SABESP’S BYLAWS

COMPANY’S GENERAL OFFICE

Marli Soares da Costa 

April 28, 2011

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SABESP’S BYLAWS

COMPANY’S GENERAL OFFICE

Marli Soares da Costa 

April 28, 2011

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SABESP’S BYLAWS

COMPANY’S GENERAL OFFICE

Marli Soares da Costa 

April 28, 2011

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SABESP’S BYLAWS

Paragraph 1 – The representative member of the employees shall be chosen by the employees’ votes, in a direct election organized by the unions that represent them, with the collaboration of the Company whenever requested.

Paragraph 2 – The internal regulation of the board of directors may set forth the eligibility requirements and other conditions for the exercise of the representative of employees position.

ARTICLE 10 – The investiture in the position of board of directors member is subject to the execution of the Instrument of Commitment before the State, by means of the Conselho de Defesa dos Capitais do Estado (“CODEC”), State Council for the Protection of the Capital of the State, for purposes of article 118, paragraphs 8 and 9, of Law no.  6,404/76.

Sole paragraph – The provisions in this article do not apply to the board of directors’ member who represents employees, to that elected by minority shareholders and to that, notwithstanding elected by the State, is considered independent pursuant to these bylaws or the specific legislation.

ARTICLE 11 – The board of directors member who receives, free of charge, from the State, on a fiduciary basis, any share issued by the company to comply with the requirement of article 146 of Law no. 6,404/76, is hindered from selling it or encumbering it to third parties, repaying it immediately after he leaves the position, under penalty of undue appropriation.

Vacancy and Replacements

ARTICLE 12 – In the event of vacancy in any position of board of directors’ member before the end of the term of office, the general meeting shall be called to elect the substitute, who shall complete the term of office of the replaced person.

Operation

ARTICLE 13 – The board of directors will meet, on an ordinary basis, once a month and, on an extraordinary basis, whenever necessary to the company’s interests.

Paragraph 1 – The board of directors’ meetings shall be called by its chairman, or by the majority of acting members, upon writing or electronic correspondence to all board members and also to the State, by means of the CODEC, in, at least, ten (10) days in advance and the agenda shall be pointed.

Paragraph 2 – The chairman of the board of directors shall supervise so that the board members individually receive, with the due antecedence in relation to the date of the meeting, the documentation with the necessary information to allow the discussion and resolution of the agenda, including, when the case may be, the proposal of the executive board and the manifestation of technical and legal character.

COMPANY’S GENERAL OFFICE

Marli Soares da Costa 

April 28, 2011

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SABESP’S BYLAWS

COMPANY’S GENERAL OFFICE

Marli Soares da Costa 

April 28, 2011

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SABESP’S BYLAWS

10. resolve on the issuance of common debentures non-convertible into shares and without real security and, the other types of debentures, on the conditions mentioned in paragraph 1 of article 59 of Law 6,404/76;

11. to resolve on the declaration of interest on own capital or distribution of dividends due to the result for the current year, for the year ended or profit reserve, without adverse affects to the subsequent ratification of the general meeting;

12. to resolve on the personnel policy, including the determination of the staff, plan of positions and salaries, general collective negotiation conditions, opening of a selective process to fill positions vacant and Profit Sharing Program;

13. to previously authorize the execution of any legal businesses when the amount involved exceeds seventy million reais (R$70,000,000.00), including the acquisition, sale or encumbrance of assets, the obtainment of loans and financings, the assumption of obligations in general and also the association with other legal entities;

14. to authorize the incorporation of a wholly-owned subsidiary or the interest in the capital of other companies, except the competence of the general meeting provided for in article 256 of Law no. 6,404/76;

15. to approve the hiring of civil liability insurance in favor of the members of the statutory bodies, employees, agents and mandataries of the company;

16. to grant licenses to officers, in compliance with the pertinent regulation;

17. to approve its internal regulation and the internal regulation of the executive board and of the audit committee;

18. to authorize the company to acquire its own shares, in compliance with the legislation in force and previously listening to the fiscal council;

19. to previously express itself about any proposal of the board of executive officer or issues to be submitted to the general meeting;

20. to call the examination of any issues comprised in the competence of the executive board and issue a binding guidance on it;

21. to determine the guidance to be followed by the representative of the company at the general meetings of the companies in which it holds an interest;

22. to evaluate the main risks of the company and verify the efficiency of the management and control procedures.

