation Law, neither our by-laws nor actions taken at a shareholders’ meeting may deprive a shareholder of the following rights:

 

 

 

Meeting of Shareholders

 

Under the Brazilian Corporation Law, our shareholders are generally empowered at our shareholders’ meetings to take any action relating to our corporate purposes and to pass resolutions that they deem necessary to our interests and development at duly called and convened general meetings. Shareholders at our annual shareholders’ meeting, which is required to be held within 120 days of the end of our fiscal year, have the exclusive right to approve our audited financial statements and to determine the allocation of our net profits and the distribution of dividends with respect to the fiscal year ended immediately prior to the relevant shareholders’ meeting. The election of our directors typically takes place at the annual shareholders’ meeting, although under Brazilian law it may also occur at an extraordinary shareholders’ meeting. Members of the fiscal council ( conselho fiscal ), if the requisite number of shareholders requests its establishment, may be elected at any shareholders’ meeting.

 

An extraordinary shareholders’ meeting may be held concurrently with the annual shareholders’ meeting and at other times during the year. Under our by-laws and the Brazilian Corporation Law, the following actions, among others, may be taken only at a shareholders’ meeting:

 

 

Quorum

 

As a general rule, the Brazilian Corporation Law provides that the quorum for our shareholders’ meetings consists of shareholders representing at least 25% of our issued and outstanding shares on the first call and, if that

quorum is not reached, any percentage on the second call. If the shareholders are convened to amend our by-laws, a quorum at a shareholders’ meeting consists of shareholders representing at least two-thirds of our issued and outstanding share capital entitled to vote on the first call and any percentage on the second call. In most cases, the affirmative vote of shareholders representing at least the majority of our issued and outstanding shares present in person or represented by proxy at a shareholders’ meeting is required to ratify any proposed action, and blank votes are not counted as shares present in person or represented by proxy. However, the affirmative vote of shareholders representing not less than one-half of our issued and outstanding shares is required to, among other measures:

 

 

A quorum smaller than the quorum established by the Brazilian Corporation Law may be authorized by the CVM for a public company with widely traded and held shares that has had at least half of the holders of its voting shares in attendance at its last three shareholders’ meetings.

 

Elimination of or amendment to limit shareholders’ rights under Article 37 of our by-laws, which requires any shareholder who becomes the holder of 20% or more of our total capital stock to effect a public tender offer for all of our outstanding stock, is permitted only when approved by the majority of shareholders present at the shareholders’ meeting. The shareholders who approve such elimination or amendment must launch a public tender offer in accordance with the rules established by Article 37 of our by-laws.

 

Notice of Shareholders’ Meetings

 

Under the Brazilian Corporation Law, notice of each of our shareholders’ meetings must be published at least three times in the Diário Oficial do Estado de Santa Catarina , the official newspaper of the State of Santa Catarina, and in another widely circulated newspaper in the same state, which is currently a newspaper specializing in business matters called Valor Econômico . Such notice must contain the agenda for the meeting and, in the case of an amendment to our by-laws, a summary of the proposed amendment. The first notice must be published at least 15 days before the date of the meeting on the first call, and no later than eight days before the date of the meeting on second call. However, pursuant to our by-laws, the shareholders’ meeting to approve our delisting from the Novo Mercado or a going private transaction must be called not less than 30 days prior to the meeting. In certain other circumstances, the CVM may require that the first notice be published not later than 30 days prior to the meeting. In addition, upon request of any shareholder, the CVM may suspend for up to 15 days the required prior notice of an extraordinary shareholders’ meeting so that the CVM can become familiar with and analyze the proposals to be submitted at the meeting and, if applicable, inform the company, up to the end of the suspension period, the reasons why it believes that a proposed resolution violates legal or regulatory provisions.

 

Location of Shareholders’ Meetings

 

Our shareholders’ meetings take place at our head offices in the City of Itajaí, State of Santa Catarina. The Brazilian Corporation Law allows our shareholders to hold meetings in another location in the event of force majeure , provided that the meetings are held in the City of Itajaí and the relevant notice includes a clear indication of the place where the meeting will occur.

Calling of Shareholders’ Meetings

 

Our board of directors may call shareholders’ meetings. Shareholders’ meetings also may be called by:

 

 

Conditions of Admission

 

Our shareholders may be represented at a shareholders’ meeting by a proxy appointed less than a year before the meeting, which proxy must be either a shareholder, a corporate officer, a lawyer or, in the case of a publicly traded company, such as our company, a financial institution. An investment fund shareholder must be represented by its investment fund officer or a proxy.

 

Pursuant to our by-laws, shareholders attending a shareholders’ meeting must deliver, at least five days prior to the shareholders’ meeting, proof of their status as shareholders and proof that they hold the shares they intend to vote by delivery of proper identification and, if necessary, a receipt issued by the custodian agent, a power of attorney (if the shareholder is represented by a third party) and/or an extract evidencing the holding of registered shares.

 

Shareholders who do not submit proof of their status as shareholders or who cannot provide the power of attorney (if the shareholder is represented by a third party) within at least five days prior to the shareholders’ meeting may be prevented from attending a shareholders’ meeting, to the extent there is no legal restriction of this provision of our by-laws. Any disputes relating to this provision of our by-laws may be submitted to arbitration conducted in accordance with the Novo Mercado rules.

 

Board of Directors

 

Under our by-laws, our board of directors consists of up to eleven members, with two co-chairmen, and an equal number of alternates. The members of our board of directors are elected at the annual shareholders’ meeting for a period of two years and may be reelected. The Brazilian Corporation Law requires each director to hold at least one of our shares. At least 20% of the directors must be independent (as defined in the Novo Mercado regulations). There is no mandatory retirement age for our directors.

