BRASILAGRO – COMPANHIA BRASILEIRA DE PROPRIEDADES AGRÍCOLAS
Publicly-Held Company
Corporate Taxpayer ID (CNPJ/MF): 07.628.528/0001-59 Corporate Registry (NIRE): 35.300.326.237
MINUTES OF THE FISCAL COUNCIL’S MEETING HELD ON SEPTEMBER 3, 2010
Date, time and venue: The meeting was held on September 3, 2010, at 3:00 p.m., at the Company’s headquarters, located at Avenida Brigadeiro Faria Lima, 1309, 5º andar, in the City and State of São Paulo. Call Notice and Attendance: Messers. Renato Parreira Stetner, Breno Takeshi Miyahara Lara and Anthonny Dias dos Santos, sitting members of the Company’s Fiscal Council, attended the meeting. Mrs. Mariana F. de Souza Rezende was invited to attend the meeting to serve as secretary. Presiding: Chairman: Renato Parreira Stetner and Secretary: Mariana F. de Souza Rezende. Agenda: To analyze, discuss and remark on the Company’s Management Report and Financial Statements referring to the period ended June 30, 2010. Resolutions: After analyzing, examining and discussing the documents and information presented by the Company, and following clarifications provided by the Independent Auditors and Management over recent months, the members of the Fiscal Council issued the following report: 1. Pursuant to the Fiscal Council’s regulation and to legislation in effect, the Fiscal Council of Brasilagro Companhia Brasileira de Propriedades Agrícolas is primarily responsible for independently supervising the integrity of the financial statements in terms of their compliance with legal and regulatory requirements and of the performance, independence and quality of the Independent Audit, and is ultimately entrusted with submitting the annual financial statements and Management’s report, together with the Fiscal Council’s report, to the Annual Shareholders’ Meeting. 2. Assessments of the Fiscal Council were based on discussions and information received from Management, Independent Auditors, reviews of internal controls as a result of verifications, the work of Independent Auditors and Independent Auditors’ analyses. 3. Management is responsible for preparing the financial statements and establishing the procedures necessary to ensure the quality of processes that generate the information used to prepare the statements and reports. Management is also responsible for establishing and supervising the internal control system and monitoring its risks. In this sense, Management presented clarifications regarding tax payment of taxes according to Exhibit I hereto.
4. PricewatherhouseCoopers Auditores Independentes is responsible for auditing the Company’s financial statements and ensuring that all material aspects of the Company’s equity and financial position are duly presented pursuant to generally accepted Brazilian accounting practices and with the rules issued by the Brazilian Securities and Exchange Commission (CVM). 5. The following are notable activities pursued by the Fiscal Council, among others:
(a) Periodic meetings and other procedures when necessary, duly recorded in meeting
minutes, and the inclusion of Company departments, such as the Finance and Control Departments, and implementation of the Independent Auditors’ recommendations.
(b) Quarterly meetings to review the respective Quarterly Financial Statements (ITRs).
(c) Awareness of the Independent Auditors’ planning for fiscal year 2010, of the degree of relevance and areas of risk identified by the auditors, and of the results of audit procedures applied to the Company’s primary operations and the evidence obtained from such, including areas requiring attention and ongoing recommendations from detailed reports concerning such.
(d) The Fiscal Council met with the Independent Auditors specifically to obtain clarifications regarding the report on financial statements for the period ended June 30, 2010 and also to discuss other relevant matters detailed in Exhibit II hereto.
6. Final considerations.
To best comply with corporate-governance and due-diligence practices, the Fiscal Council releases the financial statements with the following notes:
Ownership and Environmental Status: The ownership and environmental status of the Company’s farms is essentially regular, with a level of pending issues that is in line with Brazilian rural lands in general. As detailed in Exhibit III hereto, the Company’s attorneys and consultants are handling these pending issues.
In addition, pursuant to Exhibit IV hereto, the Fiscal Council, by majority vote, has voted on the following, with one dissenting vote by Anthonny Dias dos Santos: The Consulting Agreement entered into between the Company and Paraná Consultora de Investimentos S.A. on March 15, 2006 was rigorously honored during the period ended June 30, 2010. Pursuant to the material fact published on July 26, 2010, the independent members of the Board of Directors, through its approved the proposal to rescind the agreement to be submitted to the shareholders at the Company’s Annual Shareholders’ Meeting. Regarding the terms of the Agreement, the Fiscal Council has voted as follows:
The Agreement was entered into on March 15, 2006, before the Company went public,
which occurred on April 28, 2006. In terms of the IPO, the Agreement and its importance to increase the feasibility of the Company’s business model were widely disclosed. Investors who chose to become Company shareholders did so fully aware of the Agreement and its impact on the Company’s financial situation. Additionally, an addendum was added to the Agreement on December 17, 2008 whose terms had been duly approved at the Shareholders’ Meeting held on November 14, 2008, with shareholders directly or indirectly related to Paraná not permitted to vote; consequently, the terms of the addendum in question were approved exclusively by minority shareholder votes. All necessary information regarding the agreement was always available to the Company’s investor and shareholders, who freely exercised their business judgment.
