Algar Telecom's corporate governance practices are aligned with the corporate governance model adopted by the Algar Group, which aims at harmonizing the interests of the controlling family with the corporate needs, and it has become a benchmark for other Brazilian and international organizations. The effectiveness of this evolving and dynamic model has accredited the Algar Group to take part, since 2010, in the select group of 15 Latin American companies, acknowledged by their excellence in corporate governance practices, which make up the "Companies Circle". This was a joint initiative of the International Finance Corporation (IFC) and the Global Corporate Governance Forum (GCGF), along with the support from the Organization for Economic Cooperation and Development (OECD), these companies meet with the purpose of promoting the enhancement of the corporate governance in Latin America, through the exchanging of experiences.

Among the corporate governance practices adopted by the Company, special reference is made to:

1. The Board of Directors is made up by a majority of external members: all the Board's activities follow the guidelines set out by internal policies, which comply with both the Brazilian Corporate Law and the Company's Bylaws, and are based on the recommendations set out in IBCG's Code of Good Corporate Governance Practices;
2. Advisory Committees to provide support to the Board of Directors: Algar Telecom holds three advisory committees that provide support to the Board of Directors, which consist of external members of the Board of Directors and outside experts;
3. Executive Board: Algar Telecom relies on highly experienced executive officers, who are broadly skilled in the telecom industry;
4. Auditing: transparent management, in line with the directives that rule the Company's corporate governance, is reinforced by the activities conducted by an internal audit, which aims to assess and propose improvements with regards to the controlling processes, based on a plan that is reviewed on a yearly basis, in addition to external auditing services, which are provided by an independent specialized firm;
5. Risk Management: since 2009, Algar Telecom has adopted a formal strategic risk management process;
6. Investor Relations Division: headed by an Investor Relations Officer elected in accordance with the Company's Bylaws, who is responsible for the relationship with the investors' community, among other related activities;
7. Code of Ethics: Algar Telecom follows the Code of Ethics adopted by the Algar Group, which lays down the behavior rules and guidelines to be followed by all associates, as well as the corporate conduct towards all stakeholders, within the concept of Sustainability, taking into account the economic, social and environmental dimensions;
8. Associates' Committee: the body that represents the associates – as the Company's employees are called – which is in charge of listening to and identifying the associates' needs from the various areas and further negotiating with the Company Management.

Shareholding Structure

Corporate Governance Structure

On October 8, 2012, the Company carried out a reverse stock split concerning its stake in the capital stock of CTBC Celular and CTBC Multimídia. This initiative was taken with a view to enhancing corporate management, reducing operating and administrative costs, optimizing the shareholding base due to the considerable number of nontrading shareholders, in addition to perfecting the services provided by the Investor Relations Area.

Board of Directors

Incepted in 1999, the Board of Directors' role is to enforce the Company's sustainability policy by laying down its business strategic guidelines, upholding its values and beliefs, and ensuring the harmony between the interests of both the controlling family and those of the whole group of stakeholders.

The Board's major assignments include the evaluation and approval of both the annual budget and the strategic plan proposed by the Executive Board, in addition to supervising the Organization's performance within a long-term horizon. The Board members are elected at an Annual Shareholders' Meeting for a one-year term, with reelection permitted. As at December 2012, the Board was composed of ten sitting members, of which six are external individuals without any business or professional bond neither with Algar Telecom nor with the family that holds its shareholding control. The Board meets six times a year on a regular basis, according to a pre-established schedule, and at such other times as may be deemed necessary.

The Board members have access to the Governance Portal, an online communication channel that enjoys restricted and exclusive access, which brings together a number of documents and information required for performing their functions. All the Board's activities are ruled by the guidelines set out by internal policies, which comply with both the Brazilian Corporate Law and the Company's Bylaws, and are based on the recommendations set out by the Brazilian Corporate Governance Institute (IBCG)'s Code of Good Corporate Governance Practices. Since 2005, a self-assessment of both the Board as a whole and individually among its members has been undertaken on an annual basis. This process comprises three stages, involving interviews, questionnaires and improvement plans.