CHAPTER VI

EXECUTIVE BOARD

Members and term

ARTICLE 15 – The Executive Board shall be composed of six (6) members, all with a two (2)-year unified term of office, reelection is allowed.

Paragraph 1 – The CEO is responsible for:

COMPANY’S GENERAL OFFICE

Marli Soares da Costa 

April 28, 2011

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SABESP’S BYLAWS

1. representing the Company, as plaintiff or defendant, in or out of court, and may constitute, for such purpose, attorney with special powers, including powers to receive initial summons and notifications, pursuant to article 19 of these bylaws;

2. call and preside the executive board’s meetings;

3. coordinate the executive board’s activities;

4. issue acts and resolutions that are related to or resulting from the executive board’s resolutions;

5. coordinate the Company’s ordinary management, including the implementation of policies and the execution of resolutions taken by the shareholders’ general meeting, board of directors and joint executive board;

6. coordinate the activities of other executive officers;

7. preside over the Regulatory Affairs Committee;

8. coordinate, evaluate and control duties related to:

a)     CEO office;

b)     integrated planning, corporate management and structuring;

c)      communication; 

d)     negotiation of concession contracts;

e)     auditing; and

f)       ombudsman. 

Paragraph 2 – The Corporate Management Officer is responsible for:

1. commercial processes and relationship with clients;

2. human resources, quality and social responsibility;

3. information technology;

4. property; 

5. legal affairs; and

6. supplies and contracts.
   

Paragraph 3 –The Chief Financial Officer and Investor Relations Officer shall be responsible for:

1. planning, raising and allocating financial resources;

2. control department;

3. accounting; 

4. investor relations;

5. operations in the capital markets and other financial operations;

6. indebtedness control;

7. corporate governance;

8. costs and tariffs;

9. participating in the Regulatory Affairs Committee and implementing the Committee’s guidelines in the executive board, supported by the Regulatory Affairs Department.

COMPANY’S GENERAL OFFICE

Marli Soares da Costa 

April 28, 2011

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COMPANY’S GENERAL OFFICE

Marli Soares da Costa 

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Marli Soares da Costa 

April 28, 2011

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SABESP’S BYLAWS

e)    other company’s regulations, which are not of the private competence of the board of directors;

III      to authorize, respecting the limits and guidelines established by the Law and by the board of directors, acts of resignation or judicial or extrajudicial transaction, to end litigations or holdovers, establishing amount limits for the delegation of the practice of these acts by the CEO or any other officer;

IV     to previously authorize the execution of any legal businesses when the amount involved exceeds ten million reais (R$10,000,000.00), without adverse effects to the competence attributed by the bylaws to the board of directors, including the acquisition, sale or encumbrance of assets, the obtainment of loans and financings, the assumption of obligations in general and also the association with other legal entities.

Sole paragraph – The internal regulation of the executive board may show in details the individual attributions of each officer, as well as to subject the practice of certain acts comprised in the specific competence areas to the previous authorization of the joint executive board.

Representation of the company

ARTICLE 19 – The company bound before third parties (i) by the signature of two officers, one necessarily the CEO or the officer responsible for the financial area; (ii) by the signature of an officer and one attorney-in-fact, according to the powers in the respective power of attorney; (iii) by the signature of two attorneys-in-fact, according to the powers in the respective power of attorney; (iv) by the signature of one attorney-in-fact, according to the powers in the respective power of attorney, in this case exclusively for the practice of specific acts.

Sole paragraph – The powers of attorney will be granted with a determined term, and will specify the powers granted; only the powers of attorney for the forum in general shall have an undetermined term.

CHAPTER VII

FISCAL COUNCIL

ARTICLE 20 – The company shall have a permanent fiscal council, with the competences and duties provided for by the law.

ARTICLE 21 – The fiscal council shall be composed of at least three (3) and at most five (5) sitting members, and the same number of deputies, annually elected by the shareholders’ general meeting. Reelection is allowed. 

COMPANY’S GENERAL OFFICE

Marli Soares da Costa 

April 28, 2011

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SABESP’S BYLAWS

Sole paragraph – In the event of vacancy or impediment of the sitting member, the respective deputy will assume.

