As filed with the Securities and Exchange Commission on June 29, 2010 
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20-F ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 2009 Commission file number: 000-51490 CONTAX PARTICIPAÇÕES S.A. (Exact Name of Registrant as specified in its charter) Contax Holding Company
     The Federative Republic of Brazil(Translation of Registrants name into English)
     (Jurisdiction of incorporation or organization)
 ­________________ Rua do Passeio 56, 16o andar (parte) 20021-290 Rio de Janeiro  RJ  Brazil (Address of principal executive offices)  Michel Neves Sarkis, Tel: +55 21 3131-0009, ri@contax.com.br, Rua do Passeio 56, 16o andar CEP: 20021-290, Rio de Janeiro  RJ  Brazil (Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) ________________ Securities registered or to be registered pursuant to Section 12(b) of the Act: None Securities registered or to be registered pursuant to Section 12(g) of the Act: Title of Each Class
     Name of Each Exchange on Which RegisteredPreferred Shares, without par value (preferred shares)
     BM&FBovespaCommon Shares, without par value (common shares)
     BM&FBovespa
 Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None ________________ The number of outstanding shares of each of the Issuers classes of capital, common or preferred stock, as of the close of the period covered by the annual report was: 9,170,250 preferred shares 5,772,435 common shares  Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes£NoR If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  Yes£NoR Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YesRNo£


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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of accelerated filer and large accelerated filer in Rule 12b-2 of theExchange Act.  (Check one):  Large accelerated filer£Accelerated filerRNon-accelerated filer£ Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP£
     International Financial Reporting Standards as issued by the International Accounting Standards BoardR
     Other£
 If Other has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.  Item 17£Item 18£ If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes£NoR   (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)  Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes£No£ 2


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TABLE OF CONTENTS   PagePRESENTATION OF INFORMATION
     
     1FORWARD-LOOKING INFORMATION
     
     3PART I
     
     3Item 1
     Identity of Directors, Senior Management and Advisers
     3Item 2
     Offer Statistics and Expected Timetable
     3Item 3
     Key Information
     3Item 4
     Information on the Company
     19Item 4A
     Unresolved Staff Comments
     37Item 5
     Operating and Financial Review and Prospects
     37Item 6
     Directors, Senior Management and Employees
     48Item 7
     Major Shareholders and Related Party Transactions
     57Item 8
     Financial Information
     60Item 9
     The Offer and Listing
     63Item 10
     Additional Information
     67Item 11
     Quantitative and Qualitative Disclosures About Market Risk
     86Item 12
     Description of Securities Other than Equity Securities
     86PART II.87Item 13
     Defaults, Dividend Arrearages and Delinquencies
     87Item 14
     Material Modifications to the Rights of Security Holders and Use of Proceeds
     87Item 15
     Controls and Procedures
     87Item 16A
     Audit Committee Financial Expert
     88Item 16B
     Code of Ethics
     88Item 16C
     Principal Accountant Fees and Services
     89Item 16D
     Exemptions from the Listing Standards for Audit Committees.
     89Item 16E
     Purchases of Equity Securities by the Issuer and Affiliated Purchasers
     89Item 16F
     Change in Registrants Certifying Accountant
     90Item 16G
     Corporate Governance
     91PART III91
     
     91Item 17
     Financial Statements
     91Item 18
     Financial Statements
     91Item 19
     Exhibits
     91 1


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PRESENTATION OF INFORMATION Contax Participações S.A. is a corporation (sociedade por ações) incorporated under Brazilian corporate law.  We operate pursuant to our by-laws, other legislation and regulations in Brazil and, where applicable, local legislation.  Our principal executive office is located at Rua do Passeio, 56, 16o andar (parte), 20021-290 Rio de Janeiro, RJ, Brazil, and the telephone number at that office is +55 21 3131-0009. In this annual report on Form 20-F, except where the context otherwise requires, the Company, we, us, our and Contax refer to Contax Participações S.A., its operational subsidiary, Contax S.A., and its indirect subsidiary,Todo BPO e Soluções em Tecnologia S.A. (Todo).References to Contax Holding refer only to Contax Participações S.A. and do not include Contax S.A. or Todo.  References to Contax S.A. refer only to Contax S.A. and do not include Contax Holding.  References to the Companys businesses and operations are references to the businesses and operations of its direct and indirect subsidiaries Contax S.A. andTodo. Our previous majority shareholder, Telemar Participações S.A., is referred to as Telemar Participações.  On April 25, 2008, negotiations relating to the restructuring of the ownership structure of Telemar Participações were concluded.  One of the results was the approval of the partial spin-off of Telemar Participações, with the transfer of its shareholders equity related to the shares issued by Contax to a new company created especially for this purpose denominated CTX Participações S.A., or CTX Participações. Our two main clients are Telemar Norte Leste S.A., or Tmar, and its subsidiary, TNL PCS S.A., both of which are indirectly under common control with us and are jointly referred to as Oi.  Oiis the commercial name used by the Telemar group for fixed-line terminals, long-distance services, mobile services, as well as broadband and corporate voice and data service operations.  The parent company of Tmar isTele Norte Leste Participações S.A., or TNL, which was our majority shareholder before our spin-off to the shareholders of TNL.  See Item 4. Information on the Company  History and Organizational Structure. References to U.S. dollars, U.S.$, USD or $ are to the lawful currency of the United States, and references to real, reais or R$ are to the lawful currency of Brazil.  Any discrepancies in tables between totals and sums of the amounts listed are due to rounding. This annual report is presented inreais.  On December 31, 2009, the commercial selling rate forreaiswas R$1.746to U.S.$1.00.  For the convenience of the reader, somerealamounts presented throughout this annual report have been translated into U.S.$ at that rate.  The U.S. dollar equivalent information is provided solely for the convenience of the reader and should not be construed as implying that the amounts inreaisrepresent, or could have been converted into, U.S. dollars at such rate or at any other rate. References in this annual report to preferred shares and common shares are to the preferred shares and common shares, respectively, of Contax Holding, which are collectively referred to as the shares.  References to American Depositary Shares or ADSs are to American Depositary Shares, each representing one-fifth of a preferred share.  The ADSs are evidenced by American Depositary Receipts, or ADRs. References to Consolidated Financial Statements are to the consolidated financial statements of Contax as of December 31, 2009 and 2008 and for the three years in the period ended December 31, 2009. Our consolidated financial statements included in this annual report have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).  Prior to the year ended December 31, 2008, we prepared ourconsolidated financial statements in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. 1


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We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and we file reports and other information with the SEC.  However, as a foreign private issuer, we are exempt from the proxy rules of Section 14 and the short-swing profit rules of Section 16 under the Exchange Act. Certain terms are defined the first time they are used in this annual report.  2


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FORWARD-LOOKING INFORMATION This annual report contains forward-looking statements.  Statements that are not statements of historical fact, including statements about our managements beliefs and expectations, are forward-looking statements.  All forward-looking statements involve risks and uncertainties.  Many of the forward-looking statements contained in this annual report are identified by the use of forward-looking words such as anticipate, forecast, believe, could, expect, should, plan, estimate, intend, predict, target and potential, among others.  These statements appear in a number of places in this annual report and include statements regarding our intent, belief or current expectations with respect to, among other things: ·the growth in the Brazilian outsourcing contact center sector; and ·the performance of the Brazilian economy in general. Accordingly, our actual results of operations may be different from our current expectations, and the reader should not place undue reliance on these forward-looking statements.  Forward-looking statements speak only as of the date they are made.  Factors that might affect such forward-looking statements include, among other things: ·our future operating performance; ·the demand for our services; ·competitive factors in the sector in which we compete; ·changes in the regulatory framework for our clients in the telecommunications, utilities, services and financial sectors in Brazil; ·changes in labor law and tax requirements; ·economic, business and political conditions in Brazil and in the international markets, including governmental changes and restrictions on the ability to transfer capital across borders; and ·the impact of fluctuations in the price of our shares. PART I Item 1.         Identity of Directors, Senior Management and Advisers Not applicable. Item 2.         Offer Statistics and Expected Timetable Not applicable. Item 3.         Key Information Selected Financial Data The selected financial data for the years ended December 31, 2009, 2008 and 2007 which is presented in the tables below is derived from our consolidated financial statements prepared in accordancewith IFRS. Prior to 2008, we prepared our consolidated financial statements in accordance with U.S. GAAP. 3


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You should read this information together with such financial statements, including the notes thereto, and Item 5. Operating and Financial Review and Prospects.  Our complete consolidated financial statements as of December 31, 2009 and 2008 and for the years ended December 31, 2009, 2008 and 2007 are presented in Item 18 of this annual report, together with the audit reports of Deloitte Touche Tohmatsu Auditores Independentes and PricewaterhouseCoopers Auditores Independentes, our current and former (respectively) independent registered public accounting firms.  IFRS DATA
     Year ended December 31,2009
     2008
     2007(in thousands ofreais, except per share data)Statement of Operations DataRevenue (1)
     2,161,016
     1,774,728
     1,365,815Cost of services
     (1,760,164)
     (1,507,603)
     (1,174,106)Gross profit
     400,855
     267,125
     191,709Operating expenses
     (179,734)
     (138,448)
     (105,880)Profit before tax
     205,721
     128,677
     85,829Net income and comprehensive income for the year
     131,691
     82,826
     57,742Earnings per Share (inreais)Net income
Common shares  Basic (2)
     2.23
     1.39
     0.92Common shares  Diluted (2) (3)
     2.19
     1.39
     0.88Preferred shares  Basic and Diluted (2)
     2.23
     1.31
     0.85Weighted average common shares outstanding  Basic (2)
     22,424,793
     22,569,675
     22,989,259Weighted average common shares outstanding  Diluted (2) (3)
     22,762,305
     22,569,675
     24,021,293Weighted average preferred shares outstanding  Basic and Diluted (2)
     36,681,000
     39,114,166
     42,817,744Balance Sheet DataProperty and equipment, net
     352,473
     307,700
     274,559Cash and cash equivalents
     357,853
     355,928
     240,310Total assets
     1,071,673
     954,435
     737,600Current liabilities
     453,882
     353,713
     265,270Long-term liabilities
     214,285
     279,666
     175,325Shareholders equity
     403,506
     321,056
     297,005Total liabilities and shareholders equity
     1,071,673
     954,435
     737,600Cash Flow DataOperating activities
     278,767
     254,776
     203,176Financing activities
     (74,910)
     46,192
     (51,344)Investing activities
     (201,951)
     (185,350)
     (142,821)
 _________________________ (1)   Revenue is presented on a consolidated basis, net of sales taxes, returns, allowances and discounts. (2)   On October 17, 2007, we effected a reverse stock split at a ratio of one share for every 20 shares of the same type, thereby decreasing the number of common shares from 116,495,445 to 5,824,772 and the number of preferred shares from 200,638,288 to 10,031,914.  On January 15, 2010, we effected a reverse stock split at a ratio of one share for 50 shares of the same type, thereby decreasing the number of common shares from 5,772,435 to 115,448 and the number of preferred shares from 9,170,250 to183,405.  Simultaneously with the January 2010 reverse stock split, we effected a stock split at a ratio of 200 shares for one share of the same type, thereby increasing the number of common shares to 23,089,600 and the number of preferred shares to 36,681,000.  Information relating to the number of shares and earnings per share amounts has been adjusted retroactively to reflect the foregoing stock splits. 4