Composition of the Board of Directors on 12/31/2012

Luiz Alberto Garcia	Chairman
Luiz Alexandre Garcia	Deputy Chairman
Alexandrino Garcia Neto	Member
Eliane Garcia Melgaço	Member
Darc Antônio da Luz Costa	Member*
Eduardo Moreira da Costa	Member*
Hélio Marcos Machado Graciosa	Member*
Geraldo Sardinha Pinto Filho	Member*
Ozires Silva	Member*
Walter Fontana Filho	Member*

* External member

Luiz Alberto Garcia
(Chairman)
Shareholder, member of the second generation of the family that holds the Algar Group's shareholding control. Mr. Garcia has a bachelor degree in electronic engineering from Escola Federal de Itajubá (Minas Gerais State), and specializations in Global Business Leadership from Georgetown University Washington, DC, USA; Leading the Family Business from IMD, Lausanne, Switzerland; and Owner/President Management Program from Harvard University, USA. He is a former CEO of the Brazilian National Association of Mobile Phone Service Providers (ACEL), member of ANATEL's Advisory Council, member of the Brazilian Agribusiness Association (ABAG), of Telebrasil and SindiTelebrasil. He also acted as a Board member at the Orsa Foundation. Besides acting as the chairman of the Algar Group, he is the chairman of the Board of Trustees of CPqD Foundation, member of FIEMG's Board, member of the Institute for Industrial Development Studies (IEDI), and of the Research Foundation of the Federal University of Uberlândia (FUNDAP).

Luiz Alexandre Garcia
(Deputy Chairman)
Mr. Luiz Garcia holds a bachelor degree in Economics from Universidade Gama Filho (Rio de Janeiro State) and specializations in Marketing from the American University of Paris, France; an MBA from the Catholic University of America, Washington DC, USA; and Leading the Family Business; and Program for Executive Development, both from IMD, Lausanne, Switzerland. He has worked for IFC/World Bank, Washington DC; Ericsson, Dallas, USA and São Paulo; and for Groupe Bull, France. He was a former President of the Uberlândia Commercial and Industrial Association (ACIUB) for two terms and of the Brazilian Mobile Phone Companies Association (ACEL). He is a member of the third generation of the Algar Group's controlling family and has been the Group's CEO since 2006. He also acts as a Board member of the Brazilian Corporate Governance Institute (IBGC), and President of the Companies Circle of the Latin American Corporate Governance.

Alexandrino Garcia Neto
(Member)
Entrepreneur in the agribusiness segment and a member of the third generation of Algar's controlling group.

Eliane Garcia Melgaço
(Member)
Ms. Melgaço has a bachelor degree in Business Administration from Pontifícia Universidade Católica (PUC) de Minas Gerais, as well as specializations in MBA from the Catholic University, Washington, DC, USA; Leading the Family Business from IMD, Switzerland; and PGA from Insead, Fontainebleau, France. She has worked for Banco Nacional, Cartão Unibanco and ATL in Relationship and Commercial Marketing. She belongs to the Algar Group's controlling group and currently serves as its Corporate Deputy President of Marketing and Sustainability.

Darc Antônio da Luz Costa
(External Member)
Mr. Costa has a bachelor degree in engineering from PUC (Rio de Janeiro State), a master's degree in production engineering from the same university and a doctorate degree in production engineering from COPPE/UFRJ. He was a former Deputy President of the Brazilian Economic and Social Development Bank (BNDES). He is also a member of the Management Board of the Brazilian Strategic Studies Center (CEBRES); advisor for the Brazilian Strategic Studies Center of the War College, where he also acted as a supervisor; President of the Federation of the Chambers of Commerce and Industry of South America (FEBRASUR); member of the Brazilian Academy of Moral and Political Sciences; and a Managing Partner of DLC–Desenvolvimento, Logística e Cenários Simples Ltda.

Eduardo Moreira da Costa
(External Member)
He holds a Ph.D degree in electronics from the Southampton University, UK. He acted as the director of the Innovation Area at the Studies and Projects Funding Institution (FINEP), a public company linked to the Science and Technology Ministry, and director and researcher of the Telecommunication Research & Development Center (CPqD). He currently acts as the CEO for ÁgoraLab, Laboratório Internacional Multi-institucional sobre Cidades Inteligentes e Inovação. He acts as a part-time professor for the universities of UFSC and PUC-Rio. He is a Board member of Senior Sistemas, and member of the Brazilian Scientific and Technological Merit Order.

Geraldo Sardinha Pinto Filho
(External Member)
Mr. Sardinha holds a bachelor degree in Economics from Faculdade de Ciências Econômicas da Universidade Federal de Minas Gerais (UFMG), with specialization in Finances from J.L.Kellogg Northwestern University (USA), as well as from The Business School for the World (Insead), France. He is a director of Sardinha & Sant'Ana Consultoria Empresarial, in which he is a corporate finance consultant for large corporations, with an emphasis on implementing management processes aimed at value creation. He is a visiting professor at Sauder School of Business – University of British Columbia, Canada, and in The Business School for the World (Insead), France. He is also an associate professor at Fundação Dom Cabral, Brazil. Besides being a member of Algar's Board, he is a member of the Board of Directors for the Seculus, Raimundo da Fonte Group, Mater Dai Hospital an d Kyli Group.