Based on the aforementioned reviews and discussions and on the detailed referenced works, the majority of the members of the Fiscal Council, with one dissenting vote by Anthonny Dias dos Santos, pursuant to Exhibit IV hereto, voted that Management’s report and financial statements for the period ended June 30, 2010 are adequate in all material aspects and it recommends they be forwarded to shareholders for resolution at the Annual Shareholders’ Meeting. Closure: As there were no further issues to be addressed, these minutes were drawn up, approved and signed by all members of the Board of Directors in attendance.
São Paulo, September 3, 2010.
______________________________
Renato Parreira Stetner Chairman
______________________________
Mariana F. de Souza Rezende Secretary
______________________________ Renato Parreira Stetner
______________________________ Anthonny Dias dos Santos
______________________________ Breno Takeshi Miyahara Lara
EXHIBIT I
TO THE MINUTES OF BRASILAGRO - COMPANHIA BRASILEIRA DE
PROPRIEDADES AGRÍCOLAS FISCAL COUNCIL’S MEETING
HELD ON SEPTEMBER 3, 2010.
Management’s responses to the questions posed by the Fiscal Council regarding taxes for the
period ended June 30, 2010:
1. Which taxes are you liable to pay according to calculations and the application of
legislation in effect?
Federal (Income Tax, Social Contribution, Rural Land Tax, Rural Fund), state (Value-
Added Tax) and municipal (Municipal Real Estate Tax) taxes.
2. Do you fully comply with the current regulations in calculating these taxes?
Yes, we comply with regulations in calculating these taxes.
3. In controversial cases, do you consult internal and external attorneys?
We retain the services of Luiz Paes and PwC.
4. Are taxes, tax offsets, social contributions and tax incentives handled according to the
best accounting practices and to current legislation? If not, what are the disparities
between the Company’s practices and provisions set forth in the legislation? What
explanations does Management present?
We apply the best market practices.
We follow the Income Tax Regulation to apply accounting practices for Corporate
Income Tax, Social Contribution on Net Income, and withholding and deferred taxes.
We also use the regulations of each state or city in which we operate for direct taxes,
such as the Value-Added Tax and Service Tax.
EXHIBIT II
TO THE MINUTES OF BRASILAGRO - COMPANHIA BRASILEIRA DE
PROPRIEDADES AGRÍCOLAS FISCAL COUNCIL'S MEETING
HELD ON SEPTEMBER 3, 2010.
Pricewaterhousecoopers Auditores Independentes’ Independent Auditor Mr. Wander
Rodrigues Teles’s responses to the questions posed by the Fiscal Council:
1. Did you face any restriction to the scope of your work?
We did not face any restriction to the scope of our work performed in the period ended
June 30, 2010.
2. Were internal and managerial controls considered adequate?
Yes. We visited Araucária and Cremaq Farms, and we evaluated their internal
controls, with no exceptions.
3. Are generally accepted accounting practices applicable to all material aspects of the
analyzed financial statements?
Yes, they are.
4. Were contingencies evaluated correctly, including with regard to confirmations from
attorneys handling the cases?
Yes, we requested confirmation from all attorneys, and their responses were evaluated.
This result was compared to the amount reported, with no exceptions, and no relevant
exposure was found regarding contingencies.
5. Has the senior reviser completed his/her review? If so, was any additional
explanation/analysis required?
No, the review is under way and should be completed by August 27.
6. Did those officers responsible for the financial statements ensure that such were
properly prepared?
In a forthcoming letter on behalf of Management, the Management will ensure that the
financial statements were properly prepared.
7. Are taxes, tax offsets, social contributions and tax incentives handled according to the
best accounting practices and to current legislation? If not, what are the disparities
between the Company’s practices and provisions set forth in the legislation? What
explanations does Management present?
Yes, they are. There are no relevant tax incentives applicable to the Company.
8. Were credits from income tax and social contribution duly recognized, that is only in
cases where credits were deemed as probable?
Yes, they were. To that end, there is a management plan to recover these taxes which
is being discussed and monitored by PwC.
9. Did you meet the conditions to record deferred income tax and social contribution
from temporary differences and tax loss carryforwards?
Yes, we did.
10. Did the independent auditor duly analyze all derivative operations? Were all their
effects, depending on evaluation, duly taken into consideration and handled according
to generally accepted accounting principles?
Yes. Currently, derivative operation amounts are not significant, but we acknowledged
and evaluated the reported operations. As in the previous year, the Company does not
use hedge accounting (that is to say variations in the instruments’ fair value are
recorded on a monthly basis). Additionally, we confirmed with financial institutions
with which the Company operates, and no additional operations were identified other
than those reported.
11. Were the payments to Paraná Consultoria de Investimentos duly made?
Yes, they were.