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(3)   The effects of stock options issued under the Companys stock option plan were taken into consideration in the calculation of earnings per share for the year ended December 31, 2009, as they would have a dilutive effect.  Exchange Rates We will pay any cash dividends or interest on capital and make any other cash distributions with respect to our shares inreais.  Accordingly, exchange rate fluctuations will affect the U.S. dollar amounts received or to be received by the holders of ADSs on conversion by The Bank of New York, as depositary, or the Depositary, of dividends and distributions inreaison the preferred shares represented by the ADSs.  Fluctuations in the exchange rate between therealand the U.S. dollar will also affect the U.S. dollar equivalent of the price of the preferred shares on the Brazilian stock exchanges.  Foreign currencies may only be purchased through a Brazilian bank authorized to operate in these markets. Until March 4, 2005, there were two legal foreign exchange markets in Brazil, the commercial rate exchange market, or the Commercial Market, and the floating rate exchange market, or the Floating Market.  The Commercial Market was reserved primarily for foreign trade transactions and transactions that generally required prior approval from Brazilian monetary authorities, such as the purchase and sale of registered investments by foreign persons and related remittances of funds abroad (including the payment of principal of and interest on loans, notes, bonds and other debt instruments denominated in foreign currencies and duly registered with the Brazilian Central Bank (Banco Central do Brasil), or Central Bank).  The Floating Market rate generally applied to specific transactions for which approval by the Central Bank was not required.  Both the Commercial Market rate and the Floating Market rate were reported by the Central Bank on a daily basis. On March 4, 2005, the Central Bank issued Resolution no. 3,265 and introduced several changes in the Brazilian foreign exchange regulation, including: (i) the unification of the foreign exchange markets into a single exchange market; (ii) the easing of several rules for the acquisition of foreign currency by Brazilian residents; and (iii) the extension of the term for converting foreign currency derived from Brazilian exports.  On March 8, 2006, the Brazilian government issued Provisional Measure no. 315, enacted on August 24, 2006, or PM 315, which has been approved by Law no. 11,371, enacted on November 28, 2006.  Together with the underlying regulations issued by the National Monetary Council (Conselho MonetárioNacional), or CMN, Law no. 11,371 made the currency exchange rules more flexible, making it possible to maintain export revenues (from merchandise or services) abroad in the exporters account or in a Brazilian bank authorized to operate in the exchange market. On March 18, 2008, the Central Bank issued Circular no. 3,379, allowing Brazilian exporters of goods and services to maintain offshore the totality of their revenues obtained from exports.  Furthermore, PM 315, approved by Law no. 11,371, permits registration with the Central Bank, in local currency, of the foreign capital invested in legal entities located in Brazil which had not been previously registered and was not eligible for another form of registration by the Central Bank (so-called contaminated capital). 5


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The following table sets forth the commercial selling rates published by the Central Bank (expressed inreaisper U.S. dollar) for the periods indicated. Year ended December 31,
     Period-end
     Average
for period(1)
     High
     Low2005
     2.341
     2.413
     2.762
     2.1632006
     2.138
     2.176
     2.371
     2.0592007
     1.771
     1.948
     2.156
     1.7322008
     2.316
     1.837
     2.515
     1.5612009
     1.746
     1.999
     2.448
     1.699Month
     
     
     High
     LowJanuary 2010
     
     
     1.896
     1.721February 2010
     
     
     1.877
     1.804March 2010
     
     
     1.820
     1.763April 2010
     
     
     1.782
     1.728May 2010
     
     
     1.884
     1.723June 2010 (through June 22)
     
     
     1.880
     1.772
 __________________________ (1)   Represents the average of the exchange rates on the last day of each month during the relevant period. Source: Central Bank On December 31, 2009, the commercial selling rate was R$1.746 to U.S.$1.00.  On June 22, 2010, the commercial selling rate was R$1.789 to U.S.$1.00. Risk Factors The following factors should be carefully considered in addition to the other information presented in this annual report. Risks Relating to Our Business A large portion of our revenues originates from a limited number of clients,and the loss of one or more of these clients could significantly impact our results of operations and financial condition. We strategically focus our marketing efforts on developing long-term relationships with large companies in targeted sectors.  As a result, we rely on a limited number of significant clients for a large percentage of our revenues.  Our contracts with our two largest clients in 2009, Oi and Orbitall Serviços e Processamento de Informações Comerciais Ltda., or Orbitall (a subsidiary of Banco Itaú Unibanco), accounted for 50.3% and 13.2%, respectively, of our revenues for the year ended December 31, 2009.  The current terms of our agreements with Oi (indirectly under common control with us) end in November 2014 and November 2016, each with an automatic renewal for a further 5 to 6-year period from such end dates. Our agreement with Orbitall, our second largest client in 2009, was amended on December 18, 2009.  Such amendment provided for a further one-year term with an automatic renewal clause for each subsequent year (unless a termination notice is delivered by either party 30 days prior to any annual renewal date).  We also entered into a separate contract with Orbitalls parent company, Banco Itaú Unibanco.  Several services previously provided to Orbitall are now being provided under the Banco Itaú Unibanco contract, rather than under the Orbitall contract.  Based on our new contract with Banco Itaú Unibanco, we expect it to be our second largest client in 2010. We have observed in recent years a trend towards corporate consolidation and change of control of companies in our targeted sectors, such as financial services, telecommunications, utilities and internet.  Such events may cause the termination of existing contracts and the loss of the revenues associated withsuch contracts.  The loss of any key client or the failure to retain a significant amount of business with our key clients would have a negative impact on our results of operations and financial condition. 6


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If the trend towards outsourcing of contact center services were reversed, the growth rate of our business could be reduced. The outsourced contact center industry has expanded considerably in the past several years as a result of a trend towards outsourcing of contact center services.  One of the premises upon which the growth of our business and operations is based is that this outsourcing trend will continue.  However, external factors, such as increases in taxes on revenues that could significantly impact the cost of services rendered by contact center companies, could cause our current and prospective clients to maintain or return to the use of their in-house functions and thus reduce the trend towards outsourcing of contact center services.  As the Brazilian government has historically increased taxes on revenues or on income, we may see ourselves forced to adjust our pricing in order to maintain our profit margins, which could unfavorably impact the decision of our clients to retain us. Additionally, our clients may be subject to restrictions on their ability to outsource contact center services.  For example, a lower court ruling has been issued against one of our clients, alleging that under Brazilian law it is not permitted to outsource certain contact center activities that may be protected by Brazilian bank secrecy rules.  Recently, the Minas Gerais State Superior Labor Court confirmed a ruling against TIM Brasil, a Brazilian mobile phone operator, prohibiting TIM Brasil from outsourcing its contact center and telephone sales activities on the grounds that such activities are part of the core business of TIM Brasil.  As of the date of this annual report, the case is pending appeal in the TST (Brazilian Federal Superior Labor Court).  In a similar case, the TST (Brazilian Federal Superior Labor Court) ruled against the ability of CELG (Centrais Elétricas de Goiás), a state electricity provider, to outsource certain services that were considered to be its core business.  Such decision might have an impact on the way lower courts understand what type of services are considered core services and therefore may not be outsourced under Brazilian labor laws. If these and similar rulings continue narrowing the scope of the services we are allowed to render, we could lose a part of our revenues as our current and prospective clients become restricted from outsourcing certain services of their contact center operations. Moreover, if the government adopts laws that restrict or dictate costly specifications regarding contact center operations and procedures, it could affect current and future clients decisions to outsource certain activities, since such laws could unfavorably impact our profit margins and cause us to adjust the pricing of our contracts. Increases in the use of automated customer services could reduce the demand for our services. A major part of our services is provided by our contact center attendants.  Services provided by live attendants face increasing competition from automated channels which allow our clients customers to directly access self-service assistance systems (e.g., internet sites and automated phone services, such as voice recognition and Interactive Voice Response, a device that automates retrieval and processing of information by phone using touch tone signaling or voice recognition so as to access information residing on a server and reply with a pre-recorded response, such as in bank-by-phone transactions).  These automated channels may reduce the need for personal contact with contact center attendants.  As automated services become more technically viable and more widely used, the demand for our services could be reduced. Our ability to recruit, motivate and retain qualified management and operators could affect the quality of our services, which could impact our ability to attract new clients and retain existing ones. Since our business is labor intensive, our ability to attract and retain personnel is key to our continued success.  We place significant importance on our ability to recruit, train and retain qualified personnel.  We employed 78,200 employees as of December 31, 2009.  On average, in 2009, we experienced a monthly turnover of approximately 5.4% of our personnel, requiring us to continuously recruit and train replacement personnel as a result of a changing and expanding workforce.  In addition,demand for qualified technical professionals familiar with certain technologies may exceed supply, as new and additional skills are required to keep pace with evolving technology.  In the event that we are unable to recruit, motivate and retain qualified personnel, the quality of our services could be affected, which could impact our ability to attract new clients and retain existing ones.  Additionally, we may experience an increase in personnel costs as a result of (i) a decrease in the productivity of our employees resulting from the loss of qualified, experienced personnel and (ii) an increase in recruiting and training costs related to higher employee turnover. 7