Hélio Marcos Machado Graciosa
(External Member)
Mr. Graciosa has a bachelor's degree in telecom engineering and a master's degree in electric engineering from PUC (Rio de Janeiro State). He was the former Research & Development Officer at Telecomunicações Brasileiras S/A – Telebrás, President of Sociedade de Telecomunicações (SBrT) and Chairman of the Board of Directors of Telesc and Telebahia. He is currently the Chairman of the Telecommunications Research & Development Center (CPqD) (São Paulo State), and of CPqD Technologies & Systems Inc., in Fort Lauderdale, Florida (USA). He is also a director for Telebrasil, chairman of the Board of Padtec, Board member of Cleartech and Telebrasil, as well as member of the Board of Trustees of Campinas Forum Foundation, São Paulo State.

Ozires Silva
(External Member)
Mr. Silva has a bachelor degree in aeronautic engineering from Instituto Tecnológico da Aeronáutica (ITA) and a post-graduation degree in aeronautics from California Institute of Technology (CALTECH), California, USA. He headed the group that created Empresa Brasileira de Aeronáutica S.A. (EMBRAER), which he managed since its foundation, in 1970, until 1986, as well as over the 1991-1995 period, when he led the company's privatization process. He acted as the CEO of Petróleo Brasileiro S.A. (Petrobras), Brazilian Infrastructure Minister and CEO of Varig S.A. He is currently a member of several trade and civil servant associations and of the Board of Directors of renowned companies.

Walter Fontana Filho
(External Member)
Mr. Fontana has a bachelor degree and a post-graduation degree in Economics from PUC (São Paulo) and specialization in Marketing Management from Fundação Getúlio Vargas. He acted as the CEO and Chairman of the Board of Directors of Sadia. At present, he is a member of the Board of BRF Brasil Foods, of Repom S.A., and member of the Advisory Committee for the Estado de São Paulo newspaper.

Advisory Committees

The Advisory Committees are non-decision-making bodies aimed at providing support to the decisions taken by the Board of Directors, by delivering recommendations in light of expert analyses of selected themes, with the purpose to bring about greater efficiency and promptness with regards to the decisions taken. Incepted in 2005, the three existing Advisory Committees are made up of Board members and both internal and external experts, who are appointed on an annual basis by the Board of Directors itself, to which they report. These bodies are regulated by internal policies and procedure guidelines, which set up rules for their functions, as well as their duties and responsibilities.

Audit and Risk Management:

This committee aims to ensure that the Company's financial statements are prepared in an appropriate, comprehensive, transparent and trustworthy manner. It also ensures the effectiveness of internal and independent audit processes, as well as internal controls and compliance with the applicable legislation. It also supervises the management of corporate risks. It is made up of five members, three of whom are experts, and meets on a quarterly basis.

Human Talents:

This committee focuses on ensuring the proper valorization and development of Human Talents, within the best people management practices, in accordance with the Algar Group's different business segments. Among the regular issues that are covered by this Committee, of particular reference are the organizational climate, the development program for potential successors, leadership development, remuneration, dissemination of the Company's values and the Brazilian labor market scenario. It is composed of four members, which include a Board member and an outside expert, who meet on a yearly basis.

Corporate Governance:

This committee is made up of five members, two of whom are external members of the Board, whereas the others are members of each one of the three branches of the controlling family, and they meet once a year. This committee examines, assesses, monitors and makes proposals aimed at consistently seeking to enhance the effectiveness of the Company's corporate governance practices, on the grounds of the principles of transparency, fairness, accountability and corporate responsibility.

Executive Board

The Executive Board is composed of highly skilled professionals, who perform their functions geared towards the Company's daily operations. It is responsible for enforcing the corporate management policies, in line with the directives laid down by the Board of Directors, alongside with the applicable legislation and the Company's Bylaws. The Executive Board is composed of seven members, namely the CEO, the Deputy CEO, and six officers allocated in specific areas, who meet once a week on a regular basis, and at such other times as may be deemed necessary, with the purpose of aligning and taking decisions concerning strategic corporate matters.