12. Are there any adjustments to make?
Yes, but the amounts are immaterial (approximately R$700,000)
EXHIBIT III
TO THE MINUTES OF BRASILAGRO - COMPANHIA BRASILEIRA DE
PROPRIEDADES AGRÍCOLAS FISCAL COUNCIL'S MEETING
HELD ON SEPTEMBER 3, 2010.
Report on the status of real estate registers and environmental reserves corresponding
to the Company’s lands.
Report on the environmental situation of the Company’s lands.
EXHIBIT IV
TO THE MINUTES OF BRASILAGRO - COMPANHIA BRASILEIRA DE
PROPRIEDADES AGRÍCOLAS FISCAL COUNCIL'S MEETING
HELD ON SEPTEMBER 3, 2010.
One dissenting vote by Anthonny Dias dos Santos.
Report on the Environmental Status of Farms (Licenses, grants, etc)
FARM PROCESS AGENCY STATUS PROTOCOL No. DATEESTIMATED
DATE
DEADLINE
(DAYS)REMARKS
Sole Environmental
License
(LAU)
SEMAIn progress
(Partially)
105.469/2005
105.726/2005
105.763/2005
2005 - -LAU in progress by Katayama.
SEMA: awaiting reports from SEMA-MT
inspection (5/05/2010).
Degraded Area
Recovery Plan
(PRAD)
SEMA/
Prosecutor
Office
In progress
Conduct Adjustment
Term (TAC)
SEMA/
Prosecutor
Office
In progress
Exemption from
Operating License
(LO)
Issued 9.984/2010 06/10/2010 Issued
Deforestation
LicenseStopped - - - -
Awaiting reply and submission of
proposal/budget
Well Concession Started - - - -Collecting documents to submit protocol
to SEMARH
Plant Highway - Stopped - - - -
The highway stretch is being redefined
to avoid neighboring areas; Confirm
areas' value and forest type to be
deforested; Provide technical project
prior to bridge - suspending the
environmental feasibility study.TAC / PRAD IBAMA In progress 046/08 11/28/08 11/28/11 - Regular.
Chaparral
Forestry (License
for Forest Clearing
(ASV) + Consent to
Lease Legal
Reserve)
IMA Filed (In progress) 2009-012364/TEC/ASV-0696 3/26/09 7/26/09 120Awaiting inventory conclusion ASV;
Milaré's report sent to IMA's PROJU.
Operating License
(LO)
(Oper.+ Harvest
10/11)
Filed (In progress) 2009-012485/TEC/LO-0043 3/27/09 9/27/09 180*
Official letter filed to adjust area to be
licensed (LO); Official letter filed
together with copy of ASV process;
Awaiting IMA to release TR of
environment study.
Location License
(LL)Initiated - - - -
We are arranging a map and petitions,
satellite imaging and documents.
Subsequently, formalize IMA process,
noting inventories have already begun
to be taken and the Environmental
Management Program (PGA) is under
way.
Alto Taquari
- 12/01/2008 12/31/13
Araucária
SEMARH
No maturity
-
Chaparral
IMA
Well Concession INGA Filed (In progress)
Proc. nº 8.737/07
Proc. nº 6.838/07
Proc. nº 7.550/08
- - - Awaiting copy of process.
Well Concession INGA Renewal in progress
Proc. Nº 2.504/01-SEM
(Irrigation Grant 250m³/h)
Proc. 7.550/08
12/24/06
In process of changing ownership to
Brasilagro (CH).
TCA Finished - 10/09/2009
Larissa:
. Awaiting municipal SEMMARH
ordinance which deals with the
agreement executed.
. Published in Official Gazette on
6/29/10Defense - Notice
No. 0003, series CIn progress - 06/10/2010 - - André/ Larissa: negotiate new TAC.
TCA In progress - - - -Larissa: Forward SEMMARH Draft and
publish it on Official Gazette
CremaqOperating License
(LO)SEMAR Filed (In progress) 3.352/08 7/23/08 1/23/09 180
LO: Estim.: approx. 30 days.
Awaiting definition of area reg. 113 and
40 to adjust LO.
Demonstrate legality reg. 113 and 40 -
INTERPI. Area removed from Licenses/
Permits.
Awaiting definition.Deforestation
LicenseSEMAR Issued 01.00103-09 10/15/09
Issued - PENDING inclusion of area
reg. 113 and 40 (Luchesi).
Federal Technical
Registration (CTF)IBAMA In progress - - - -
Awaiting (tax) password to proceed with
yard registration (fiscal).
Definite Grant Issued1.020/09
1.021/09- - -
Silo License - - - - - Awaiting LO issuance
Displacement Legal
ReserveUnder assembly - - - -
In process of preparing relocation
project; design maps of Before and
After of the relocation RL
Term: 4 years = 12/24/2010
-
Cremaq
Term: 10/15/10
SEMAR
Chaparral SEMMARH
Chaparral
Operating License Issued 334/2010 06/04/2010
Location License -
LLNot initiated - - - -
Issued 0047/2008 3/14/08
Ref. area 1,660.00 ha
Awaiting ASV petition and response of
conditions.