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Our inability to pass through cost increases could seriously harm our profit margins. In Brazil, it is common for agreements to be renegotiated annually so that their prices are readjusted to account for inflationary variations in costs.  Labor collective bargaining agreements in the contact center industry are also renegotiated on an annual basis to adjust for inflationary pressures, which results in an increase in our personnel costs.  Hence, to protect against increases in costs of, among other things, telecommunications, energy, facilities leases and especially personnel, most of our contact center services contracts also have annual rate adjustment clauses that provide for price increases in an effort to cover such cost escalations.  Nevertheless, we may decide not to exercise the right to adjust our prices fully in view of competitive conditions or other client relationship issues.  In this case, we will not be able to pass through all of our cost increases.  In the past, for example, we have had to adjust some of our client prices at rates below their respective inflationary adjustment indexes.  If any of our costs increase and we are not able to negotiate a commensurate rate adjustment with our clients, our profit margins would be adversely affected. Our operating results may be harmed if we are unable to maximize our contact center capacity utilization. Our profitability depends largely on how effectively we utilize our contact center capacity.  In order to create the additional capacity necessary to accommodate new or expanded outsourcing contracts, as well as to face significantly higher utilization during peak periods, we must consider opening new facilities or expanding current ones.  The opening or expansion of a contact center may result, at least in the short term, in idle capacity.  If we lose one or more significant clients, if the volume of calls from our clients customers declines or if a significant contract is not implemented in the anticipated time frame, our capacity utilization will be affected. In addition, our profitability is significantly influenced by our ability to forecast accurately incoming calls.  An excess of operators, based on an overestimated forecast, may reduce our profitability due to unused capacity.  In contrast, if there are more incoming calls than forecast, we may not be able to handle the call volume, and we may lose revenues or fail to meet performance requirements under our contracts.  The failure to meet such requirements could subject us to penalties and indemnities under certain clauses of our contracts. Despite our ongoing efforts to maximize capacity utilization, we are subject to periods of idle capacity.  This may occur mainly in connection with the commencement of new operations or the termination of an existing contract.  There can be no assurance that we will be able to achieve or maintain optimal utilization of our contact center capacity. If our clients are not successful, the amount of business they outsource may be diminished and could result in lower revenues for us. Our revenues are dependent on the success of our clients.  If our clients are not successful, the amount of business they outsource may be reduced.  Furthermore, due to the inbound nature of most of our services (e.g., customer service), the amount of revenue generated from any particular service contract is dependent upon consumers interest in, and use of, our clients products and services.  If our clients are not successful or their customers reduce their use of our contact center services, our revenues and the expansion of our business would be adversely affected.  8


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General economic and market conditions may adversely affect our financial condition, cash flow and results of operations. Our results of operations are affected directly by the level of business activity of our clients, which in turn are affected by the level of economic activity in the industries and markets that they serve.  The recent worldwide economic slowdown may cause reductions in technology and discretionary spending by our clients, which may result in reductions in the growth of new business activity as well as reductions in existing business activity.  If our clients enter bankruptcy or liquidate their operations, our revenues could be adversely affected.  In addition, the current uncertainty concerning global financial markets may have a material adverse effect on us, including our ability and the ability of our clients to raise the necessary capital to fund business operations. The failure to keep our technology up-to-date may prevent us from remaining competitive. Our business is dependent on our servers, desktops, telecommunications and network equipment, software applications and IT processes and procedures.  The failure to maintain our technological capabilities or to respond effectively to technological changes could adversely affect our competitiveness.  Our continued growth and future profitability depends, among other factors, on the introduction of new services that effectively leverage and respond to technological developments.  There can be no assurance that: (i) our IT and telecommunications systems will be adequate to meet our clients future needs; (ii) we will be able to incorporate new technology to enhance and develop our existing services; and (iii) technologies or services developed by our competitors will not render our services uncompetitive or obsolete. Interruption of our contact center services due to unforeseen events could have a material adverse effect on our financial condition and results of operations. Our ability to provide contact center services is dependent upon our ability to protect our facilities and operations against damage that may be caused by fire, natural disasters, power and telecommunications failures, computer viruses, labor strikes, acts of sabotage or terror and other unforeseen events.  We currently have backup systems for our most critical power and data storage and business interruption insurance to offset, in part, certain losses we may incur if our facilities or operations are adversely affected by events outside our control.  Despite the implementation of these systems and contingency plans, as well as network security measures, we may still experience interruption at one or more of our facilities, and we may be unable to provide the services we are contractually obligated to deliver. As a result of any such interruption:  (i) our revenues could be reduced as a result of reduced activity, as most of our contractual compensation is calculated based on speaking time or number of available workstations; (ii) we may be required to pay non-compensatory contractual penalties, since we may be unable to meet certain agreed-upon quality targets (service level agreements) as a result of such interruption; (iii) we may be required to pay indemnities to our clients for lost profits and damages, if we breach our obligations or are unable to deliver our services; and (iv) if we continue to fail to meet our obligations, our clients may be entitled to terminate their contracts with us.  Depending on the amount of penalties and indemnifications we may have to pay as a result of the interruption of our services, our financial condition and results of operations could be adversely affected. Breaches of our contact center service contracts could expose us to significant monetary penalties. We are exposed to different types of contractual penalties as a result of material breaches of our contractual service obligations.  A fair number of our contracts contain provisions setting penalties for breaches at different degrees, determined based on formulas that take into consideration:  (i) the nature and extent of the breach; (ii) the amount of revenues raised or due under the relevant contract in a given year; or (iii) the point in time during the life of the contract in which the breach occurs.  We also have entered into contracts that require us to indemnify our clients for their losses resulting from breach of our obligations under such agreements.  As a general matter, we are unable to quantify our potential exposure under theseprovisions, as the penalty amounts are based on future variables relating to the nature of the breach, the amount of revenues actually earned or the amount of time during which the contract has been outstanding. 9


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Our exposure to discretionary early termination by Oi, our largest client in 2009, in connection with breaches of our contact center service agreement is equivalent to the revenue we obtain pursuant to such agreement during the three months prior to the date Oi sends us a notice of termination of the agreement.  Our exposure to penalties related to damages caused by the termination of our agreement with Oi as a result of our contractual breach shall be limited to 5.0% of our annual revenue pursuant to such agreement.  Based upon the amount of revenue generated in 2009 pursuant to such agreement, the early termination penalty would have been approximately R$287.4 million (U.S.$164.6 million), while our exposure to penalties related to damages for the year could have been up to approximately R$57.6 million (U.S.$33.0 million). As a result, our exposure for breach under these contracts, though currently indeterminable, may have a significant negative impact on our results of operations. We may be unable to achieve the same performance levels we have been experiencing with our performance-based compensation contracts. We derived approximately 31.9% of our net revenues in 2009 from operations with performance-based compensation, consisting mostly of telemarketing and debt collection services.  These services depend not only on our success in selling a product, locating a debtor or negotiating a debt settlement, but also on other factors that are beyond our control.  For telemarketing activities, for example, our compensation is measured according to the amount of our clients products that we are able to sell in a given period of time or on a sales target which we are required to meet.  Consequently, our performance-based compensation for telemarketing can be affected by, among other things, the attractiveness of the products and services we will be selling for our clients.  In addition, prevailing macroeconomic conditions in Brazil, such as GDP growth, unemployment and availability of disposable income, also affect our performance-based compensation more acutely than they affect enterprises that rely solely on fixed-based compensation, since such macroeconomic conditions directly affect consumer spending and default rates.  Consequently, there can be no assurance that we will be able to maintain in the future the same level of our past performance or that we will not incur losses under our performance-based compensation contracts. We may be responsible for labor liabilities, which could have an adverse effect on our profitability. We were involved in 7,009 labor claims as of December 31, 2009.  Although the total amount of all labor claims filed against us was approximately R$504,919 thousand (U.S.$289,186 thousand) as of December 31, 2009, as of that date we had only recorded provisions of approximately R$48,362 thousand (U.S.$27,699 thousand), based upon our historical losses in similar lawsuits.  We are also subject to potential administrative proceedings brought by the Brazilian Labor Department. If all of the labor claims filed against us or a greater portion of such claims than we have provisioned for are resolved against us, our profitability would be adversely affected.  There can be no assurance that additional labor claims and proceedings will not be brought against us in the future, or if they are, that an adverse ruling regarding such claims and proceedings would not have a negative impact on the cost of services rendered by us, or result in the impositions of penalties or other negative consequences. Our business is highly competitive, and our failure to effectively compete could result in the loss of clients or decreased profitability. We face significant competition and believe that this competition will intensify.  There are numerous providers of our services, including other contact center service companies, niche players, consulting companies and many small companies that offer low-end services (primarily outbound services).  Aside from those competitors, our clients and potential clients may also decide to utilize in-house personnel to perform contact center services they currently outsource, or maintain their in-house customer service andproduct support activities.  We also face competition from automated customer services, through the use of internet, interactive voice response, voice recognition and other technologies. 10


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Our competitors services and pricing practices, as well as the timing and circumstances of the entry of additional competitors into our market, may harm our business.  The trend towards international expansion by foreign competitors and continuous technological changes may lead new competitors to enter our market and may increase pricing pressures.  Our failure to compete successfully could result in loss of clients and specific service contracts or could result in decreased profitability. CTX Participações holds the majority of our voting shares, and there may be circumstances in which its interests differ from or conflict with the interests of our other shareholders. We are controlled by CTX Participações, which spun-off from Telemar Participações in April 2008 and as of May 31, 2010, had voting rights over 69.09% of our voting shares.  As our controlling shareholder, CTX Participações is entitled to appoint the majority of the members of our board of directors and has the power to, among other things, modify our business plan, determine the date of dividend payments, approve corporate restructurings and sell our material assets.  We cannot assure that our controlling shareholder will not take actions that might differ from or conflict with the interests of our other shareholders. We may be liable for fraudulent activities or misappropriation of our clients information by our employees or third parties. Our contact center business puts us in possession of sensitive client information.  Despite our internal controls and our efforts to protect our clients information, we may be held liable for fraudulent activities by our employees or by third parties.  For example, unauthorized persons may be able to breach our physical or network security systems.  Meanwhile, authorized employees may misuse their authorization rights or the information to which they have access.  Our failure to prevent these occurrences could:  (i) damage our reputation with our clients and the market; (ii) allow our clients to terminate their contracts with us; (iii) expose us to potential liability; and (iv) subject us to the previously discussed contractual penalties and indemnities, all of which may substantially harm our business and results of operations. Risks Relating to Brazil The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy.  This involvement, as well as Brazilian political and economic conditions, could adversely impact our business, financial condition, results of operations and the market price of our shares and ADSs. The Brazilian government frequently intervenes in the Brazilian economy and occasionally makes drastic changes in policy and regulations.  The Brazilian governments actions to control inflation and implement macroeconomic policies have often involved wage and price controls, currency devaluations, capital controls and limits on imports, among other things.  Our business, financial condition, results of operations and the market price of our shares and ADSs may be adversely affected by changes in policies or regulations, or by other factors such as: ·devaluations and other currency fluctuations; ·inflation rates; ·interest rates; ·liquidity of domestic capital and lending markets; 11


