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Investor Relations

Material Fact - Partnership between Petrobras and Tereos in the Sugar and Energy Sector

PETRÓLEO BRASILEIRO S.A. - PETROBRAS
Public Company

MATERIAL FACT

Partnership between Petrobras and Tereos in the Sugar and Energy Sector


Petróleo Brasileiro S.A. (Petrobras) and Tereos Participações Ltda. (Tereos Internacional) announce a strategic partnership to jointly invest in Açúcar Guarani S.A. (Guarani), a subsidiary of Tereos Group, to accelerate their growth in the ethanol, sugar and bio-energy Brazilian industry. 
 
For Petrobras, this investment is in line with its Business Plan and represents an important step for its consolidation process as an energy company, through the production of significant volumes of ethanol, creating opportunities for synergies with the distribution and commercialization areas of the Company.
 
Guarani is the fourth-biggest sugarcane processor in Brazil, geared towards the ethanol and sugar market. The company has crushing capacity of 17.4 million tons in the 2010/11 crop through its seven industrial plants, six of which are located in Brazil and one in Mozambique. The company is controlled by Tereos Internacional.
 
With this partnership, Petrobras, through its wholly-owned subsidiary Petrobras Biocombustível SA (Petrobras Biocombustível), will invest in stages, as shown below, R$ 1.6 billion in Guarani, based on a valuation of R$ 5.83 per share, in order to reach a stake of 45.7% after the conclusion of the investment:ni:
 
a) Initial investment of Petrobras Biocombustivel, in the amount of R$ 682 million, through a capital increase in Cruz Alta Participações S.A., a company controlled by Guarani; 
 
b) As announced in the Material Fact dated March 28, 2010, Tereos Group has decided to contribute its Indian Ocean sugarcane assets and its European starch assets, as well as Guarani, to Tereos Internacional. After the merger of shares of Guarani into Tereos Internacional, Guarani will become privately held. Following the subsequent merger of Cruz Alta Participações shares into Guarani, Petrobras Biocombustível´s holding will be converted into a stake of 26.3% in Guarani;
 
c) Within a period of up to 5 years, Petrobras Biocombustível will invest the remaining R$ 929 million, through a capital increase, in order to attain a stake in Guarani of 45.7%.
 
Additionally, Tereos Internacional will have the option to invest up to R$ 600 million in Guarani through a capital increase, within 12 months after Petrobras Biocombustível´s investment in Guarani.
 
Petrobras Biocombustível, in turn, also has the right of carrying out further investments, through capital increases, to reach a stake of up to 49% in Guarani.
 
Petrobras Biocombustível will bring the expertise of Petrobras System in distribution, industrial operations, logistics, commercialization of ethanol and energy and research and development to Guarani. Tereos Internacional will contribute to the company its expertise in agribusiness, sugar cane processing and commercialization of ethanol and sugar.
 
Guarani’s governance will be balanced between the partners with three representatives of each party on the Board of Directors. Jacyr Costa Filho has been confirmed as Chief Executive Officer of the company.
 
The partnership creates a Brazilian company that will be well-positioned to play a key role in the consolidation of the sugarcane processing industry, investing in co-generation of energy and in the development of second-generation biofuels. 
 
Please find below the complete Material Fact issued jointly by the Companies.

I. TRANSACTION RATIONALE

In the midst of rapid growth and consolidation of the sugar and energy sector in Brazil, Petrobras, through its wholly-owned subsidiary Petrobras Biocombustível SA (Petrobras Biocombustível), and Tereos Participações Ltda (Tereos Internacional), have entered into on the date hereof a partnership agreement by means of which Petrobras Biocombustível will invest, in stages, R$ 1.6 billion in Guarani, based on a valuation of R$ 5.83 per share, in order to reach an interest ownership of 45.7%.
 
With these investments, the companies intend to accelerate their growth in sugarcane processing, ethanol production and energy cogeneration, as well as jointly develop technology and research and development programs for, among others, new generation bio-fuels. This transaction, once completed, will strengthen Guarani’s balance sheet, providing it with resources to play a leading role in the consolidation of the sugarcane industry, turning Guarani into one of the main companies in this sector.
 