. Verify how and if possible to renew
past-due Deforestation License.
In progress - - - -
Issuance within 30 days, referring to
regularization of deforested area
2,120.00 ha.; Obtain protocol number
In progress - - - -
Issuance within 30 days, referring to
area of 2,367.00 ha; Obtain protocol
number
Well Concession Not initiated - - - -
Incident Report -
FireIn progress - - - -
We submitted the incident report and
pictures from affected areas, as well as
maps and satellite images for defense;
We will prepare a technical complaint to
be filed with the SEMA-MA
Operating License
(LO)
(A=10,565.67 ha)
IMAFiled
(In progress)2009-018588/TEC/LO-0075 07/06/2009 01/06/2010 180*
Send CD with inspection pictures to
IMA; Obtain copy of the inspection
report
Location License
(A=4,876.71 ha)IMA Under assembly - - - -
To do:
. LL map
. Descriptive petition
. Formalize IMA process.
IMA: Finishing inspection report
Forest Clearing
(A=4,876.61 ha)IBAMA In progress 02006-001563/07-75 9/17/07 3/17/08 180
Agreed: IBAMA needs LL to issue UAS
Permit
Coal License (rend.)IMA/
CEPRAMIn progress - -
Furnace LicenseIMA/
CEPRAMIn progress - - - -
Irrigation Grant INGA Completed7.562/08
(Grant 4,000m³/h)6/14/09 Awaiting copy of processes.
Horizontina SEMAR
Jatobá
-
Term: 2 years = 6/14/2011
Term: 5/11/2012
Forest Clearing
Term: 3/14/2009
Horizontina SEMAR
Operating License
(A=3,064 ha)SUPRAM Filed (In progress) 18056/2009/001/2010 - - -
Obtain ICMBio consent; Obtain
inspection conditions; Obtain pending
issues (Notice)
Prior License,
Location License,
Operating License
(A= remaining)
SUPRAM Under assembly - - - -
Forest Clearing
(A=remaining)SUPRAM Under assembly - - - -
Estimated protocol depends on the
Legal Reserve map.
Obtain consent / certificate State Forest
Institute (register remaining process and
present it to prosecutor).
Well Concession IGAM Filed 015954/2009 - - -
IMA Issued - - Ok
IBAMA Filed2009-035455/TEC/DASV-
018112/17/09 5/17/10 180
IBAMA: process returned to Barreiras
for inspection.
Forestry (ASV) IMA/ IBAMA Not initiated - - - -
RVFRIMA/
CEPRAMNot initiated - - - -
LS Extensive Cattle
RaisingIMA Issued IMA Ordinance No. 12.815 5/20/10
Well Concession INGA Issued INGA Ordinance No. 311/2010 4/23/10
Extension of
Simplified License -
Cattle Raising
(SC)
Not initiated - - - -
ASV (PR) Not initiated - - - -
AQC Under assembly - - - -
. Prepare process.
. Collect documents
IMA/ Joselice: forward guide
Deforestation Information Register (RCI)
and Controlled Burning Authorization
(AQC).Relocation RL - - - - - Not to be pursued at this time
Waiver of LO SEMA - - - - - Confirm need for LO License.
Official Notice/
InjunctionIBAMA In progress
We sent the official notice and now we
await IBAMA's decision
Inspection INCRA CompletedINCRA's acknowledgement of the farm
as a Large Production Property
* Counting commenced subsequent to process' additional EIA / RIMA protocol.
São Pedro
Nova Buriti
Nova Buriti
PreferênciaForestry (Exemption
from ASV)
Preferência
Term: 3 years = 5/20/2013
Term: 1 year = 4/23/2011
IMA
Registration Registered area Total real estate area* Registered Legal Reserve
% of legal reserve based
on total real estate area * Onus and encumbrances Ownership Status
ARAUCÁRIA FARM 9682.4164 ha 20.94%
Babilônia Farm 19964 9,342.3464 ha Yes - 1868,69,13 ha
Morrinhos Farm 21433 340.07 ha Yes - 159,07 ha
Registration Registered area Total real estate area* Registered Legal Reserve
% of legal reserve based
on total real estate area * Onus and encumbrances Ownership Status
CHAPARRAL FARM 37,181.88 ha 7.439,3636 ha = 20%
São João Farm 6267 7,000.0000 ha No None
Brejo Verde Farm 6253 2,000.0000 ha No None
Brejo Verde 2 Farm 6252 500.0000 ha Yes - 100 ha None
Brejo Verde 3 Farm 6251 1712.4994 ha No None
Brejo Verde Farm - Part I 6256 500.0000 ha No None
Cachoeira Farm 6405 10,000.0000 ha No None
Cachoeira II Farm 6413 2,561.6814 ha No
There is a lawsuit to cancel the transfer
of ownership of this property (Court
Records no. 277/2009 - district of
Correntina, state of Bahia; see
attorneys' report)
Chaparral Farm 6255 652.9700 ha Yes - 130.60 ha None
Chaparral I Farm 6254 4,900.0000 ha No None
Chaparral II Farm 6249 686,8000 ha Yes - 140 ha None
Chaparral II _ 1 Farm 6257 3,600.0000 ha No None
Fazenda Chaparral III 6462 3,000.0000 ha No None
Registration Registered area Total real estate area* Registered Legal Reserve
% of legal reserve based
on total real estate area * Onus and encumbrances Ownership Status
PREFERÊNCIA FARM 16.830 ha 20%
Preferência Farm 20200 6,000.0000 ha Yes - 1,200ha None
Sanconrado Farm 5798 10,830.0000 ha Yes - 2,166ha None
All properties are registered under the
Company's name.