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·energy shortages; ·exchange controls and restrictions on remittances abroad (such as those that were briefly imposed in 1989 and early 1990); ·monetary policy; ·tax policy; and ·other political, diplomatic, social and economic developments in or affecting Brazil. Uncertainty over whether possible changes in policies or rules affecting these or other factors may contribute to economic uncertainties in Brazil and to heightened volatility in the Brazilian securities markets and securities issued abroad by Brazilian issuers.  These uncertainties could adversely affect our activities.  Historically, members of the executive and legislative branches of the Brazilian government, as well as other related persons, have been investigated on the grounds of alleged illicit or unethical behavior.  It is not possible to predict the outcome of such investigations and whether the outcome will adversely affect the Brazilian economy.  As a consequence of their impact on the Brazilian economy, these uncertainties and allegations of unethical or illegal conduct may have a material adverse effect on us and may also adversely affect the market price of our common shares and ADSs. In addition, Brazil will hold a presidential election in October 2010. The President of Brazil has considerable power to determine governmental policies and actions relating to the Brazilian economy that may consequently affect the operations and financial performance of businesses, such as our company. The presidential election may result in changes in existing governmental policies, and the post-election administration may seek to implement new policies. We cannot predict what policies the Brazilian government will adopt and whether these policies will negatively affect the economy or our business and financial performance. Inflation and certain government measures to curb inflation may have adverse effects on the Brazilian economy, the Brazilian securities market, our business and operations and the market price of the shares. Brazil has historically experienced extremely high rates of inflation.  Inflation and some of the Brazilian governments measures taken in an attempt to curb inflation have in the past had significant negative effects on the Brazilian economy.  While inflation has been kept largely under control since the introduction of therealin 1994, inflationary pressures persist.  Actions taken in an effort to curb inflation, coupled with speculation about possible future governmental actions, have contributed to economic uncertainty in Brazil and heightened volatility in the Brazilian securities market.  According to theÍndice Geral de Preços Mercado, or IGP-M, a general price inflation index published byFundação Getúlio Vargas, or FGV, the Brazilian general price inflation rates were 7.7%, 9.8% and (1.7)% in 2007, 2008 and 2009, respectively.  According to theÍndice Geral de Preços - Disponibilidade Interna, or IGP-DI, another general price inflation index published by FGV, the Brazilian general price inflation rates were 7.9%, 9.1% and (1.4)% in 2007, 2008 and 2009, respectively.  According to theÍndice Nacional de Preços ao ConsumidorAmpliado, or IPCA, published by theInstituto Brasileiro de Geografia eEstatística, or IBGE, the Brazilian consumer price inflation rates were 4.5%, 5.9% and 4.3% in 2007, 2008 and 2009, respectively.  In the first quarter of 2010, inflation measured by the IGP-M, IGP-DI and IPCA, was approximately 2.1%, 1.7% and 1.3%, respectively, or 8.8%, 7.1% and 5.3% on an annualized basis, respectively. Brazil may experience high levels of inflation in the future.  Inflationary pressures may lead to further government intervention in the economy, including the introduction of government policies that could adversely affect the economy overall and our business in particular, such as increasing interest rates.  12


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Fluctuations in interest rates could increase the cost of servicing our debt and negatively affect our overall financial performance. Our financial expenses are affected by changes in the interest rates that apply to our floating rate debt. At December 31, 2009, we had, among other debt obligations, R$204.6 million of loans and financing that were subject to the TJLP (the Brazilian long-term interest rate). The TJLP includes an inflation factor and is determined quarterly by the Central Bank. In particular, the TJLP has fluctuated significantly in the past in response to the expansion or contraction of the Brazilian economy, inflation, Brazilian government policies and other factors. A significant increase in the TJLP could adversely affect our financial expenses and negatively affect our overall financial performance. Changes in Brazilian labor law may negatively affect us. Brazilian companies are subject not only to the Federal Constitution and ordinary legislation concerning labor relations (mainly theConsolidação dasLeis do Trabalho, or CLT), but also to collective bargaining agreements between employers associations and employee unions or between individual employers and employee unions, in addition to administrative orders, technical notes and instructions issued by the Brazilian Labor Department.  In addition, the tendency of Brazilian labor laws and regulators to protect employees from dismissal has created barriers to changing already burdensome labor regulations.  Furthermore, due to the volume of cases and insufficient personnel, the labor courts are typically slow in deciding the labor claims and disputes that are submitted to them for resolution.  For a discussion on a recent court ruling that restricts outsourcing of certain contact center activities, see  Risks Relating to Our Business  If the trend toward outsourcing of contact center services were reversed, the growth rate of our business could be reduced. The Brazilian Labor Department continuously issues and revises current labor regulations regarding specific practices in different business sectors.  In April 2007, the Brazilian Labor Department published a technical note setting forth new guidelines concerning labor practices and regulations regarding contact center activities.  These rules include, among other things, employees directives regarding work environment, working hours and breaks, ergonomic equipment design standards and guidance on labor related diseases (Exhibit II to Regulation no. 17 (Anexo II da Norma Regulamentadora no 17)), approved by Rule no. 9, issued by the Brazilian Labor Department as of March 30, 2007 (Portaria no 09).  Labor inspectors have been paying greater attention to these factors and, as a result, have been requiring strict compliance by companies with workplace health and safety rules.  Enforcement of these new regulations may lead to increased costs, which we may not be able to pass through to our clients or, in some cases, administrative fines, which would adversely affect our results of operations and financial condition.  In addition, the Brazilian Legislative Branch has submitted several bills concerning the reduction of working hours, the restriction of outsourcing and increasing breaks of telemarketing operators. Changes in the Brazilian telemarketing regulatory framework may directly affect us. On July 31, 2008, the Brazilian Federal Government enacted Decree no. 6,523/2008 (Decreto no 6.523/2008), which became effective on December 1, 2008 and imposes upon service providers regulated by Federal Agencies (i.e., telephone, electric energy, cable television, credit card, and airline companies) obligations regarding the Call Centers Law (Lei dos Call Centers), which mandates compliance with certain service standards for Customer Assistance Services (SAC - Serviço de Atendimento ao Consumidor).  See Item 4: Industry Overview  Regulatory Developments regarding Telemarketing Services.These laws are applied to a large variety of our clients that have sought services complying with such new rules.  While this set of rules may increase demand for our services, it will also increase the operating costs of our clients.  Additionally, such law provides for substantial non-compliance penalties (ranging from R$200 thousand to R$3,000 thousand per event) that could be assessed upon our clients.  Although we are bound only to the service level agreements contained in our service agreements, our clients might try to transfer any cost associated with such penalties to us. Regulatory proposals, such as the creation of a do not call list, could restrict our contact center services. 13


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A series of bills have been presented to Brazils House of Representative and the Senate and to local legislative branches of certain Brazilian states and municipalities proposing to regulate several aspects of the outbound telemarketing services we provide, such as: (i) the days and hours during which outbound calls are allowed; and (ii) the creation of a national do not call list.  If these bills are passed, our ability to make outbound calls may be significantly restricted, which would adversely impact our revenues and growth opportunities.  See Item 4: Information on the Company  Industry Overview  Regulatory Developments regarding Telemarketing Services. In addition, laws enacted in several Brazilian states, such as Alagoas, Pernambuco, Maranhão, Paraíba, Paraná, Rio Grande do Sul, Espírito Santo, São Paulo and Mato Grosso do Sul, prevent telemarketing companies from contacting customers that are registered in a public database known as the Register for Telemarketing Phone Call Blocking (Cadastro para o Bloqueio do Recebimento de Ligações de Telemarketing).  This law restricts our ability to make outbound calls, limiting our revenue and growth opportunities. Changes in tax laws may increase our tax burden and, as a result, adversely affect our profitability. The Brazilian government regularly implements changes to tax regimes that may increase our and our clients tax burdens.  These changes include modifications in the rate of assessments and, on occasion, enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes.  Increases in our overall tax burden could negatively affect our overall financial performance and profitability. Exchange rate instability may adversely affect our financial condition. The Brazilian currency has been devalued frequently over the past four decades.  Throughout this period, the Brazilian government has implemented various economic plans and used various exchange rate policies, including sudden devaluations, periodic mini-devaluations (such as daily adjustments), exchange controls, dual exchange rate markets and a floating exchange rate system.  From time to time, there have been significant fluctuations in the exchange rate between the Brazilian currency and the U.S. dollar and other currencies.  Based on thereal/U.S. dollar exchange rate, therealappreciated against the U.S. dollar by 9.5% and 20.7% in 2006 and 2007, while in 2008 the exchange rate depreciated by 24.2%.  In 2009, therealappreciated against the U.S. dollar by 25.5% based on thereal/U.S. dollar commercial selling rate of RS$1.746 to U.S.$1.00, as of the close of business on December 31, 2009.  On June 22, 2010, the commercial selling rate was R$1.789 to U.S.$1.00.  Depreciation of therealrelative to the U.S. dollar could create additional inflationary pressures in Brazil by generally increasing the price of imported products and requiring recessionary government policies, including tighter monetary policy.  Depreciation of therealrelative to the U.S. dollar would also reduce the U.S. dollar value of distributions and dividends on the ADSs and the U.S. dollar equivalent of the market price of our shares and, as a result, the ADSs.  On the other hand, appreciation of therealagainst the U.S. dollar may lead to a deterioration of the countrys current account and the balance of payments, as well as to a dampening of export-driven growth. We may be unable to convertreaisinto U.S. dollars to make dividend distributions to our ADS holders. In the past, Brazils economy has experienced balance of payment deficits and shortages in foreign exchange reserves, and the government has responded by restricting the ability of persons or entities, Brazilian or foreign, to convertreaisinto any foreign currency.  The government may institute a restrictive exchange control policy in the future.  Any restrictive exchange control policy could prevent or restrict our access to U.S. dollars to meet our dividend payment obligations.  14