II. SUMMARY OF THE TRANSACTION

The Investment Agreement establishes that Petrobras Biocombustível will become a shareholder in Guarani in three stages:
 
a) Initial investment of Petrobras Biocombustivel, in the amount of R$ 682 million, through a capital increase in Cruz Alta Participações S.A. (Cruz Alta), a company controlled by Guarani;
 
b) As announced in the Material Fact dated March 28, 2010, Tereos Group has decided to contribute its Indian Ocean sugarcane assets and its European starch assets, as well as Guarani, to Tereos Internacional. After the merger of shares of Guarani into Tereos Internacional, Guarani will become privately held. Subsequently, Petrobras Biocombustível´s holding in Cruz Alta will be converted into a stake of 26.3% in Guarani;
 
c) Within a period of up to 5 years, Petrobras Biocombustível has the option to invest an additional R$ 929 million, through a capital increase, in order to attain a stake in Guarani of 45.7%.
 
Additionally, Tereos Internacional will have the option to invest up to R$ 600 million in Guarani through a capital increase, within 12 months after Petrobras Biocombustível´s investment in Guarani.

 
Petrobras Biocombustível, in turn, also has the right of carrying out further investments to reach a stake of up to 49% in Guarani.

III. GOVERNANCE

The governance of Guarani will balance the interests of both shareholders. After the completion of the transaction, Guarani will have a six-person Board of Directors, with three members designated by Tereos Internacional and three by Petrobras Biocombustivel. The Chairman of the Board of Directors will be appointed by Tereos Internacional, as well as the Chief Executive Officer and Chief Financial Officer. For their part, the Industrial Officer and Investment and Portfolio Officer are to be designated by Petrobras Biocombustivel. Jacyr Costa Filho has been confirmed as Chief Executive Officer of Guarani following the implementation of the investment agreement.
 
IV. ABOUT THE COMPANIES

About Petrobras

Petrobras is an integrated energy company, a Brazilian and world leader in deep-water exploration and production of oil and natural gas. It operates in 29 countries in the following areas of the oil, natural gas and energy industry: exploitation and production; refining, commercialization, transport and petro-chemistry; distribution; natural gas, energy and bio-fuels. The 2009-2013 Business Plan provides for investments of US$ 174 billion over the period in all areas of operation.
 
In the Bio-fuels area, Petrobras will invest US$ 2.8 billion over the 2009-2013 period to expand production in ethanol and biodiesel mainly in Brazil, in order to meet the increasing domestic and global demand for bio-fuels. In accordance with Petrobras’ Business plan, this is an important step for the consolidation of the company as an energy company focused on sustainability, taking into account that the transaction will materially increase its ethanol production.
 
About Guarani

Guarani is one of the most important players in Brazil s ethanol and sugar industry. The company s core business is the processing of sugarcane to produce ethanol, energy and sugar. It is the fourth largest sugarcane processor, one of the leading producers of ethanol and the fourth largest sugar producer in Brazil, with estimated crushing capacity of 17.4 million tons of sugarcane in the 2010/11 crop. Guarani has seven industrial plants, of which six are located in Brazil in the Northwest region of São Paulo state and one in Mozambique. Its business model is based on the privileged location of its plants, sourcing of raw materials primarily from third-party suppliers, focus on high value-added products and specialization of its plants to meet market demands. Guarani believes in the importance of positive actions in the social and environmental areas..
 
About Tereos

Tereos is a cooperative agro-industrial group that specializes in the primary processing of sugar beet, sugarcane and cereals. Thanks to the commitment of the 12,000 French farmers who are its cooperative partners, the Tereos group has expanded considerably over the last twenty years, increasing its total production of sugar, starch and alcohol/ethanol by a factor of 50. This expansion enables Tereos to respond to the challenge of increasingly international markets and volatile commodity prices. Around 900,000 hectares of cultivated farmland provide raw material to its 33 production facilities in Europe, South America and Africa. Tereos has a workforce of 13,500 permanent employees involved in producing and processing sugar beet, sugarcane and cereals and marketing a comprehensive range of sugars, starches and bioethanol, along with by-products used for animal feed and power generation. Thanks to its ability to anticipate future developments, its expertise, technological skills and knowledge of its markets, Tereos is now one of the world s leading players in its business areas. True to its long-term vision of agriculture, Tereos creates value from the natural resources it processes while reducing its environmental impact and offering employees a pleasant working environment..
 