1- All properties are registered under
the Company's name; 2- Although
some properties have a registered legal
reserve, this information does not
reflect the farm's reality, since the
current legal reserve is under location
approval review before the
environmental agency (see attorneys'
report from Milaré law firm )
All properties are registered under the
Company's name.
REPORT OF THE STATUS OF THE REAL ESTATE AND ENVIRONMENTAL RESERVES OF THE COMPANY'S PROPERTIES
Registration Registered area Total real estate area* Registered Legal Reserve
% of legal reserve based
on total real estate area * Onus and encumbrances Ownership Status
CREMAQ FARM 32.702,4390 ha 27.80%
Bumerangue Farm 91 2,650.0000 ha Yes - 1862.34ha Yes - BNB Mortgage
Cacimba Farm 2579 40.0000 ha
Yes - See registration
91/40/113/868/1578 None
Cajufrutos Farm (Buriti Torto) 40 602.6501 ha Legal Reserve Area None
Cajufrutos Farm 113 4,173.2500 ha Legal Reserve Area None
Cajufrutos Farm (Caximbo) 868 426.8749 ha Legal Reserve Area None
Cajufrutos Farm 1578 10,227.0000 ha Yes - 2,055.40ha None
Cajufrutos II Farm 2570 2,604.5500 ha
Yes - See registration
91/40/113/868/1578 None
Chapada do Caju I Farm 2569 1,210.4610 ha
Yes - See registration
91/40/113/868/1578 None
Chapada do Caju II Farm 2567 39.8488 ha
Yes - See registration
91/40/113/868/1578 None
Chapada do Caju I Farm 2382 1,250.0000 ha
Yes - See registration
91/40/113/868/1578 None
Jatobá I Farm 2381 1,250.0000 ha
Yes - See registration
91/40/113/868/1578 Yes - BNB Mortgage
Jatobá Farm 2571 1,299.3190 ha
Yes - See registration
91/40/113/868/1578 Yes - BNB Mortgage
Jatobá Farm (Dividido Farm) / Ipê Farm 2568 40.0000 ha
Yes - See registration
91/40/113/868/1578 Yes - BNB Mortgage
Sol Nascente I / II Farm 2379 961.5000 ha
Yes - See registration
91/40/113/868/1578 Yes - BNB Mortgage
Sol Nascente I / II Farm 2566 934.8280 ha
Yes - See registration
91/40/113/868/1578 Yes - BNB Mortgage
Sol Nascente III Farm 2572 39.9752 ha
Yes - See registration
91/40/113/868/1578 Yes - BNB Mortgage
Volta Grande I Farm 2380 1,250.0000 ha
Yes - See registration
91/40/113/868/1578 Yes - BNB Mortgage
Volta Grande III Farm (Condomínio Farm) 2551 40.0000 ha
Yes - See registration
91/40/113/868/1578 Yes - BNB Mortgage
Volta Grande II Farm (Condomínio Farm) 2552 1,112.3410 ha
Yes - See registration
91/40/113/868/1578 Yes - BNB Mortgage
Registration Registered area Total real estate area* Registered Legal Reserve
% of legal reserve based
on total real estate area * Onus and encumbrances Ownership Status
ALTO TAQUARI FARM 5266,09
Araçatuba Farm 10138 763.7000 ha No None
Amparo Farm 826 893.6000 ha Yes - See registration 20817 None
Ariranha Farm 10136 611.1000 ha No None
Barra Funda Farm 823 302.4000 ha Yes - See registration 20818 None
Esperança Farm 822 329.1000 ha Yes - See registration 20816 None
Morro Farm 10137 340.1000 ha No None
Morro I Farm 825 549.6000 ha Yes - See registration 20817 None
Pinguim Farm 824 607.3000 ha Yes - See registration 20817 None
Suporte Farm 285 200.0000 ha Yes - See registration 20820 None
Legal Reserve Area 1382 70 ha LR offset of registration 822 None
Legal Reserve Area 1383 358.1288 ha
LR offset of registration 824 /
825 / 826 None
Legal Reserve Area 1384 60.6231 ha LR offset of registration 823 None
Legal Reserve Area 1385 100 ha LR offset of registration 285 None
All properties are registered under the
Company's name.