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Economic and market conditions in other emerging market countries may adversely affect the Brazilian economy and, therefore, the market value of our common shares, preferred shares and ADSs and our ability to access the capital markets. The market for securities issued by Brazilian companies is influenced by economic and market conditions in Brazil, and, to varying degrees, market conditions in other Latin American and emerging market economies.  Although economic conditions are different in each country, the reaction of investors to developments in one emerging market country may cause the capital markets in other countries to fluctuate.  Developments or conditions in other emerging market countries have at times significantly affected the availability of credit in the Brazilian economy and resulted in considerable outflows of funds and declines in the amount of foreign currency invested in Brazil, as well as limited access to international capital markets, which may adversely affect our ability to borrow funds at an acceptable interest rate or to raise equity capital when and if there should be a need for us to do so.  Such developments have included the devaluation of the Mexican peso in December 1994, the Asian economic crisis of 1997, the Russian currency crisis of 1998 and the 2001 economic and political crisis in Argentina.  The continuing political crisis in Venezuela and the socialist-oriented government of Bolivia may also influence investors perceptions of risk in Latin America.  The volatility in market prices for Brazilian securities has varied from time to time as a result of such crises. Risks Relating to the ADSs and the Preferred Shares You may not be able to sell the ADSs or preferred shares at the price or time you desire because an active or liquid market for the ADSs or the preferred shares will not likely develop. There has not been a liquid public market for either our ADSs or our preferred shares.  Our preferred shares are listed on the BM&FBovespa (the stock exchange of the State of São Paulo, Brazil, the main Brazilian stock exchange), but the ADSs are not listed, and we do not intend to list the ADSs in any organized market or stock exchange.  As a result, active trading in the ADSs will not likely develop.  Similarly, active trading in the preferred shares in the United States will not likely develop.  Active, liquid trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors. Moreover, since 2005, when our ADS program was first implemented, we have experienced a substantial reduction in the number of our outstanding ADSs.  As of December 31, 2005, ADSs represented 13.8% of our total capital stock, whereas the percentage of our capital stock represented by ADSs has decreased to 1.1%, as of May 31, 2010.  We can terminate the Deposit Agreement without the consent of holders of ADSs. We can cause the Depositary to terminate the Deposit Agreement at any time by giving the ADS holders at least 30 days prior notice.  After termination, the Depositarys only responsibility will be (i) to deliver deposited securities to ADS holders who surrender their ADSs, and (ii) to hold or sell distributions received on deposited securities.  As soon as practicable after the expiration of one year from the termination date, the Depositary will sell the deposited securities which remain and hold the net proceeds of such sales, without liability for interest, in trust for the ADS holders who have not yet surrendered their ADSs.  After making those sales, the Depositary shall have no obligations except to account for such proceeds and other cash.  The Depositary will not be required to invest such proceeds or pay interest thereon. The relative volatility and illiquidity of the Brazilian securities markets may substantially limit your ability to sell the preferred shares underlying the ADSs at the price and time you desire. Investing in securities that trade in emerging markets, such as Brazil, often involves greater risk than investing in securities of issuers in the United States, and such investments are generally considered to be more speculative in nature.  The Brazilian securities market is substantially smaller, less liquid and more concentrated than major securities markets in the United States.  As a result, the price for the preferredshares may be subject to substantial volatility, and it may be difficult to find a buyer or a seller at certain times.  Accordingly, although you are entitled to withdraw the preferred shares underlying the ADSs from the deposit facility at any time, your ability to sell the preferred shares underlying the ADSs at a price and time of your choosing may be substantially limited.  There is also significantly greater concentration in the Brazilian securities market than in the United States.  As of December 31, 2009, the aggregate market capitalization of the 10 largest companies listed on the BM&FBovespa was approximately U.S.$6,357 billion, representing almost 55.3% of the aggregate market capitalization of that market.  The top 10 stocks in terms of trading volume accounted for approximately 45.8%, 53.1% and 50.0% of all shares traded on the BM&FBovespa in 2007, 2008 and 2009, respectively. 15


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Holders of preferred shares and ADSs have limited voting rights. Of our two classes of capital shares outstanding, only our common shares have full voting rights.  Except in certain limited circumstances, our preferred shares will be entitled to full voting rights only in the event that we fail to pay the minimum dividends for a period of three consecutive years.  As a result of these limited voting rights and the fact that CTX Participações had, as of May 31, 2010, voting rights over 69.09% of our voting shares, holders of our preferred shares and, therefore, of our ADSs, generally will not be able to influence any corporate decision requiring a shareholder vote, including the declaration of dividends. Holders of ADSs are not entitled to attend shareholders meetings and may only vote through the Depositary. Under Brazilian law, only shareholders registered as such in our corporate books may attend shareholders meetings.  All preferred shares underlying the ADSs are registered in the name of the Depositary.  A holder of ADSs, accordingly, is not entitled to attend shareholders meetings.  A holder of ADSs is entitled to instruct the Depositary as to how to vote the preferred shares represented by ADSs, in accordance with procedures provided for in the Deposit Agreement, but a holder of ADSs will not be able to vote the underlying preferred shares directly at a shareholders meeting or to appoint a proxy to do so. Holders of ADSs may have fewer and less well-defined shareholders rights than shareholders of U.S. public companies. Our corporate affairs are governed by our by-laws and Brazilian corporate law, which may differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States.  Under Brazilian corporate law, the holders of our preferred shares and our ADSs may have fewer and less well-defined rights to protect their interests relative to actions taken by our Board of Directors or the holders of our common shares than under the laws of other jurisdictions outside Brazil. When compared to Delaware corporation law, Brazilian corporate law and practice have less detailed and well-established rules and fewer judicial precedents relating to protections afforded to non-controlling security holders and the review of management decisions involving duty of care and duty of loyalty standards in the context of corporate restructurings, transactions with related parties and sale-of-business transactions.  In addition, shareholders in Brazilian companies must hold at least 5.0% of the outstanding share capital of a corporation in order to have standing to bring a shareholder derivative suit, and shareholders in Brazilian companies ordinarily do not have standing to bring class action suits. Although Brazilian law imposes restrictions on insider trading and price manipulation, the Brazilian securities markets may not be as highly regulated and supervised as the U.S. securities markets or markets in other jurisdictions.  In addition, rules and policies against self-dealing and regarding the preservation of shareholder interests may be less well-defined and enforced in Brazil than in the United States, potentially causing disadvantages to holders of the preferred shares and/or ADSs.  Corporate disclosures may be less complete or informative than that ordinarily expected of a U.S. public company.  16


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Holders of ADSs or preferred shares may not receive any dividends. According to Brazilian corporate law and our by-laws, we must pay dividends to our shareholders totaling at least 25.0% of our annual net income, as determined and adjusted under Brazilian GAAP, except that we may use current net income (as per Brazilian corporate law): (i) to offset accumulated losses; (ii) to constitute a reserve for unrealized profits; (iii) to constitute a reserve for contingencies (if such contingencies are not already provisioned for); and (iv) to constitute a legal reserve (up to 5.0% of current net income, limited to 20.0% of the share capital).  In extreme circumstances, we may not pay dividends to our shareholders in a particular fiscal year if, at a shareholders meeting, our Board of Directors advises our shareholders that such distributions would not be advisable in view of our financial condition. Exchange controls and restrictions on remittances abroad may adversely affect holders of ADSs. Brazilian law provides that whenever there is a significant imbalance in Brazils balance of payments or a significant possibility that such imbalance will exist, the Brazilian government may impose temporary restrictions on the remittance to foreign investors of the proceeds of their investment in Brazil (as it did for approximately six months in 1989 and early 1990) and on the conversion of Brazilian currency into foreign currencies.  These restrictions could hinder or prevent the Brazilian custodianof our shares underlying the ADSs or holderswho have exchanged the ADSs for our underlying shares fromconverting dividends, distributions or the proceeds from any sale of such shares into U.S. dollars and remitting such U.S. dollars abroad.  In such an event, the Brazilian custodian for our shares will hold thereaisthat it cannot convert for the account of holders of the ADSs who have not been paid.  Neither the custodian nor the Depositary will be required to invest thereaisor be liable for any interest. Dividends paid by us will not be eligible for the favorable rate of U.S. federal income taxation applicable to certain qualified dividend income. Dividends received before January 1, 2011 by non-corporate U.S. shareholders on shares of certain foreign corporations will be subject to U.S. federal income tax at lower rates than other types of ordinary income if certain conditions are met.  However, because our preferred shares and ADSs are not listed, and we do not intend to list the preferred shares or ADSs, on an established securities market in the United States and there is no income tax treaty between Brazil and the United States, we currently do not expect that those conditions will be met with respect to our preferred shares or ADSs.  As a result, distributions on the preferred shares or ADSs paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, generally will be taxable as ordinary income to U.S. shareholders and will not be eligible for a reduced rate of taxation.  See Taxation  Certain Material United States Federal Income Tax Considerations  U.S. Holders  Receipt of Distributions. We may be, or may become, a passive foreign investment company (PFIC), which could result in adverse U.S. federal income tax consequences for U.S. investors. Based on current estimates of our gross income, gross assets and the nature of our business, we do not believe that we are, and we do not expect the preferred shares to be considered shares of, a PFIC for U.S. federal income tax purposes for our current taxable year (although the determination cannot be made until the end of such taxable year), and we do not expect to be a classified as a PFIC for the foreseeable future.  There can be no assurances in this regard, however, because the application of the relevant rules is complex and involves some uncertainty.  In particular, the PFIC determination is made annually and is based on the portion of our assets (including goodwill) and income, applying certain look through rules, that is characterized as passive under the PFIC rules.  Moreover, our business plans may change, which may affect the PFIC determination in future years.  Accordingly, it is possible that we may be, or may become, a PFIC for any taxable year.  If we were treated as a PFIC for any taxable year during which a U.S. investor held preferred shares or ADSs, certain adverse U.S. federal income tax consequences could apply to the U.S. investor. See Taxation  Certain Material United States Federal Income Tax Considerations  Passive Foreign Investment Company Rules.  17