ARTICLE 22 – The fiscal council will meet, on an ordinary basis, once a month and, on an extraordinary basis, whenever called by any of its member or by the executive board, drawing up the minutes in the company’s records.

CHAPTER VIII

COMMON RULES TO THE STATUROTY BODIES

Investiture, Impediments and Prohibitions

ARTICLE 23 – The members of the statuary bodies shall prove, by means of presentation of their resume to the CODEC, that they have professional, technical or administrative capacity, experience compatible with the position, moral credibility and immaculate reputation.

Sole paragraph – The provisions in this article are only applied to the members elected by the controlling shareholder.

ARTICLE 24 – The members of the statutory bodies will be invested in their positions upon the execution of the instrument of investiture drawn up in the respective book of minutes, and of the respective Instrument of Consent, according to the model established in the BOVESPA’s Novo Mercado Listing Rules.

Paragraph 1 – The instrument of investiture shall be signed in within thirty (30) days following the election, under penalty of its inefficiency, except for a justification accepted by the body for which the member has been elected, and shall contain the indication of at least one domicile to receive notifications and summons of administrative and judicial procedures, related to acts of his management, and the change of the domicile indicated is allowed only by means of a written communication.

Paragraph 2 – The investiture will be subject to the presentation of the declaration of assets and values, as provided for in the state legislation, which shall be annually updated and at the end of the term of office.

ARTICLE 25 – Except in the assumption of resignation or dismissal, the term of office of the members of the statutory bodies is considered automatically postponed, until the investiture of the respective replacements.

Compensation and Licenses

ARTICLE 26 – The compensation of the members of the statutory bodies shall be

COMPANY’S GENERAL OFFICE

Marli Soares da Costa 

April 28, 2011

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SABESP’S BYLAWS

established by the general meeting and there shall not be accumulation of earnings or any advantages due to the replacements occurring by virtue of vacancy, absences or temporary impediments, pursuant to these bylaws.

Sole paragraph – It is allowed to the officer, who on the date of the investiture belongs to the company’s staff, to opt for the respective salary.

ARTICLE 27 – The officers may request to the board of directors removal by unpaid leave, as long as for a term not longer than three (3) months, which shall be recorded in minutes.

CHAPTER IX

FISCAL YEAR AND FINANCIAL STATEMENTS

PROFITS, RESERVES AND DIVIDEND DISTRIBUTION

ARTICLE 28 – The fiscal year shall match the calendar year, and after the closing of the fiscal year, the executive board shall require the preparation of the financial statements, pursuant to the law.

ARTICLE 29 – Common shares shall be entitled to the minimum mandatory dividends of twenty-five percent (25%) of the fiscal year’s net income, after the deductions established or authorized by law.

Paragraph 1 – Dividends may be paid by the company as interest on equity.

Paragraph 2 – The company may draw interim balance sheets, quarterly, for purposes of payment of dividends or payment of interest on equity.

Paragraph 3 – The approved dividends shall not accrue interest and those that are not claimed within three (3) years as of the date of the Shareholders’ General Meeting that approved them, shall lapse in favor of the Company.

Paragraph 4 – The board of directors may propose to the general meeting that the remaining balance of the income for the year, after the deduction of the legal reserve and of the minimum mandatory dividend, is destined to the creation of a investment reserve, which will comply with the following principles:  

   I -         its balance, jointly with the balance of the other profit reserves, except the reserves for contingencies and of unrealized profits, may not exceed the capital stock; 

 II -         the reserve has as purpose to ensure the investment plan and its balance may be used: 

a)   in the absorption of losses, whenever necessary; 

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Marli Soares da Costa 

April 28, 2011

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b)   in the payment of dividends, at any moment; 

c)   in the operations of redemption, reimbursement or purchase of shares, authorized by law; 

d)   in the incorporation to the capital stock. 

CHAPTER X

WINDING UP

ARTICLE 30 – The company shall enter into liquidation in the cases provided for by law, and the Shareholders’ general meeting shall be responsible, as the case may be, for determining the means of liquidation and appointing the liquidator, fixing his/her remuneration.

CHAPTER XI

DEFENSE MECHANISM

ARTICLE 31 - The company shall ensure the members of its statutory bodies, through external legal counsel, the technical defense in legal and administrative lawsuits proposed during or after their respective terms of office, for acts related to the performance of their duties.