Property has not yet been transferred to
the Company due to the fact that the
Seller has yet to present the registration
georeference, a process currently under
way with the INCRA; According to
information provided by Katayama, the
georeference at INCRA is pending with
regards to the legalization of the legal
reserve. The legalization procedure is
currently before the SEMA, awaiting the
issuance of a certificate of approval.
The farm still does not have the reserve
index required by law, and that is why
Katayama is regularizing this situation.
Registration Registered area Total real estate area* Registered Legal Reserve
% of legal reserve based
on total real estate area * Onus and encumbrances Ownership Status
JATOBÁ FARM 31605,8716 ha 20.03%
Jatobá IV Farm 5,202 31605.8716 ha Yes - 6333.0832 ha None
Registration Registered area Total real estate area* Registered Legal Reserve
% of legal reserve based
on total real estate area * Onus and encumbrances Ownership Status
FAZENDA NOVA BURITI 24.190,7002 ha
Fazenda Buriti 14033 30,637.00 ha None
13237 1,299.31 ha None
12221 1,556.00 ha None
Vale do Cocha Farm 18395 3,064.0269 ha Yes - 600ha 20% None
Registration Registered area Total real estate area* Registered Legal Reserve
% of legal reserve based
on total real estate area * Onus and encumbrances Ownership Status
SÃO PEDRO FARM 2447,2925 ha 20.00%
São Pedro cattle and crop raising 20644 2,447.2925 ha Yes - 489.1ha None
Registration Registered area Total real estate area* Registered Legal Reserve
% of legal reserve based
on total real estate area * Onus and encumbrances Ownership Status
HORIZONTINA FARM 14.358,5322 ha
Horizontina Leste III 1745 1,475.1465 ha No None
Horizontina Leste I e II 1744 12,883.3857 ha Yes - 3477.95 ha 26% None
* Approximate amounts
The farm was not transferred to the
Company; however, the 1st Addendum
to the Purchase and Sale Agreement
was approved and it obligates the seller
to grant the Farm's deed no later than
September 30, 2010;
Vale do Cocha Farm is already has not
yet been transferred to the Company
due to the fact that the Seller has yet to
present the georeference of the area we
purchased with these 3 registrations
(14,021.3633 + 4,250 ha of registration
14,033 and the entirety of registrations
12,221 and 13,237) - The Georeference
process is duly under way at INCRA.
Awaiting issuance of certificates from
the federal agency.
Note: Property duly registered under the
Company's name.
Recently purchased farm, pending the
final payment installment, subject to
presentation of the final deed of
purchase and sale by the Sellers. For
that purpose, we are awaiting the estate
inventory from the former owner or the
court order that authorizes the estate to
sell the property in question, as well as
the presentation of all certificates
required by law for the transfer of
property ownership to the Company.
São Paulo, July 22, 2010
- 1 -
São Paulo, September 3, 2010.
STATEMENT OF DISSENTING VOTE – FISCAL COUNCIL‟S REPORT
As a member of the Fiscal Council of Brasilagro – Companhia de Propriedades Agrícolas
(“Brasilagro” or “company”), before the honorable members, officers and shareholders of this
Company, I hereby express my opinion on Management‟s annual report, and for the record provide
additional information that I deem necessary and useful for the shareholders‟ meeting vote, and
vote on the financial statements to June 30, 2010 (“fiscal year”), pursuant to article 163 of the
Corporation Law.
I – ADDITIONAL INFORMATION
On August 11, 2010, I sent a letter to the Company‟s Management (“Letter”) with my legal
considerations regarding the consulting agreement (“Agreement”) entered into between the
Brasilagro and Paraná Consultora de Investimentos S/A (“Paraná”), wherein I requested
clarifications and also suggested that the Company‟s Management endeavor to obtain reimbursement
of the amount paid to Paraná during this fiscal year, and also to avoid payment of the fine if the
shareholders„ meeting of Brasilagro were to choose to rescind the Agreement, underscoring the fact
that Brasilagro would not pay any fine were Paraná to effect said rescission.
I also take this opportunity to express my considerations to Management concerning the consulting
agreement entered into between Paraná and Brasilagro.
I.I – SUMMARY OF FACTS INVOLVING THE TRANSACTION BETWEEN THE
BRASILAGRO E PARANÁ
Pursuant to its Bylaws/Articles of Incorporation, the corporate purpose of BrasilAgro is to explore
opportunities in agricultural production and in real estate appreciation, which is similar to the
purpose set forth in the Agreement entered into between Paraná and Brasilagro.
Paraná is the Company‟s related party, due to the fact that Paraná is owned by Brasilagro‟s controlling
shareholders.
Pursuant to agreement entered into between the related parties, Brasilagro agreed to a once-yearly
payment of the fees for Paraná‟s consulting service, calculated based on BrasilAgro‟s paid-in capital,
which corresponds to 1% of the Company‟s paid-in capital stock as calculated on June 30, 2006,
duly restated.