On March 28th 2010, Tereos Group announced the creation of Tereos Internacional, a global leader in food ingredients and bioenergy. This company is a result of Tereos Group´s decision to contribute its Indian Ocean sugarcane assets and European cereal assets as well as Guarani to Tereos Internacional, in Brazil. The newly-created company has sales of US$2.5 billion and EBITDA of US$366 million (pro-forma 2009).
 
V. APPROVAL BY BRAZIL’S ANTITRUST SYSTEM

Within 15 business days as from the date hereof, Tereos Internacional and Petrobras Biocombustível will jointly submit to Brazil’s Antitrust authorities the transactions set forth in the Investment Agreement and in any other instruments pertaining to the Transaction.
 
VI. OTHER INFORMATION

The transaction will be communicated to Stock, Futures and Commodities Exchange of São Paulo (BM&FBOVESPA), the Securities and Exchange Commission of Brazil (CVM), the U.S. Securities and Exchange Commission (SEC), the New York Stock Exchange (NYSE), Mercado de Valores Latinoamericanos da Bolsa de Valores de Madri – Latibex, Comisión Nacional de Valores – CNV and to Bolsa de Comercio de Buenos Aires. Further information on the Transactions described herein can be obtained from the investor relations departments of Petrobras and Guarani. All documentation related to the Transaction will be made available when the shareholders’ meetings to deliberate on these matters are called, as required by the applicable legislation. Tereos Internacional, Petrobras and Guarani managements will keep their shareholders and the market informed as and when the stages described in this Material Fact notice are implemented.
 
VII. DISCLAIMER FOR INVESTORS IN GUARANI AND TEREOS INTERNACIONAL
 
This relevant fact does not constitute an offer to sell or a solicitation of offers to purchase or subscribe for, any shares in Guarani or in Tereos Internacional. Any such offer or sale will take place by means of separate offering documents, including prospectuses subject to approval by the Comissão de Valores Mobiliários (CVM) and Autorité des marchés financiers (AMF) in the event of offers to the public in Brazil and/or France, respectively.
 
Tereos Group announced that it contemplates a primary offering of shares of Tereos Internacional, after completion of the corporate reorganization, and subject to market conditions. Investors must carefully read the prospectuses, especially the “risk factors” section prior to making any investment in Tereos Internacional’s shares, if and when any offering is actually implemented takes place..
 
With respect to the member states of the European Economic Area which have implemented the Directive 2003/71/EC of the European Parliament and the Council of November 4, 2003 (the “Prospectus Directive”), other than France, no action has been undertaken or will be undertaken to make an offer to the public of the securities referred to herein requiring a publication of a prospectus in any relevant member state (other than France). As a result, the securities referred to herein may not and will not be offered in any relevant member state (other than France) except in accordance with the exemptions set forth in Article 3(2) of the Prospectus Directive, if they have been implemented in that relevant member state, or under any other circumstances which do not require the publication by Tereos Internacional of a prospectus pursuant to Article 3 of the Prospectus Directive and/or to applicable regulations of that relevant member state.
 
United Kingdom, this document is only being distributed to, and is only directed at, persons that are "qualified investors" within the meaning of Article 2(1)(e)(i), (ii) or (iii) of the Prospectus Directive and that also (i) are “investment professionals” falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the "Order"), (ii) are persons falling within Article 49(2)(a) to (d) ("high net worth companies, unincorporated associations, etc.") of the Order, or (iii) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with the issue or sale of any securities may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as "relevant persons"). In the United Kingdom, this document is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only to relevant persons and will be engaged in only with relevant persons.
 
Neither Guarani’s nor Tereos Internacional’s shares have been or will be registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), and they may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act. No public offering in the United States is planned.
 
The information included in this material fact contains certain forward-looking statements including statements with respect to management’s intentions, beliefs or current expectations concerning among other things, Tereos Internacional’s growth prospects and strategies and future growth in the sugar, starch and ethanol markets worldwide. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of various factors, such as market conditions, government regulations, competitive pressures, the performance of the Brazilian and global economies and the sugar, starch and ethanol industries. You are cautioned not to place undue reliance on those forward looking statements, which speak only as of the date hereof.
 

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