Paragraph 1 – The same protection is extended to the company`s employees, representatives and proxies who have acted to the extent of the powers conferred upon them, pursuant to Article 19 of these Bylaws.

Paragraph 2 – The company shall keep a permanent contract with one or more preeminent reputed law firms, or have preapproved law firms, with the purpose of being ready to undertake, at any time, the technical defense of the agents encompassed by this article.

Paragraph 3 – The contracting shall seek to ensure that the technical defense is continued by the same law firm that started the defense of an agent until the end of said proceeding, unless the agent elects another law firm that shall be hired by company for the same purpose.

Paragraph 4 – If, by any reason, no preapproved or hired law firm has been hired by the company, the agent may hire a legal counsel he trusts and have the legal fees or any other expenses incurrent in his technical defense paid to him in advance or reimbursed by the company, after presenting evidence that such expenses have been or will be incurred, provided that the amounts involved have been approved by the Board of Directors as to their reasonableness.  

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Marli Soares da Costa 

April 28, 2011

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Paragraph 5 – The company shall ensure the technical defense as well as access in real time to all required documentation for this effect. It shall also bear all legal costs, charges of any nature, administrative expenses and court deposits.

Paragraph 6 - Agents found guilty or held liable, with a final and unappealable decision, shall be obliged to reimburse the company for the amounts effectively disbursed, except when it is evidenced that they acted in good faith and in pursue of corporate interest.

Paragraph 7 – The company may contract insurance on behalf of the members of its statutory bodies, as well as of its employees, representatives and proxies, for covering liabilities arising from the performance of their duties.

CHAPTER XII

AUDIT COMMITTEE

ARTICLE 32 - The Company shall have an Audit Committee composed of three Board of Directors’ Members, who shall cumulatively comply with the requirements of (i) independence, (ii) technical expertise, and (iii) availability of time.

Paragraph 1 – All members of the Audit Committee shall comply with the Independence requirements provided for in the applicable legislation, without prejudice to any allowed exoneration.

Paragraph 2 - All members of the Audit Committee shall have sufficient technical knowledge in accounting and financial matters, being advisable that at least one member has also good knowledge of the internationally-accepted accounting standards, besides having experience in analysis, preparation and evaluation of financial statements and having knowledge of internal controls and policies for disclosing information to the market.

Paragraph 3 – The minimum availability required from each member of the Audit Committee shall correspond to thirty (30) hours per month.

ARTICLE 33 - The Audit Committee’s members may be designated simultaneously with their appointment to the Board of Directors, or by later resolution of the Board of Directors itself.

Sole paragraph – The Audit Committee’s members shall exercise their function for the same period as the respective term of office of the Board of Director’s Member, or until otherwise resolved by the Shareholders’ General Meeting or the Board of Directors itself.

ARTICLE 34 - It shall fall to the Audit Committee:

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Marli Soares da Costa 

April 28, 2011

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1. to evaluate the guidelines of the hiring process of an independent audit company, as well as other conditions for service provision, recommending the hiring to the board of directors; 
2. to justifiably propose the replacement of the independent audit company;
3. to express prior opinion on the hiring of other services from the independent audit company, or companies related thereto, that are not comprised in audit typical activities;
4. to express its opinion, at any time, about the performance of the accounting and internal audit departments, proposing to the Executive Board the measures that it deems appropriate;
5. to deal directly with the internal audit department and the independent auditors, following up on the respective work, together with the Economic-Financial and Investor Relations Office;
6. to analyze the internal audit’s and the independent auditors’ reports before they are submitted to the Board of Directors;
7. to see that the material resources made available to the internal audit are adequate;
8. to follow up on the preparation of the quarterly, interim and annual financial statements, seeking to ensure their integrity and quality, informing the board of directors when necessary;
9. to constantly evaluate the accounting practices, the internal controls and processes adopted by the Company, seeking to identify critical issues, financial risks and potential contingencies, and proposing such improvements as they deem necessary;
10. to follow up on Company’s compliance activities;
11. to request the hiring of specialized services to support the Audit Committee’s activities, whose remuneration shall be supported by the Company, within its annual approved budget;
12. to receive and handle denunciations and complaints from third parties on issues related to accounting, internal accounting controls and audit.