The term of the agreement is indefinite and the agreement may be terminated without just cause by
either party. If Brasilagro rescinds the agreement, the Company must pay a fine (“fine”) to Paraná
totaling R$4,316,000.00, duly restated, on the payment date. However, if Paraná rescinds the
agreement, with or without just cause, no amount shall be paid to BrasilAgro upon termination.
Also pursuant to the agreement, either party may rescind the agreement with just cause but, if
BrasilAgro is deemed liable for such, the Company shall pay the aforementioned fine to Paraná, which
shall not occur if the cause is attributed to Paraná. It is worth noting that if Brasilagro wishes to
terminate the agreement with just cause, Paraná shall not be charged any fine; and if Brasilagro wishes
to rescind the Agreement without cause, it shall compensate Paraná. However, if Paraná terminates the
Agreement with just cause, Brasilagro shall compensate Paraná; and if Paraná wishes to rescind the
agreement without cause, it shall not be charged any fine.
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I.II – COMMON PURPOSE – DUTY/FUNCTION OF CONTROLLING SHAREHOLDER
The first fact that stands out in the agreement between Brasilagro and Paraná is that the
shareholders of Paraná are Brasilagro‟s controlling shareholders and officers.
The legislation sets forth the controlling shareholder‟s function and duties in the sole paragraph of
article 116 of the Brazilian Corporation Law, The law sets forth that the controlling shareholder must
use his authority to “enable the Company to fulfill its purpose and achieve its corporate goals.
The controlling shareholder also has duties and responsibilities to the company’s other
shareholders and employees and to the community in which it operates, whose rights and
interests the controlling shareholder must genuinely respect and meet.”
It is clear that the controlling shareholder has the legal function/duty to enable the company fulfill its
purpose and achieve its corporate goals; therefore, the fact that the Company has contracted a
consulting company owned by Brasilagro‟s controlling shareholder and some of its officers, who
already had the legal duty to fulfill Brasilagro‟s corporate purpose, may be considered against the
law. By contracting the same corporate purpose, which the controlling shareholder is obligated to
fulfill, the controlling shareholder may be acting against the law since the agreement itself may be
considered unnecessary.
I.III - LACK OF EQUITY IN THE RELATIONSHIP BETWEEN THE RELATED
PARTIES HEREIN
The fine set forth in the agreement for rescission purposes, which is beneficial only to Paraná,
demonstrates the agreement‟s unbalanced nature, and consequently, lack of equity in this transaction
between the related parties, considering that said fine is excessively onerous to Brasilagro.
In addition to the fine, the obligation that Brasilagro has to pay the agreed amount, regardless the
results obtained from the relationship, is another point that is considered unequal. Regardless of the
result of the consulting services rendered by its own controlling shareholders, Brasilagro must
continue to pay the amount equivalent to one per cent (1%) of the Company‟s capital stock,
regardless of the amount of net equity. It is also worth mentioning that the fees paid in advance by the
Company to Paraná in August 2009, referring to the year ended June 30, 2010, amounted to
R$6,749,601.41, that is almost R$7 million was paid to the controlling shareholder by a company
that recorded, in the current fiscal year, a loss of R$15,834,000.00. Moreover, pursuant to the
agreement, should Brasilagro not see any results from the relationship with the related party, the
Company may rescind the agreement only if it pays a fine currently corresponding to over
R$5,000,000.00.
I.IV – COMPLIANCE OF THE CONTRACTUAL RELATION IN QUESTION WITH LAW
No. 6404/76
Article 117 of the Brazilian Corporation Law sets forth one of the acts classified as illegal under the
1976 legislation, which is the abuse of power. Said rule serves as an example1 and implies many
other cases, namely: guiding the company towards a purpose other than its corporate purpose or one
that jeopardizes national interest, or leading the company to favor another company to the detriment of
the minority shareholders‟ interest in the company's profits or equity, or to the domestic economy.
1 Professor Fran Martins understands that the rule serves as an example. The honorable Professor states that the Legal
Justification is clear in stating: “By illustrating the most common forms of abusive exercise of power in article 117, the law does not
exclude other cases, which precedent and the application of law must duly evidence.” (sic) Cf. in Comentários à Lei das S.A., p. 103.
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Pursuant to legislation, corporate illegality occurs when he controlling shareholder violates the
duty/power set forth in the sole paragraph of article 116 of the Brazilian Corporate Law. Hence, the
article reads as follows:
“The controlling shareholder must use its authority to enable the Company to
fulfill its purpose and achieve its corporate goals. The controlling shareholder
also has duties and responsibilities to the company‟s other shareholders and
employees and to the community in which it operates, whose rights and interests
the controlling shareholder must genuinely respect and meet”
From the categories of abusive of power set forth in paragraph 1 of said article 117 of the Brazilian
Corporation Law, items (a) and (f) are significant for the purposes of this study. Item (a) includes: to
lead the company to favor another Brazilian or foreign company to the detriment of the minority
shareholders in the company‟s profits or equity. On the other hand, item (f) includes: to contract the
company, directly or through a third party, or through a company in which it holds interest, under
conditions that are biased or not equal.
