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Stock Options

The Company has two (2) Stock Option Granting Plans in effect.

Stock Options

Summary of the plan
1st Plan – 2018 Grant
Date of Grant JANUARY 16, 2018
Number of Options Granted
835,000
Grace Period for Vesting 3 years
Maturity for Vesting MARCH 31, 2021
Maximum Period For Vesting MARCH 31, 2022
Vesting Price(1) R$ 9.50
Beneficiaries (Employees) 24
2nd Plan – 2019 Grant
Date of Grant MARCH 11, 2019
Number of Options Granted
780,000
Grace Period for Vesting 3 years
Maturity for Vesting MARCH 31, 2022
Maximum Period For Vesting MARCH 31, 2023
Vesting Price(1) R$ 7.96
Beneficiaries (Employees) 22

(1)The strike price fixed above is restated by the variation of the Consumer Price Index (IPCA) from the granting date to the date of the effective exercise of the Option.

Definitions Established In The Plan:

For purposes of the Stock Option Granting Regulations currently in force, the terms below shall comply with the following definitions:

  1. Potential beneficiaries
      The officers (statutory or otherwise), division managers and employees of Vulcabras Azaleia SA (“Company”) and direct or indirect subsidiaries (“Subsidiaries”) may be elected as beneficiaries of stock option grants, including in relation to new hires, all of which are subject to approval by the Company’s Board of Directors (“Participants”).
  2. Maximum number of stock options to be granted
    Options will be granted in volume that does not exceed the limit corresponding to the number established in the scope of each plan.
  3. Acquisition conditions
    There will be only one grant of Options for each plan, which will be held on the date of the Extraordinary General Meeting.
    The Stock Options, as well as the rights and obligations arising from the Stock Options Grants and the Agreement, have a very personal nature and shall not be transferable, seizable and communicable to any spouse, and cannot be assigned or transferred in any way to third parties, nor given as collateral. The Participant may not make hedge operations or any type of transaction that reduces the risk attached to the Stock Options such as short selling of Company’s shares, purchase of put options, futures market transactions, etc. The Options may be exercised on specific Exercise Dates, as provided in the Agreement, for the acquisition of Shares, which is the base date for the end of the Grace Period. On the Exercise Dates, the Participants may exercise the Options that fulfilled the Grace Period (“Mature Options”) applicable to the Participant’s right to acquire Shares issued by the Company at a price previously fixed for a certain period of time, subject to the conditions established in the Agreement (“Options”). Once the Company has been notified, the effective exercise of the Stock Options will occur in the manner determined in the Agreement, which sets the dates on which the Shares will be acquired and delivered. The exercise of the Stock Options will be formalized through (i) submitting a notice to the Company, as per the template attached in the Agreement, (ii) payment of the Exercise Price, and (iii) delivery of a receipt or subscription bulletin by the Company, detailing the Exercise Price and the number of shares to be acquired.
  4. Detailed criteria for setting the strike price
    The exercise price is fixed at the approval of each plan and will be adjusted by the variation of the Consumer Price Index (IPCA) from the granting date to the date of the effective exercise of the Option (“Exercise Price”).
  5. Criteria for setting the exercise period
    Participants may exercise the Mature Options only on two exercise dates, as specified in each plan. The Options not exercised on the last Exercise Date will be extinguished and will no longer be exercised by the Participants.
  6. Type of settlement of the Stock Options
    In the exercise of the Mature Options and consequent acquisition of the Shares, the Participants will be subject to the restrictive rules for trading shares of publicly-held companies established by the applicable regulations and the Company’s Trading Policy. Observing the criteria set forth in the Agreement, a Participant wishing to exercise its Mature Options must notify the Company in writing of its intention, in accordance with the terms of the communication model attached to the Agreement.Once the Company has been notified, the effective exercise of the Stock Options will occur in the form of the Agreement.
  7. Criteria and events that, when verified, will lead to suspension, amendment or extinction of the plan
    Notwithstanding any other provision to the contrary, provided for in the Agreement, the Stock Options shall be automatically terminated, with all its effects ceasing, in the following cases:
    a)after the expiration of the Vesting Period;
    b)upon termination of the Agreement;
    c)if the Company is dissolved, liquidated or has its bankruptcy decreed; or
    d)in case of Participant’s Severance.
    Participant’s Severance means any act or fact that results in termination of the legal relationship of the participant with the Company. Participant’s Severance includes the possibility of termination of labor agreement, dismissal, dismissal, resignation or non-reelection of the Participant as member of the management, retirement, permanent disability, disappearance or death.
Reasoning For The Proposed Plan:
  1. Main purposes of the plan
    The purpose of the Stock Option Grant is to establish rules for certain employees and members of the management of the Company or other companies under its control may acquire shares issued by them through the exercise of Stock Option granted to them, in order to generate the alignment in the medium and long-term, of the interests of the Participants with the interests of the shareholders, to increase the ownership and commitment of the Participants through the concept of investment and risk, to link the granting of long-term incentives with the Company’s short-term results , as well as to reinforcing the retention power of a strategic group of employees and members of the management.
  2. How the plan contributes to these purposes
    The Plan grants Stock Options to the Participants to encourage better performance in the management and long-term results, and therefore, the valuation of the Company and the shares issued by the Company.
    The purpose of the Stock Option Grant is to encourage a better performance of the management to achieve long-term results, encouraging ongoing results in subsequent years.The plan also encourages the participant to pursue the continuity of positive results, given the structure of the plan that rewards the Participants for continuous positive results.
  3. How the plan fits into the company’s compensation policy
    The plan is part of the strategy to retain employees and members of the management, with their commitment to generate value for the Company, without being part of the compensation package of the Participants.
  4. How the plan aligns the interests of the beneficiaries and the company in the short, medium and long-term
    The plant seeks to strengthen the retention of employees and members of the management, aiming at their commitment to generate value and sustainable results for the Company in the medium and long-term.