Paragraph 1 – Resolutions of the Audit Committee shall made by the majority of its members, without prejudice to the right of its members to individually request information and examine Company’s books, documents and papers.

Paragraph 2 – Reports made by the internal audit department and by the independent audit company shall always be simultaneously submitted to the Executive Board and the Audit Committee’s members.

ARTICLE 35 – The Audit Committee shall draft its Internal Regulations, and submit them to Board of Directors’ approval.

Sole paragraph – The Internal Regulations may expand the powers of the Audit Committee, and shall also provide for the holding of periodic meetings, the form of registration of its

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April 28, 2011

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ARTICLE 36 - The remuneration of the Audit Committee’s members shall be differentiated from that of the other Board of Directors’ Members, by virtue of their greater dedication and responsibilities undertaken.

ARTICLE 37 - The Audit Committee shall have its own annual budget approved by the Board of Directors.

Sole paragraph - The Executive Board shall promptly make available the financial resources requested by the Audit Committee for the performance of its duties, within the limit of the approved budget.

CHAPTER XIII

REGULATORY AFFAIRS COMMITTEE

ARTICLE 38 – The Regulatory Affairs Committee is a joint committee composed of the chief executive officer and (1) chief financial officer and investor relations officer (2) metropolitan officer and (3) regional system officer, in charge of defining the guidelines, strategies and regulation recommendations for the Company and coordinating the works of the Regulatory Affairs Department, except for the Board of Directors’ authority.

Paragraph 1 – The CEO shall preside over the Committee and propose its charter to be approved by the joint committee.

Paragraph 2 – The Head of Regulation shall be the executive secretary of the Committee who shall attend the Committee’s meetings.

Paragraph 3 – This body’s resolutions shall have a binding effect, and it shall be incumbent upon the executive boards to implement them within the scope of their authority.

Paragraph 4 - the executive board not composing the joint committee shall be previously consulted about the issues involving activities under its responsibility.

ARTICLE 39 – The Regulatory Affairs Committee shall hold ordinary meetings, at least, monthly and extraordinarily, when summoned by any of its members.

CHAPTER XIV

ARBITRATION

ARTICLE 40 - The Company, its shareholders, Managers and the members of the Fiscal Council undertake to submit to arbitration any and all dispute or controversy that may arise

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April 28, 2011

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 by the Central Bank of Brazil, and by the Comissão de Valores Mobiliários (“CVM”), as well as in the other rules applicable to the operation of the capital market in general, besides those provided for in the Regulamento de Listagem do Novo Mercado (Novo Mercado Listing

Regulations), the Contrato de Participação do Novo Mercado (Novo Mercado Participation Agreement) and the Arbitration Regulations of the Câmara de Arbitragem do Mercado (Market Arbitration Chamber), to be carried out by the Câmara de Arbitragem do Mercado instituted by BOVESPA, pursuant to the Regulations of the referred Chamber, subject to the reservation applicable to the inalienable rights.

CHAPTER XV

CHANGE OF CONTROL AND CANCELLATION OF THE PUBLICLY-HELD COMPANY REGISTRATION

ARTICLE 41 - The disposition of the share control of the Company, either through a single transaction or through a number of successive transactions, shall be contracted on the suspensive or resolutory condition that the new controlling shareholder undertakes to make a public offer for the acquisition of the shares held by the other shareholders of the Company, subject to the terms and conditions provided for by the legislation in force and in the Regulamento de Listagem do Novo Mercado da BOVESPA, so as to ensure them equal treatment as compared to the Controlling Shareholder.

Sole paragraph – The Company shall not register any shares transfer to the Purchaser of the control, or to that (those) that may hold the control, while he/she(they) do(es) not execute the relevant Instrument of Controlling Shareholder’s Consent, required by the applicable regulations.

ARTICLE 42 - The public offer referred to in the previous article shall also take place in the following cases:

      I.        onerous assignment of shares’ subscription rights and of other titles or rights in connection with securities convertible into shares, that results in the disposition of the Company’s control; and

2. disposition of the control of a company that controls the Company, provided that in that event the Seller Controlling Shareholder shall disclose to BOVESPA the value ascribed to the Company for such disposition and attach the documents that evidence its value.