Both aforementioned assumptions determine that operations involving related parties, mainly the
controlling shareholder, must observe strictly equal conditions or proper compensation.
Under the first assumption, the controlling shareholders‟ action is not deemed fair if the operation‟s
outcome is less advantageous to the company than it would have been had the operation been carried
out by an independent party, without conflict of interest. Under the second assumption, the
controlling shareholders‟ action is not deemed fair if the operation‟s outcome is less advantageous to
the company than it would have been had the operation been carried out in the market by independent
agents2.
By analyzing the agreement in question, we can assume that the agreement has not observed the
“strictly mutual conditions” to which the legislation refers; thus, the agreement does not pass the
aforementioned fairness tests, which leads one to conclude that the contracted in disregard to
standards generally adopted in the market for similar transactions, and it would have not been
signed were the parties independent.
I.V – EFFECTS OF THE RELATIONSHIP ANALYZED HEREIN
Although the Company‟s independent Board Members have already approved the proposal to
rescind the agreement referred to herein, as published by the Company on July 26 2010 and to be
submitted to Brasilagro‟s shareholders‟ meeting, the agreement has already affected the Company‟s
financial statements, which the Fiscal Council has examined and commented on.
It is unquestionable that the financial statements were negatively impacted by the expense referring
to the amount of R$6,749,601.41 paid to Paraná, recorded in the financial statements, based on the
2 “Unfairness in a self-dealing transaction may be identified in one or both of two related ways: by comparison of the transaction to a
hypothetical other-dealing transaction or by comparison to actual transaction in a well-functioning competitive market. Thus, a
self-dealing transaction is unfair to the referent corporation or of group of investors if the outcome to them is less advantageous than the outcome would have been if the transaction had been agreed to, on their behalf, by a rational, well-informed decision maker who was
independent and loyal, that is, not affected by a conflict of interest. This is the arms‟ –length bargain comparison. It is a hypothetical
exercise, but it is very useful when unquestionably comparable market data are not available. Alternatively, or in addition, a self-dealing transaction is often adjudged unfair to the referent corporation or group of investors if the outcome to them is less advantageous than the
outcome of clearly comparable transactions between independent parties in a reasonably competitive market. This is the competitive market
comparison”. (in Robert Charles Clark, Corporate Law, LB, Boston-Toronto, 1986, p. 147).
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monthly accounting of the item in the amount of R$562,466.78.
I.VI – MANAGEMENT’S REPLY
As previously explained, I received a reply letter from Management last night and, in my opinion,
the answers were not convincing and explanatory enough to change the essence of the
aforementioned considerations.
Management justifies that the agreement has been essential to legally establish Brasilagro given the
need for qualified and experienced consultants with a extensive technical knowledge in the market in
which the Company operates in a Company initially created with no previous structure.
However, Management does not respond to the point raised in item I.II above, thus not explaining the
(il)legality of the fact that its own controlling shareholder contracted a company with the same
corporate purpose in the light of its legal duty/power pursuant to sole paragraph of article 116 of
the Brazilian Corporation Law.
With regards to the contractual inequality described in item I.III above, Management has not
justified the questionable clauses, which are (i) the one establishing a rescissory fine only for
Brasilagro; and (ii) the one adjusting the fixed amount, related to the Company‟s capital stock, to be
paid to Paraná regardless of the financial results reported by Paraná. Management only stated that it
understood the Agreement had been entered into under mutually equal terms.
I.VII – SUGGESTIONS PRESENTED BY ME
Bear in mind that, as a Board member, I suggested the Company‟s Management endeavor (i) to
seek reimbursement of the amounts paid to Paraná in the period ending June 30, 2010; and (ii) to avoid
payment of a possible fine to Paraná.
The Company‟s Management did not accept my suggestions presented in the foregoing paragraph,
thus alleging that the agreement is legal and valid. It is also worth highlighting that, with regards to
item (ii) above, a simple act to rescind the agreement initiated by Paraná would be enough to avoid
payment of the fine. Furthermore, with regards to item (i), reimbursement from Paraná could serve as a
“waiver” of the already received amount.
II - CONCLUSION
In the light of the foregoing, I hereby cast my vote regarding the Fiscal Council Report, pursuant to the
information expressed herein, which I deem necessary and useful for the vote to be made at the annual
shareholders‟ meeting to examine the financial statements referring to the period ended June 30, 2010.
I also hereby express my disagreement with the financial statements presented, given the
R$6,749,601.41 I considered unjustifiably paid to Paraná.
I further underscore that this is my individual opinion, to the best of my knowledge and belief.
Sincerely,
Anthonny Dias dos Santos OAB/RJ 114019
CRC/RJ 094837/O-7