Composition of the Executive Board on 12/31/2012

Divino Sebastião de Souza	Chief Executive Officer (CEO)
Jean Carlos Borges	Chief Operations Officer (COO)
Tatiane de Souza Lemes Panato	Chief Financial Officer and Investor Relations Officer
Marineide da Silva Peres	Chief Human Talent Officer
Luis Antônio Andrade Lima	Chief Operations and Technology Officer
Osvaldo César Carrijo	Chief Retail Commercial Officer
Márcio Estefan	Chief Corporate Commercial Officer

Divino Sebastião de Souza
(CEO)
Mr. Souza holds a 35-year professional experience in the field of Information Technology, with particular emphasis on telecommunications. He was involved in the first implementation of mobile phone services in the inland region of the states of Minas Gerais, São Paulo and Mato Grosso do Sul. He was involved in the conception and creation of the Company's Contact Center (ACS), later renamed Algar Tecnologia (a provider of Business Process Outsourcing and IT), where he acted as the Superintendent Director for 8 years. He holds a bachelor degree in electrical engineering from Faculdade de Engenharia Elétrica de Ituiutaba (Minas Gerais State), in addition to post-graduation degrees in (i) Corporate Management, from Universidade Federal de Uberlândia; (ii) Strategy Management, from Insead, France, and (iii) Strategic Management, from Wharton University, USA.

Jean Carlos Borges
(Chief Operations Officer)
With a 23-year professional experience, Mr. Borges started his career as an engineer at IBM Brasil, where he acted as a Commercial Manager in the states of Minas Gerais and Mato Grosso. He worked for Algar Tecnologia for five years, two of which as a Chief Financial Officer. He has been in the Company since 2003 and has held the positions of Chief Financial Officer, Technical-Operational Officer and Chief Governance and Strategy Officer. He holds a bachelor degree in mechanical engineering from Universidade Federal de Uberlândia, as well as post-graduation degrees in (i) Corporate Management, (ii) Controlling and Accounting, both from the same university, and (iii) Business Administration and Marketing from Universidade do Triângulo (Unitri). He also attended the Program For Executive Development (IMD) for two months, in Lausanne, Switzerland.

Tatiane de Souza Lemes Panato
(Chief Financial and Investor Relations Officer)
With a 12-year experience in finances, she has acted as the Administrative- Financial Coordinator at Algar Tecnologia, Controllership Coordinator and head of the Controlling and Planning Division at both companies. Ms. Panato has a bachelor degree in Accounting Sciences from Universidade Federal de Uberlândia and a postgraduation degree in Finances and Corporate Planning from the same university, an MBA in Corporate Management from Fundação Getúlio Vargas (São Paulo) and an MBA in Finance, Communications and Investor Relations from FIPECAFI.

Marineide da Silva Peres
(Human Talent Officer)
Ms. Peres has a 32-year professional experience in the fields of Finance, Trading and Strategic Planning. She has acted as the Chief Operations Officer at PWC BPO Brasil (a provider of finance, accounting, human talent and procurement outsourcing services). She was the Chief Financial Officer for the Company for 10 years and, later, a Business Director at the Uberlândia Regional Office. Ms. Peres holds a bachelor degree in Business Administration from Universidade Federal de Uberlândia and a post-graduation degree in Corporate Management from the same university, She has attended professional development programs in the areas of Leadership, Marketing, Finance and Sales for Executives, with special reference for the Harvard Business School's Case Studies program and IMD's Executive Development Program, in Switzerland.

Luis Antônio Andrade Lima
(Chief Operations and Technology Officer)
Mr. Lima has a 29-year professional experience in the telecom industry and has been involved in projects, implementation, operations and maintenance of telecommunication networks for fixed-line and mobile telephony, in addition to data communication. He has held several positions at the Company, such as project engineer, technical advisor of the Regional Operations Division in Franca (São Paulo State), General Operations Coordinator and head of the Strategic Project Division. He holds a bachelor degree in electronic engineering and an MBA in Advanced Business Management from Fundação Getúlio Vargas (São Paulo State). He also has attended specialization courses in Computer Networks at Universidade Federal de Uberlândia and holds a post-graduation degree in Business Administration from Universidade Algar. He has also attended a refresher course in Industrial Electrical Systems at Universidade Federal de Uberlândia, Minas Gerais State.

