ISA CAPITAL DO BRASIL

The Issue of Bonus in 2007

The acquisition of the shares of ISA CTEEP was funded through a combination of debt and shareholders’ equity, in several steps.

On January 29, 2007, ISA Capital concluded a successful operation in the international capital market with an issue of bonus at the amount of US$ 554 million. The issue, which had as agents banks J.P. Morgan and ABN Amro, was divided into two series of notes (senior notes), one at the amount of US$ 200.0 million, with a term of 5 years, interest rate of 7.875% per year, with an option to buyback from 2010 and maturity in 2012, and another at the amount of US$ 354.0 million, with a term of 10 years and interest of 8,800% per year, with maturity in 2017 (“Notes”). Of the total issue, 60% were distributed in the United States, 36% in Europe, 2% in Latin America and 2% in Asia. The bonus is listed on the Luxembourg Stock Exchange and can be traded at NASDAQ Market Portal.

The success of this issue was based on investor rely on the financial structure of the transaction, the support of ISA Group to their investments in Brazil, the positive projection of Subsidiary ISA CTEEP in the Brazilian energy industry and counted on the credit risk qualifications at international level by Standard & Poor's (BB - positive perspective) and Fitch Ratings (BB stable perspective).

At the time, ISA Capital Management, in accordance with the Risk Management Policy of ISA Group signed hedge Swap specific contracts to cover exchange rate risks in connection with the issue of bonus described above. This swap transaction was initially segregated into two steps, one to cover the principal of the bonus in the amount of US$ 554.0 million and another to cover only the semi-annual interest that matured in July 2007 and January 2008. The option not to contract coverage for the remaining semi-annual interest is being evaluated during this period based on the strategies defined by the Company’s Management and taking into consideration the economic and financial aspects and exposure limits.

The Debt Restructuring in 2010

In line with ISA Group's strategy, whose one of the premises is to expand its business in Brazil, ISA Capital's Management has developed studies, called "REDI project" to restructure its debt in foreign currency "bonus" aiming at reducing the cost of such debt and at the same time creating favorable conditions to enable the expansion of the activities of the Company and its subsidiaries.

Thus, in order to enable the desired financial transaction, in March 2010 the Company promoted two capital increases with issue of redeemable preferred shares at the overall amount of R$ 1.2 billion. Those funds were used to buyback the "bonus" and settlement of swap contracts as follows.

Bonus of US$ 354.0 million with maturity in 2017

On February 8, 2010, the Company initiated the implementation of debt restructuring announcing abroad a tender offer to buyback in cash all the bonus it issued maturing in 2017 until the total outstanding amount equivalent to US$ 354 million. As part of the transaction, in addition to the payment at the market value of 108.25%, ISA Capital offered to holders of the bonus of 2017, who joined the tender offer by February 24, 2010 (called the advanced period), an additional value (“Consent Fee”) of 3.50% on the market value. Between February 24 and March 8, 2010 holders who joined the offer received based on the market value 108.25%. Ended the offer period, there was adherence of 91.06% of the total holders of the bonus. Thus under the conditions stipulated, the Company, in March 2010, bought back US$ 322.3 million, an amount equivalent to 91.06% of the total US$ 354.0 million, remaining on the market only 8.94% of the total bonus maturing in 2017, with an amount equivalent to US$ 31.6 million.

The total disbursement by the Company to buyback 91.06% of such securities occurred in March, for a total of US$ 371.8 million, equivalent to R$ 665.0 million, comprised as follows: (i) Principal of US$ 322.3 million, equivalent to R$ 577.4 million, (ii) Premium ("Consent Fee") of US$ 37.7 million, equivalent to R$ 66.6 million, (iii) Proportional interest of US$ 3.2 million equivalent to R$ 5.7 million; and (iv) Taxes levied on the remittances of US$ 8.6 million equivalent to R$ 15.3 million.

For the amount of bonus of US$ 31.6 million remaining on the market, the same conditions agreed when issued are kept, but without any kind of "covenants”. The maturity of the principal remains in 2017 and interest continue to be paid semiannually in January and July each year, with a rate of 8.8% per year.

Bonus of US$ 200.0 million with maturity in 2012

Once the tender offer to buyback the bonus of 2017 was completed, the Company, using the prerogative of the call option provided for in the contract of bonus maturing in 2012, began the process of buyback of such securities and, under the term and conditions set forth, bought back 100% of the total of the same whose amount was US$200 million. Whereas the buyback was by the current market value of 103.938%, as stipulated in the indentures for the exercise of the call option in 2010, ISA Capital disbursed to buyback these bonus the amount of US$ 212.6 million equivalent to R$ 380.8 million composed as follows: (i) Principal of US$ 200.0 million, equivalent to R$ 358.2 million, (ii) Premium US$ 7.9 million equivalent to R$ 14.1 million, (iii) Proportional interest of US$ 2.4 million equivalent to R$ 4.4 million; and (iv) Taxes levied on the remittances of US$ 2.3 million equivalent to R$ 4.1 million.

Swap Contracts

Concurrent with the buyback process of the bonus, and in accordance with the terms of settlement provided for in the derivative financial instruments (swap), ISA Capital settled the contracts whose amount paid was R$ 182.4 million.

Thus, whereas from the total of US$ 554.0 million of bonus issued by the Company on January 29, 2007, only $ 31.6 million maturing in 2017 remain in the market, and taking into account the existence of the loan agreement receivable from the Parent Company at the amount of R$ 23.8 million, the Company’s Management understands that the exchange rate exposure is very low, reason why it did not contract a swap for this purpose.