1st Stock Option Granting Plan

The first plan was approved by the Extraordinary General Meeting held on January 12, 2018 and by the Board of Directors Meeting held on January 16, 2018, whose definitions are as follows:

  1. Maximum number of shares covered by the plan
    The maximum number of shares that will be subject to the Stock Option Grant shall not exceed 0.4% (four tenths of a percent) of the Company’s capital on diluted bases.
  2. Conditions of acquisition
    There is only one grant of Stock Options, which was held on the date of the Extraordinary General Meeting, and the Grant will remain in effect until March 31, 2022.
  3. Detailed criteria for setting the exercise price
    The exercise price is fixed at R$ 9.50 (nine reais and fifty cents), adjusted by the variation of the Consumer Price Index (IPCA) from the granting date to the date of the effective exercise of the Option (“Price of Exercise”).
    The Exercise Price corresponds to the same price paid by the underwriters of the public offering of shares performed by the Company in October 2017, and such price exceeds the average trading price of the Company’s shares in B3 in the 30 trading sessions prior to the date of this management proposal.
  4. Criteria for setting the exercise period
    The Participants may exercise the Mature Options only on two specific exercise dates: 03/31/2021 and 03/31/2022, according to the criteria described in the table below:

    Grade Period  Exercise Date Percentage  of exercible options annually
    Up to March 30, 2021 March 31, 2021 25%, 50% or 100% of the options may be exercised on this date, at the discretion of the Participant.
    March 31, 2022 The remaining balance of the options not exercised on the first Exercise Date may be exercised on that date, at the discretion of the Participant.

    The Options not exercised on the last Exercise Date, 03/31/2022, will be extinguished and will no longer be exercised by the Participants.

  5. Estimate the expenses of the company resulting from the plans, according to the accounting rules that deal with this subject.
    The Company estimates that the expenses arising from the Concessions will together represent approximately R$2,500,000 (two million, five hundred thousand Reais).
    It should be noted that in the 1st Plan the above amount represents only an estimate and (i) it may present significant variations, and (ii) it does not consider possible tax, labor and social security costs arising from the existing jurisprudential controversy over the treatment due to the stock option plans of purchase shares for employees.

2nd Stock Option Granting Plan

The second plan was approved by the Extraordinary General Meeting held on 04/25/2019 and by the Board of Directors’ Meeting held on May 5, 2019.

  1. Maximum number of shares covered by the plan
    The maximum number of shares that will be subject to the Stock Option Grant shall not exceed 0.4% (four tenths of a percent) of the Company’s capital on diluted bases.
  2. Acquisition conditions
    There is only one grant of Stock Options, which was held on the date of the Extraordinary General Meeting, and the Grant shall remain in force until March 31, 2023.
  3. Detailed criteria for setting the strike price
    The exercise price applicable to the Participant for the acquisition of the Shares is set at R$ 7.96 (seven reais and ninety-six cents) – which corresponds to the average closing price of the last 20 trading sessions until March 8, 2019 – restated by variation of the Consumer Price Index – IPCA from the present date until the date of its effective exercise (“Exercise Price”). The correction for the IPCA will always be made on a pro rata basis considering all the days elapsed until the effective date of the Mature Options, and in the absence of disclosure of the IPCA for a given period, the last monthly IPCA published, pro rata.
  4. Criteria for setting the exercise period
    The Participants may exercise the Mature Options only on two specific exercise dates: 03/31/2022 and 03/31/2023, according to the criteria described in the table below:

    Grade Period  Exercise Date Percentage  of exercible options annually
    Up to March 30, 2022 March 31, 2022 25%, 50% or 100% of the options may be exercised on this date, at the discretion of the Participant.
    March 31, 2023 The remaining balance of the options not exercised on the first Exercise Date may be exercised on that date, at the discretion of the Participant.

    The Options not exercised on the last Exercise Date, 03/31/2023, will be extinguished and will no longer be exercised by the Participants.

  5. Estimate the expenses of the company resulting from the plans, according to the accounting rules that deal with this subject.
    The Company estimates that the expenses arising from the Concessions will together represent approximately R$ 1,800,000.00 (one million, eight hundred thousand reais). It should be noted that in the 2nd Plan the amount above represents only an estimate and (i) it may present significant variations, and (ii) it does not consider possible tax, labor and social security costs arising from the existing jurisprudential controversy over the treatment due to the stock option plans of purchase shares for employees.

 

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