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If you surrender your ADSs and withdraw preferred shares, you risk losing the ability to remit foreign currency abroad and certain Brazilian tax advantages. As an ADS holder, you benefit from the electronic certificate of foreign capital registration obtained by the custodian for our preferred shares underlying the ADSs in Brazil, which permits the custodian to convert dividends and other distributions with respect to the preferred shares into foreign currency and remit the proceeds abroad.  If you surrender your ADSs and withdraw preferred shares, you will be entitled to continue to rely on the custodians electronic certificate of foreign capital registration for only five business days from the date of withdrawal.  Thereafter, upon the disposition of or distributions relating to such preferred shares, you will not be able to remit foreign currency abroad unless you obtain your own electronic certificate of foreign capital registration or you qualify under Brazilian foreign investment regulations that entitle some foreign investors to buy and sell shares on Brazilian stock exchanges without obtaining separate electronic certificates of foreign capital registration.  If you do not qualify under the foreign investment regulations, you will generally be subject to less favorable tax treatment of dividends and distributions on, and the proceeds from any sale of, such preferred shares. If you attempt to obtain your own electronic certificate of foreign capital registration, you may incur expenses or suffer delays in the application process, which could delay your ability to receive dividends or distributions relating to our shares or the return of your capital in a timely manner.  The Depositarys electronic certificate of foreign capital registration may also be adversely affected by future regulatory changes. Changes in Brazilian tax laws may have an adverse impact on the taxes applicable to the disposition of the ADSs or preferred shares. According to Law no. 10,833, enacted on December 29, 2003, the disposition or sale of assets located in Brazil by a non-resident to either a Brazilian resident or non-resident is subject to taxation in Brazil, regardless of the domicile of the purchaser or whether the disposition occurs outside Brazil.  If the disposition or sale of assets located in Brazil is interpreted to include a disposition or sale of our ADSs, this provision could result in the imposition of income tax on the gains from such a sale or disposition of our ADSs by a non-resident of Brazil to another non-resident of Brazil.  However, considering the general and unclear scope of Law no. 10,833 and the absence of jurisprudence in respect thereof, we are unable to predict whether an interpretation applying such tax laws to dispositions of the ADSs solely between non-residents could ultimately prevail in Brazilian courts. Holders of ADSs may be unable to exercise preemptive rights with respect to our shares. Under Brazilian law, if we issue new shares for cash as part of a capital increase, we generally must grant our shareholders the right to purchase a sufficient number of shares to maintain their existing ownership percentage.  Rights to purchase shares in these circumstances are known as preemptive rights.  We may not be able to offer our preferred shares to U.S. holders of ADSs pursuant to preemptive rights granted to holders of our shares in connection with any future issuance of our preferred shares unless a registration statement under the Securities Act of 1933, as amended, or the Securities Act, is effective with respect to such preferred shares and preemptive rights, or an exemption from the registration requirements of the Securities Act is available.  We are not obligated to file a registration statement relating to preemptive rights with respect to our preferred shares, and we cannot assure you that we will file any such registration statement.  If such a registration statement is not filed and an exemption from registration does not exist, The Bank of New York, as Depositary, will attempt to sell the preemptive rights, and you will be entitled to receive the proceeds of such sale.  However, these preemptive rights will expire if the Depositary does not sell them, and U.S. holders of ADSs will not realize any value from the granting of such preemptive rights.  18


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Holders of ADSs may face difficulties in serving process on or enforcing judgments against us and other persons. Contax Holding and Contax S.A. are corporations organized under the laws of Brazil, and all the members of our Board of Directors and all of our executive officers and our independent public accountants reside or are based in Brazil.  All of our assets and those of these other persons are located in Brazil.  As a result, it may not be possible for you to effect service of process upon us or these other persons within the United States or other jurisdictions outside Brazil or to enforce against us or these other persons judgments obtained in the United States or other jurisdictions outside Brazil.  Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if certain conditions are met, you may face greater difficulties in protecting your interests in the case of actions by us or our Board of Directors or executive officers than would shareholders of a U.S. company. Although, subject to certain conditions, investors generally would be permitted to bring an original action in Brazilian courts under the U.S. federal securities laws, pursuing such an action in a Brazilian court could prove difficult given the relative inexperience of such courts in these matters. Item 4.         Information on the Company History and Organizational Structure Contax Participações S.A. was incorporated in Brazil on July 31, 2000 as a corporation, orsociedade por ações, under the name Caroaci Participações S.A.  Its primary functions were those of a typical holding company.Contax Holdings registered address is: Rua do Passeio 48 a 56 (parte), 20021-290, Rio de Janeiro, RJ, Brazil.Its telephone number is +55 21 3131-0009. Contax Holding is the sole parent company of Contax S.A., a corporation incorporated in Brazil on April 3, 2000 as asociedade por açõesunder the name Contax S.A. (subsequently renamed TNL Contax S.A. and since December 2009 again renamed Contax S.A.).  Contax S.A. is the only significant subsidiary of Contax Holding and is an operational entity that conducts contact center service activities. On December 29, 2004, the shareholders of TNL approved a proposal from its Board of Directors to spin off Contax Holding to TNLs shareholders for two primary reasons: (i) to realize the full value of the company as a separate entity; and (ii) to allow the management of TNL to focus on its telecommunications operations.  The spin-off was consummated in August 2005 with the delivery of Contax Holding shares to the shareholders of TNL. In October 2008, we invested in our new subsidiary Todo.  The launch of operations in the information technology services outsourcing segment through this subsidiary was aimed at expanding our service portfolio and entering new markets, without losing focus on our main business, the contact center (voice process outsourcing) services conducted through Contax S.A. Contax S.A. owns 80.0% of the voting and total capital of Todo, with the remaining shares of Todos capital held indirectly by executive officers of Todo.  A shareholders agreement and other documents were signed between the parties regulating matters such as a non-compete agreement between Todo and Contax S.A. and restrictions on the remaining shareholders regarding the sale of shares.  Todo is managed independently from Contax S.A., with different executive directors and with its headquarters located in São Paulo.  Todo did not conduct any significant activities during 2008, and, in 2009, its strategic focus was on supplying IT and infrastructure solutions to Contax S.A.  In 2010, it has sought to expand its services to existing clients of Contax S.A. Telemar Participações S.A. Restructuring Process On April 25, 2008, the restructuring of the ownership structure of Telemar Participações (Contaxs previous controlling shareholder) was concluded.  On that date, an Extraordinary Shareholders Meeting ofTelemar Participações approved the transfer of Contax Holding shares held by Telemar Participações to CTX Participações, a new company created for this purpose. 19


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The restructuring was effected to separate Telemar Participações interests into two different companies to operate in the contact center and telecommunications industries, respectively.  Although Telemar Participações and CTX Participações have substantially the same shareholders, they are two different investment groups with different investment strategies. The charts below show the capital structure before and after the restructuring of our controlling group: Before the restructuring:   20


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Immediately after the restructuring:  Share Buyback During 2006 and 2007, we implemented three different buyback programs, which resulted in the repurchase of 719,000 common shares and 2,705,000 preferred shares.  Of these totals, 544,000 common shares and all of the 2,705,000 preferred shares were cancelled, with the remaining 175,000 common shares held in treasury without reducing the our capital stock. In September 2008, we approved a fourth buyback program of approximately R$40 million.  By the end of September, we had completed implementing the program and repurchased 52,337 common and 861,664 preferred shares.  All of these shares were canceled in January 2009, resulting in capital stock of 14,942,685 shares, comprised of 5,772,435 common and 9,170,250 preferred shares. We paid an aggregate of R$201 million in connection with these buyback programs, of which R$41 million was used in 2006, R$120 million in 2007 and R$40 million in 2008. At a Board of Directors meeting held on October 27, 2009, our shareholders approved a fifth share buyback program for the acquisition of a maximum of 699,800 of our common shares and 1,945,000 of our preferred shares, representing less than 10% of our outstanding common and preferred shares.  We will use funds from our capital and statutory reserves to acquire these shares.  As of May 31, 2010, we had acquired a total of 244,200 common shares pursuant to our fifth buyback program. Stock Option Plan At the General Shareholders Meeting held on April 16, 2007, our stock option plan was approved.  The purpose of the plan, established pursuant to article 168, paragraph 3, of Law no. 6,404/76, is to enable us to attract executives, as well as to retain and ensure a closer alignment between the interests of our management and the interests of our shareholders. On September 4, 2009, we approved changes to our 2007 stock option program (a) to adjust the number of options granted to the beneficiaries of the 2007 program due to the reverse stock split at the ratio of one (1) share for every twenty (20) shares (see   Reverse Stock Split and Stock Split below); (b) toadjust the option exercise price from R$51.20 to R$45.00; (c) to change the option exercise price inflation adjustment index from IGP-M to IPCA; and (d) to discontinue the obligation of beneficiaries to exercise options with funds from their annual bonuses. 21