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ARTICLE 43 - The shareholder that already holds shares of the Company and acquires the control by virtue of a private share purchase agreement entered into with the controlling shareholder, regardless of the number of shares purchased, shall:

1. make the public offer as provided for in Article 41 herein; and

2. reimburse the shareholders from whom it/he/she has purchased shares in a stock exchange within the six (6) month period before the date of the sale of the Company’s control, case in which it/he/she shall pay those former shareholders any balance between the amount paid to the seller controlling shareholder and the amounts paid in the stock exchange for company’s shares within the same period, monetarily adjusted until the payment date.

ARTICLE 44 - Without prejudice to the legal and bylaws’ provisions, the cancellation of Company’s registration as a publicly-held company shall be preceded by a shares’ public offer, to be made by the shareholder that holds the Control (“Offeror”), whose minimum price must be the economic value assessed in an appraisal report based on a methodology recognized by the CVM or based on criteria further defined by CVM, in accordance with the following article.

ARTICLE 45 - The appraisal report referred to in the previous article shall be prepared by an expert company with proven background and independent as far as Company’s decision power, its managers and controlling parties are concerned, besides meeting the requirements of paragraph 1 of article 8 of Law n. 6,404/76 and it shall include the liability provided for in paragraph 6 of the same article of the Law.

Paragraph 1 – The choice of the expert company in charge of the assessment of company’s economic value shall fall to the Shareholders General Meeting upon the submission of a list of three companies by the Board of Directors, provided that the respective resolution shall be made by absolute majority of votes of the outstanding shares, cast in the Shareholders’ General Meeting that makes the resolution on such matter, the blank votes being excluded.

Paragraph 2 – Without prejudice to the previous paragraph, in case the Shareholder’s General Meeting is instituted in first call, the attendance of the shareholders representing at least twenty per cent (20%) of the total of the outstanding shares is required. If instituted in second call, no minimum of shareholders representing outstanding shares is required.

Paragraph 3 – The costs of preparation of the appraisal reports shall be fully borne by the Offeror.

CHAPTER XVI

EXIT FROM THE NOVO MERCADO

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ARTICLE 46 - The exit of the Company from the Novo Mercado shall be approved in a Shareholder’s General Meeting, and such resolution shall specify if the exit is due to the cancellation of the publicly-held company’s registration or because its securities will be registered for trade outside the Novo Mercado, and shall be informed to BOVESPA in writing thirty (30) days in advance.

Paragraph 1 – The Controlling Shareholder shall make a public offer for the acquisition of shares owned by the other Company’s shareholders, for at least the respective economic value, to be assessed pursuant to the provisions of article 45, if the exit of the Company from the Novo Mercado takes place:

1. when the Company’s securities will be registered for trade outside the Novo Mercado; or

2. by virtue of a corporate restructuring transaction, in which the resulting company is not admitted to trading in the Novo Mercado.

Paragraph 2 - The news on the public offer shall be informed to BOVESPA and disclosed to the market immediately after the Shareholder’s General Meeting that has approved the referred exit or reorganization.

CHAPTER XVII

MISCELLANEOUS

ARTICLE 47 – Until April 30 of each year, the Company will publish its table of positions and functions, filled and vacant, related to the previous year, in compliance with the provisions in paragraph 5, of article 115, of the State Constitution.

ARTICLE 48 – The Company may sponsor private pension plans, under the defined contribution scheme, to employees, being it incumbent upon the Board of Directors to resolve on the conditions set forth in the respective regulations, as well as on the percentage of contribution of the sponsor, regular and extraordinary, pursuant to the governing laws.

Sole Paragraph – The Company may remain as sponsor of the private pension plan under the defined benefit scheme, which is under extinguishment phase, forbidding the entry of new participants, as well as the increase of respective benefits.

ARTICLE 49 – In view of the provisions in Article 101 of the São Paulo State Constitution, regulated by State Decree 56,677 of January 19, 2011, the engagement of attorney liable for heading the Company's legal services shall be subject to the approval of the person appointed by the State Attorney General, observing objective qualification, expertise and professional experience criteria.

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ARTICLE 50 – The Company shall allow the direct dialogue of its attorneys with the State Attorney General or another State Attorney appointed thereby, aiming at ensuring a continued and coordinated performance, observing the limits set forth in Article 101 of the State Constitution, in compliance with the duties and prerogatives inherent to his professional activity.

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