Osvaldo César Carrijo
(Chief Retail Commercial Officer)
With a 30-year professional experience in Retail and Technology, Mr. Carrijo founded and headed Universidade Martins do Varejo (UMV), as well as introduced and coordinated Grupo Martins's client relationship programs. He created and implemented Rede de Valor brand and Grupo Martins's Rede Smart de Supermercados. He has been a member of the Board of Directors for Le Postiche, as well as of the Academic Board of ENS and Universidade Cândido Mendes (Minas Gerais State). He has also developed several franchising and relationship marketing projects, including those of Le Postiche, Leo Madeiras, Marisol, Agora Sênior and Milenia. He holds a bachelor degree in civil engineering and specializations in Information Systems from IBM, in White Plains, USA; Food Retail from Fleming Retail University, Oklahoma, USA; and Advanced Management from Insead/FDC (Brazil/France).

Márcio Estefan
(Chief Corporate Commercial Officer)
With a 21-year professional experience in the telecom industry, Mr. Estefan has worked in Sales, Pre-Sales and Marketing at large telecom corporations, such as Telefônica, MetroRED, Comsat and Vicom. He holds a bachelor degree in electronic engineering from Universidade Federal do Rio de Janeiro, with extension courses in Marketing and Knowledge Management from Fundação Getúlio Vargas, Management from IESE, Spain, and Innovation from Wharton Business School, USA.

Evaluation of the Executive Management

The annual 360-degree evaluation process applicable to all of the Company's executives was incepted over 20 years ago. This approach allows for the assessment of both Algar's key competences and the specific ones attributed to each distinct position and the person holding the post, by means of analyses conducted by his/her peers, subordinates and superiors. This evaluation approach reveals the strengths and the aspects to be improved, and enables to outline an action plan, including the professional development of each executive.

Remuneration

The remuneration system adopted by the Company aims at aligning and uniting the efforts to enhance its performance. It entails both fixed and variable amounts, in addition to the package of benefits. The fixed portion includes the regular monthly salary, the proportional amount attributed to the vacation period, as well as the amount corresponding to the annual 13th salary.

The variable portion, which has become increasingly relevant, aims at stimulating and promoting financial reward to all executive and non-executive associates, and consists of two portions. The first one relates to the Result Sharing Program, representing an individual bonus based on meritocracy, in view of the associate having achieved any extra result, that is, which exceeds the expected targets for his/her area of activity. The second portion refers to the Profit Sharing Program, through which the Company distributes a percentage of the net income recorded each year, limited to a 12% share of total net earnings.

Furthermore, in line with the principles of consistency and fairness, the Variable Remuneration System takes into account the effect from deflators, by using the indicators deriving from the expected ensuing scenario based on pre-established assumptions, such as the annual growth rate, profitability and financial conditions.

Audit

Algar Telecom is submitted to both internal and independent auditing teams, which report directly to the Board of Directors, through the Audit and Risk Management Committee, and in functional terms, report to the Holding Company, with a view to assuring autonomy in performing their tasks.

The Internal Audit consists of five people, whose mission is to promote independent assessment of internal controlling processes and the Group's performance, with a view to provide assistance to Management in fulfilling the corporate goals and in seeking maximization of the return to shareholders.

In addition to the Internal Audit Committee, Algar Telecom hires an independent audit company to perform the auditing activities on a quarterly basis, with the purpose to assess information standards and compliance with the current accounting legislation. Since 2009, this service has been performed by KPMG Auditores Independentes.

Code of Ethics

Within the global framework, corporations play a relevant role in the process of sustainable growth, by placing particular emphasis on the ethical conduct of business activities.

Algar Telecom has adopted a Code of Ethics that lays down the ethical principles and behavior conduct that must be followed by all associates with regards to their relationship with both the internal and external publics, regardless of their attributions and responsibilities, based on the concept of Sustainability, within the economic, social and environmental aspects. The Code of Ethics has been accessible on the Company's website to all related parties, and is an integral part of the Human Talent's General Policy, having been officially approved by all relevant bodies, including the Associates' Committee, the Executives' Meeting and the Board of Directors. For Algar Telecom, being a responsible company means upholding an ethical behavior on the part of its staff, throughout all aspects of the business, in addition to preserving the environment and keeping high standards of relationship with all stakeholders, by complying with the rules and guidelines established by the organization.

Users Council

Algar Telecom was a pioneer in the Brazilian telecom industry in 1999, by creating a Council that included the participation of clients. In 2008, when ANATEL, the regulatory body for the Brazilian telecom industry, introduced the requirement to organize a Council that included the clients' participation, by means of the Regulation ruling Councils of Users of the Fixed Switched Telephone Services, Algar Telecom only had to make a few adjustments to its ongoing practices. The Users Council acts as an advisory body, aimed at guiding, analyzing and assessing the quality of the services rendered, in addition to providing suggestions for improvements.