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Reverse Stock Split and Stock Split
 On October 17, 2007, our shareholders approved the reverse stock split of all shares representing our capital stock at the ratio of one (1) share for every twenty (20) shares of the same type.  The plan was approved in consideration of the large number of small shareholders who did not actively trade in our shares.  With the spin-off from TNL, we inherited several million inactive shareholders and in an effort to reduce unnecessary administrative and operating costs and to provide a low cost form of liquidity for these small shareholders, we decided to effect a reverse stock split.  The reverse stock split was effected on November 19, 2007.  Since ADS are mainly concentrated in the hands of institutional investors in large quantities, no reverse stock split took place in relation to the ADSs, so that each ADS subsequently represented one-twentieth of a preferred share. After approval of the reverse stock split, our shareholders were given one (1) month to either acquire new stock in order to hold at least one share according to the new ratio or to sell their shares free of transaction costs.  After the stipulated period, there were still shareholders left with fractions of shares.  On August 13, 2008, the share fractions were grouped and auctioned, and the proceeds were made available to their former holders. On November 13, 2009, our shareholders approved (i) a reverse stock split of all shares representing our capital stock at the ratio of one (1) share for every fifty (50) shares of the same type and (ii) a simultaneous stock split of all shares representing our capital stock at the ratio of two hundred (200) shares for one (1) share of the same type.  The concurrent reverse stock split and stock split was intended to (a) adjust our shareholder base and decrease administrative costs both for us and our shareholders; (b) improve the efficiency of our records, controls and reporting systems; (c) diminish the possibilities of errors and improve services to our shareholders; and (d) improve the market price and liquidity of our shares. After our shareholders approved the reverse stock split and simultaneous stock split, our shareholders were given until January 15, 2010 to adjust their share positions.  The reverse stock split and simultaneous stock split were effected on January 15, 2010, and, after that date, our shares have been trading exclusively in the proportions resulting from the reverse stock split and simultaneous stock split.  As a result of these stock splits, as of the date of this annual report, our capital stock consists of 59,770,600 shares, of which 23,089,600 are common and 36,681,000 are preferred shares.  After the stock splits, some shareholders were owners of fractions of shares.  These share fractions were grouped and auctioned on BM&FBovespa on May 17 and May 24, 2010, and the proceeds were used to pay the original shareholders. As a result of the reverse stock split and simultaneous stock split effected on January 15, 2010, each ADS represents one-fifth of a preferred share.  Overview We specialize in the design, implementation, and operation of complex contact centers, in order to help our clients improve their customer relationships and maximize the value they provide to their customers.  Our clients include many of Brazils largest companies in the telecommunications, financial services, utilities and Internet sectors. Contax began operations at the end of 2000 in response to opportunities in the Brazilian contact center outsourcing market.  Contax initially provided outsourced services previously rendered by Oi inorder to increase the quality of Ois in-house contact center activities.  In addition, Contax provided integrated services with Oi to their large corporate customers. 22


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We have experienced overall growth of our businesses since inception.  Based on information available in the most recent financial statements published by Brazilian contact center companies, we maintained our position as the largest contact center service provider in Brazil based on our results of operations for 2009. During 2009, we increased our client base in comparison to the previous year, from 58 clients as of December 31, 2008 to 71 as of December 31, 2009.  Our business strategy is focused on developing long-term relationships with large companies in targeted sectors.  We offer a variety of channels of communications to interact with customers, including voice, Internet, e-mail, mail and fax services.  As of December 31, 2009, we had 78,200 employees (74,499 as of December 31, 2008) and operated 34,820 workstations (32,153 as of December 31, 2008) located throughout 30 contact centers (25 as of December 31, 2008) in Brazil. Our services are designed to enhance the quality of customer interaction at all stages of the customer lifecycle, from identifying and acquiring new customers through providing information and customer services, rendering technical support, customer retention and debt collection. Industry Overview The scope of customer interaction by contact centers generally has expanded from single purpose (generally, basic support or marketing) to integrated service offerings (combining services such as customer service, telemarketing, technical support, customer retention and debt collection) through various communication channels.  As a consequence, the outsourced contact center sector has evolved from primarily single-facility, low technology environments to large, full-service organizations with multi-channel, large-volume contact centers that use sophisticated technology platforms to support such activities. Companies traditionally relied on in-house personnel and infrastructure to perform sales, direct marketing and customer service.  However, driven by increasing competition and higher customer sophistication, in the 1990s companies began to outsource their contact center activities in order to focus on their core businesses and to reduce costs.  Because such activities face significant fluctuations in demand, many companies have found that it is not cost-effective to maintain excess capacity, particularly during peak traffic periods.  Moreover, many companies have recognized that they were not appropriately equipped to conduct contact center activities and could not keep pace with the rapid changes in technology. Outsourced contact center providers are able to render services at a lower overall cost as a result of their ability to amortize fixed costs over a large number of customers, resulting in economies of scale in operations and technology.  For example, by turning to an outsourced services provider, a company can obtain access to sophisticated technology platforms, such as call management software, interactive voice response systems, predictive dialers (devices used to automate the method of making outbound calls and direct them to an operator when a live person answers, thereby screening out answering machines, busy signals or other operator intercepts) and automatic call distributors, without the cash outlay or maintenance costs that would be required to implement these features in-house.  Because of their expertise and experience, outsourced contact center providers are also able to achieve higher quality and productivity, allowing their clients to focus on their core businesses while retaining and enhancing customer relationships. Today, companies face the challenge of delivering consistent levels of customer service, regardless of the channel of communications utilized or their customers location.  This trend has been fueled by the continued growth in Internet, short message service (SMS) and e-mail use, and the increasingly remote nature of customer interactions.  Moreover, companies are increasingly focused on better, differentiated customer services and on increasing the value of their customer relationships through the cross-selling of additional products or services.  By working in partnership with an outsourced servicesprovider, a company can focus on its strategy for acquisition, retention and growth of its customer base without being overburdened with the complexities of day-to-day contact center operations. 23


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Contact center activities are becoming central to the way companies choose to enhance customer loyalty and retention.  According to IDC (a market intelligence and consulting company specializing in the IT and telecommunication industries), the outsourced contact center market worldwide had gross revenues of approximately U.S.$62.3 billion in 2009, with the Brazilian market contributing an estimated R$7.2 billion (U.S.$3.9 billion).  The IDC estimates that five key sectors constitute approximately 90% of this market: telecommunications; technology/consumer; financial services; health care; and transportation/leisure.  The two biggest companies in the Brazilian contact center market (Contax and Atento) together had gross revenues of approximately R$3.6 billion (U.S.$2.1 billion) in 2008 and R$4.0 billion (U.S.$2.3 billion) in 2009. Factors that influence companies worldwide to outsource their contact center needs include the following: ·Increasing importance for companies to retain and enhance customer relationships; ·Increasing need for companies to focus on core competencies rather than non-revenue producing activities; ·Rapid changes in technology requiring personnel with specialized technical expertise and continued investment in new contact center equipment and services; ·Increasing need to integrate and manage complex systems incorporating a variety of hardware and software systems spanning a number of technology generations; and ·Extensive and ongoing training requirements. Brazilian contact center service providers have enjoyed significant growth over the past several years.  Several factors have contributed to this growth: ·Increase in telephony penetration.Prior to Brazils privatization of state-owned telecommunications companies in 1998, telephony penetration in Brazil was very low, limiting the use of contact centers as an effective way to deliver customer service on a broad basis.  Today, a larger portion of the Brazilian population can access customer services in general through different communication channels, including both mobile and fixed-line terminals.  According to the Brazilian telecommunications regulatory agency (Agência Nacional deTelecomunicações), or Anatel, total wireline and wireless penetration grew from 42.8 million in 1999 to 215.4 million in December 2009. ·Expansion of contact center-intensive service sectors due to economicstabilization and privatization.In the mid-1990s, Brazil implemented successful economic reforms which created a stable macro-economic environment, spurring the growth of financial services and, consequently, the consumer base of these companies.  Brazil concurrently privatized large state-owned service providers in the telecommunications, electric, water and gas sectors, which brought about large investments and a rapid growth in customers. ·Pressure to reduce costs.Pricing pressures from competition and shareholder demands for higher returns have forced Brazilian companies to streamline personnel, through restructuring and outsourcing, and to make other cost reductions, including reducing face-to-face customer services. According to the most recent data provided by IDC, the total number of outsourced workstations in Brazil grew from 127,670 workstations at December 31, 2007, to 148,000 at December 31, 2008 and, based on preliminary estimates, 172,526 at December 31, 2009, which represents growth of approximately14.2% in 2008 and 16.1% in 2009.  We believe that this increase in outsourced contact center workstations is an indication of substantial growth opportunities for contact center services providers in the next few years. 24


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As part of our efforts to improve the services we provide to our clients, we launched, in November 2007, a project to voluntarily join the Seal of Ethics of PROBARE - Brazilian Program for Self-Regulation of Client Relations Market.  PROBARE is an initiative by three entities active in the client, consumer and company relations market in Brazil: Brazilian Association of Direct Marketing (ABEMD -Associação Brasileira de Marketing Direto); Brazilian Association of Client Relations (ABRAREC -Associação Brasileira das Relações Empresa Cliente); and Brazilian Association of TeleServices (ABT -Associação Brasileira de Telesserviços).  These entities identified the need for definition of standards of self-regulation in the client, consumer and company relations sector, in order to improve services provided. In order to attain this status, we underwent a rigorous auditing program according to which we had to meet strict requirements.  Our Antártica (São Paulo), Comércio (Salvador) and Mauá (Rio de Janeiro) sites have been officially certified, and we are working to fulfill the same requirements in other operational sites. Regulatory Developments regarding Telemarketing Services On July 31, 2008, the Brazilian Federal Government enacted Decree No. 6,523/2008 (Decreto no 6.523/2008), which became effective on December 1, 2008 and is imposed upon services providers regulated by Federal agencies (i.e., telephone, electric energy, cable television, credit card, and airline companies).  The new set of rules, which is also referred to as the Call Centers Law (Lei dos Call Centers), mandates that the Customer Assistance Service (SAC - Serviço de Atendimento ao Consumidor) of such services providers shall comply with the following: (i) all telephone calls must be free of charges and may not result in any financial burden to consumers; (ii) consumers must have the option in the first menu  and in all subsequent menus  to contact directly an operator; (iii) telephone calls will not be terminated until the request is completed; (iv) access to an operator shall not be conditioned to providing any consumers data; (v) consumers must have access to an operator within a time limit ranging from forty-five (45) seconds to ninety (90) seconds, depending on the business of the service provider, as mandated by Ordinance No. 2,014/2008 from the Ministry of Justice (Portaria no 2.014/2008); (vi) misdirected telephone calls must be reassigned to the proper operator within sixty (60) seconds; (vii) unless authorized by a caller, no marketing nor advertising, such as recorded announcements, is permitted while a caller is on hold; (viii) all claims, requests, demands and complaints must receive a protocol number to permit the consumers to track their information; and (ix) all telephone calls must be recorded and retained for a period of ninety (90) days and must be provided to consumer upon request within ten (10) days, pursuant Ordinance No. 49/2009 of the Secretariat of Economic Law of the Ministry of Justice (Portaria no 49/2009). A series of bills have been presented to Brazils House of Representatives and Senate and to local legislative branches of certain Brazilian states and municipalities proposing to regulate several aspects of the outbound telemarketing services we provide, such as: (i) the days and hours during which outbound calls are allowed; and (ii) the creation of a national do not call list.  These proposals were part of Bill No. 243-04, which currently provides for the creation of the do not call list, limitations on outbound telemarketing services to the hours between 8:00 am to 6:30 pm, except on Sundays and holidays during which outbound telemarketing services are prohibited.  The proposals are currently being discussed by the Commission for Constitution, Justice and Citizenship (Comissão de Constituição, Justiça e Cidadania) in the Senate, which is expected to issue a conclusive decision and submit the bill to the House of Representatives and then to the President of Brazil for final examination and approval.  If approved, such amended bill will enter into effect after a grace period of one year.  Additionally, there are other bills pending in the House of Representatives that also propose the creation of do not call list legislation with minor differences among them. In 2009, the States of Alagoas, Pernambuco, Maranhão, Paraíba, Paraná, Rio Grande do Sul, Espírito Santo, São Paulo and Mato Grosso do Sul enacted new laws which created local registers fortelemarketing phone call blocking.  Under these laws, telemarketing companies are prevented from contacting customers in these states that are registered in the public database.  These laws restrict our ability to make outbound calls to these states, which limits our revenue and growth opportunities. 25