 

Under the Novo Mercado rules, the members of our board of directors must, prior to taking office, sign a compliance statement subscribing to the Novo Mercado rules and Arbitration Regulations of the Arbitration Chamber of the São Paulo Stock Exchange.

 

Pursuant to our by-laws, a shareholder who intends to nominate one or more members of our board of directors, other than the current members of the board of directors, must notify us in writing at least five days prior to the

shareholders’ meeting at which the members of the board of directors will be elected, providing us with the name and resume of the candidate. In case we receive such a notification, we must disclose our receipt and the contents of such notification (1) immediately in electronic form to the CVM and the São Paulo Stock Exchange and (2) through a press release to our shareholders, within not less than three days after receipt of such notification, considering only the days the newspapers generally used by us are published.

 

Shareholders who fail to provide notice of their intention of appointing members to our board of directors may be deprived from appointing these members at the shareholders’ meeting. We believe that this provision is valid and enforceable as it provides other shareholders with the opportunity to learn about the candidates and prepare themselves and, if they so desire, to attend and vote at the respective shareholders meeting. In case of any dispute arising from efforts to appoint members that were not previously notified under the terms required by our by-laws, such dispute may be submitted to arbitration in accordance with the rules of Novo Mercado .

 

The Brazilian Corporation Law sets forth that a multiple vote system must be made available upon request of shareholders representing at least 10% of our voting share capital. The multiple vote system entitles each shareholder to as many votes as there are members of the board of directors for each share it holds. Further, shareholders have the right to allocate their votes to one candidate or several. Under CVM Instruction 282, the minimum percentage of voting capital required for the adoption of the multiple vote system by a publicly held company may be reduced based on its share capital, varying from 5% to 10%. In our case, considering the amount of our share capital, shareholders representing 5% of the voting capital may request the adoption of the multiple vote system to elect the members of our board of directors. If there is no request for the adoption of the multiple vote system, directors are elected by a majority of the shareholders of our issued and outstanding common shares present in person or represented by proxy at a shareholders’ meeting, except that any minority shareholders that, individually or collectively, hold at least 10% of the common shares have the right to select one director and his or her alternate. The members of our board of directors are elected at our annual shareholders’ meetings for two-year terms.

 

Under our by-laws, if multiple voting is not requested, the members of our board of directors may decide, by a majority of the members present, to propose a complete list of candidates to replace vacancies. In the event multiple voting is requested, each candidate from the list proposed by the board of directors will be considered one candidate for the board of directors.

 

Pursuant to our by-laws, if a shareholder requests the adoption of the multiple vote system, as provided by Section 141 of the Brazilian Corporation Law, we must disclose our receipt and the contents of such notification (1) immediately in electronic form to the CVM and the São Paulo Stock Exchange, and (2) through a press release to our shareholders, within not more than two days after receipt of such notification, considering only the days the newspapers generally used by us are published.

 

Fiscal Council

 

Under the Brazilian Corporation Law, the fiscal council is an outside auditing body independent of the company’s management. Its main responsibility is to inspect the actions of the management and audit our financial statements, reporting its observations to the shareholders.

 

We have a permanent fiscal council composed of three members and an equal number of alternates. Under the Novo Mercado rules, the members of the fiscal council must, prior to taking office, sign a compliance statement subscribing to the Novo Mercado Listing Regulations and Arbitration Regulations of the Arbitration Chamber.

 

Members of the fiscal council may not be members of the board of directors, officers or an employee of a controlled company or a company from the same group, nor may they be the spouse or relative of any of our officers. The Brazilian Corporation Law also requires that members of the fiscal council receive remuneration, at a minimum, in the amount of 10% of the average remuneration paid to directors, excluding other benefits. At least one of the members of our fiscal council must have a background in accounting, auditing and finance, which qualifies him or her as a financial expert. According to our by-laws, a member of the fiscal council shall not act as a member of more than two other corporate bodies, such as the board of directors, fiscal council or audit committee.

Transactions in Which Directors and Officers Have a Conflict of Interest

 

Our by-laws contain a specific provision limiting the right of a director to vote on a proposal, arrangement or contract in which the director has an interest that conflicts with our interests. In addition, the Brazilian Corporation Law prohibits a director or officer from:

 

 

Allocation of Net Income and Distribution of Dividends

 

Calculation of Distributable Amount

 

At each annual shareholders’ meeting, our board of executive officers and our board of directors are required to recommend how to allocate our net profits, if any, from the preceding fiscal year. This allocation is subject to deliberation by our shareholders.

 

The Brazilian Corporation Law defines “net profits” for any fiscal year as net profits after income and social contribution taxes for that fiscal year, net of any accumulated losses from prior fiscal years and any amounts allocated to employees’ and management’s participation in our net profits in such fiscal year. Our board of directors’ and board of executive officers’ participation in our net profits, when allocated, can be in an amount approved at the shareholders’ meeting up to 10% of our net profits in such fiscal year.

 

Our by-laws provide that an amount equal to 25% of our net profits, if any, as reduced by amounts allocated to our legal reserves and contingency reserves, and increased by any reversals of our contingency reserves, if any, must be allocated for dividend distributions or payment of interest on shareholders’ equity in any particular year. This dividend is limited to the realized portion of our net profits, which amount is the minimum mandatory dividend. The calculation of our net profits, allocations to reserves and distributable amounts are determined on the basis of our unconsolidated financial statements prepared in accordance with the Brazilian Corporation Law.

 

Profit Reserve Accounts

 

The financial statements of corporations incorporated under Brazilian law include two principal reserve accounts: profit reserves and capital reserves. Except for the legal reserve, allocations to any reserve are subject to the approval of our shareholders at our annual shareholders’ meetings.

 

Profit Reserves