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Our Strategy
 Contaxs business model is built on the expertise acquired through highly complex operations and a high volume of transactions, allowing us to render customized services.  We seek to address the specific needs of each client and to offer products that solve problems in a continuing and pro-active manner.  We aim to serve as an essential link between our clients and their customers, adding value through our services.  We believe that the more we participate in and understand our clients business, the more we can enhance the quality of the services we offer. In 2005, in order to improve the link between our clients and their customers, we established a business strategy focused on (i) the improvement and differentiation from other service providers of our four main services: customer service; telemarketing; customer retention; and debt collection; and (ii) excellence in support areas and operational processes. We aim to establish long-term relationships with our clients by seeking to deliver continuing and sustainable results.  We also seek to introduce new services for existing clients.  In 2009, the growth in revenues from pre-existing clients accounted for 91% of the growth in net revenues. At the end of 2008, in an effort to increase the diversification of our service offerings, we created a new subsidiary, Todo, which is focused on information technology services outsourcing.  The experience acquired in-house by our IT department in providing contact center solutions was incorporated into a new business that initially targeted in-house contact centers.  Currently, in addition to providing IT solutions for our business, Todo seeks to develop new IT solutions for other clients as well.  Furthermore, we are considering diversifying our strategic initiatives through (i) the acquisition of contact center services providers in other Latin American countries; (ii) the development of a sales representative business pursuant to which we will supply outsourced sales personnel to provide in-store sales and marketing services to our clients; and (iii) the rendering of administrative services that are part of customer relationship management solutions. Considering our strategies, our approach to refining our principal product offerings is focused on: Customer service:We believe that one of the reasons many clients are resistant to outsourcing their customer service function is fear of lowering quality and thus jeopardizing the relationships they have with their customers.  We seek to address these concerns by enhancing the customer service model currently in use in the market, implementing actions designed to make each contact with a customer more profitable, consistently improving the quality of services and increasing efficiency.  We seek to expand our client base by providing high quality and personalized service consistent with our clients expectations. Debt collection:We see potential for growth in the debt collection market.  Each industry segment and each client has different requests concerning the way a collection should be processed.  We believe the successful model used with some of our clients can be successfully implemented in other operations, depending on the needs of other clients.  By developing pilot tests to try new methods of debt collection, integrating management information systems with clients needs, providing debt collection operators with proper training, as well as implementing customized forms of variable earnings, we believe that we will be able to continue to grow our client base. Telemarketing:We believe we have consistently improved the quality of our telemarketing services.  The model we developed with our oldest client, Oi, has been mutually beneficial.  We believe that by customizing this model to the specific needs of other clients, we will be able to fulfill our other clients requirements. 26


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Customer Retention:Our customer retention services seek both to persuade the end consumer not to cancel a service and to observe consumer behavior, adopting preventive measures to avoid cancellation requests and mapping and developing new customer retention offers. The development of our support areas and operational model include the following principal elements: Human resources:We believe our employees are the key to our success.  We focus on attracting and retaining new employees, monitoring their performance and using diverse training methods to meet each clients needs.  By developing a structured career plan and providing various performance initiatives, we seek to achieve employee excellence and instill our companys values in our workforce. Operational model:By providing our clients with services during the entire customer lifecycle and developing a compelling value proposition in our main product categories, we believe we can continue to enhance our operational model. IT systems:We believe that infrastructure and technology are important elements in providing superior services and attracting new clients.  We seek to maintain a competitive advantage and to distinguish our services by utilizing advanced IT systems and by maintaining strong partnerships with leading technology providers.  With this objective, Todo was created to become a supplier of technological services designed according to the specific needs of contact centers.  Todos first customer, when it commenced operations in April 2009, was Contax, which outsourced its entire IT area to Todo. Commercial model:We have recently added specialized members to our sales force and created a product management marketing function in order to expand our range of clients and services.  We are developing new product offerings that focus on specific segments of our clients businesses and are continually identifying clients that are not currently key accounts to whom we seek to provide a broader range of contact center services. Since 2006, within the WE MAKE CUSTOMERS FOR LIFE business strategy, we have created Operations Offices, which specialize in customer service, debt collection and telemarketing, as well as creating a Department of Products, which implements a set of product offers in our main product lines. Competition The outsourced contact center sector in Brazil is competitive and fragmented.  Our five largest competitors are listed further below.  We also compete with a variety of companies, including niche providers, consulting companies, IT providers and numerous small companies that offer low value-added services (primarily outbound telemarketing services).  In addition, we compete with in-house contact centers, which continue to represent the largest segment of contact center activities.  Moreover, some of our outbound services also compete with other forms of direct marketing, such as mail and e-mail messages, and with traditional media, such as television and radio. We believe offshore outsourcing, where the contact center provider is not located in the same country as its customers, is neither a threat nor a significant opportunity for us as of the date of this annual report.  Because Brazil is a low-cost country and the national language is Portuguese, it is unlikely that contact center service providers in other countries, usually referred to as offshore facilities, could provide Portuguese-speaking customer service at a lower cost than providers in Brazil.  Although Brazil has competitive labor costs when compared to those of other countries and a large qualified workforce, we do not believe that significant opportunities to provide services for other countries currently exist.  We monitor these opportunities on a regular basis. We also face competition from automated customer services, through the use of Internet, Interactive Voice Response, voice recognition and other technologies.  We provide automated customer services as a part of our contact services and continue to develop our technology in this area.  However, anincrease in the use of automated services could prevent us from effectively passing through our costs to our clients, and may also shorten the speaking time of our calls. 27


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As a result of intense competition, contact center services are frequently subject to pricing pressures.  Competition for contracts for many of our services takes the form of competitive bidding on proposals, which take into account quality, technical and cost factors. Since 2005, we have been the leading contact center service provider in terms of revenues (based on information in the most recent financial statements published by Brazilian contact center companies).  Our major competitors in Brazil are: ·Atento.  Atento is a part of the Spanish telecommunications group, Telefónica, which in Brazil controls a large fixed-line operator (Telesp), an Internet provider (Terra) and, together with Portugal Telecom, Brazils leading mobile operator (Vivo).  Atento has operated in the Brazilian market since 1999.  After acquiring several companies in the sector, Atento became one of the largest contact center services providers in Brazil.  Two of Atentos major clients are Telefónica and Banco Itaú Unibanco. ·Tivit.  Tivit is controlled by Tivit Tecnologia (35%), Patria Group (7%), Luiz Roberto Novaes Mattar and Eraldo Dante de Paola (14.31%).  On May 10, 2010, funds managed by Apax Partners entered into an agreement to acquire 54.25% of the shares of Tivit.  Following the acquisitions of Softway and Telefutura in 2007, Tivit has become one of the five largest contact center providers in Brazil.  Two of Tivits major clients are Santander and Telefónica. ·Dedic.Dedic is controlled by Portugal Telecom, which controls Vivo jointly with Telefónica.  Dedic renders services, directly or indirectly, primarily to Portugal Telecoms subsidiaries in Brazil.  Two of Dedics major clients are Telefônica and Banco Itaú Unibanco. ·CSU.  CSU is controlled by Gstaad Investment Holding Company and River Charles.  CSU was created in 1992 and is comprised of four units: (i) CSU CardSystem, which is currently the largest Brazilian independent automated billing processing company; (ii) CSU TeleSystem; (iii) CSU Credit&Risk; and (iv) CSU MarketSystem.  CSU is present in São Paulo, Rio de Janeiro, Pernambuco and Paraná, and two of its major clients are Globo Cabo (NET) and Banco do Brasil. ·Teleperformance.  Teleperformance is a French company that operates in approximately 45 countries.  In 2004, Teleperformance expanded its Brazilian operations by merging with Companhia Brasileira de Contact Center, after which Teleperformance became one of the largest contact center service providers in Brazil.  Two of Teleperformances major clients are UOL (one of the largest Brazilian Internet providers) and Sky/Direct (a pay-TV provider). Our Business We offer a variety of integrated customer-interactive products and services covering all stages of the customer lifecycle through multiple communications channels.  Each of our main service offerings (customer service, telemarketing, technical support, client retention and debt collection) seeks to add value to our clients customer relationship management (CRM) strategies, while anticipating their needs.  We believe we operate in a flexible environment that can accommodate dynamic shifts in volume, workload and staffing requirements.  We seek to build upon and strengthen end-customer relationships on behalf of our clients.  Our operators are highly trained in the applicable products and services they are supporting and, as a result, they can act as a seamless extension of our clients efforts to acquire and service their end-customers. Our business approach is geared toward creating unique products and services that are developed jointly with our clients, leveraging our experience and best practices for each new client we serve. 28


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Building on these tailored products and services, we have developed particular strengths (e.g., customer retention and debt collection) that we can leverage by servicing other clients across diverse sectors. The main services rendered by us are the following: ·Customer Service.  Our customer service solutions focus on providing high quality customer service and on understanding the reasons why customers initiate contacts, which are followed by specific recommendations for improving services offered by our clients.  Contax also develops cross-selling and up-selling strategies associated with customer service efforts and identifies opportunities for automation.  Our customer service solutions are segmented into interactive voice response (IVR), personal services (B2C and B2B), technical support, field support and back-office. ·Telemarketing.  Our telemarketing service is focused on providing efficient solutions for attracting new customers (whether through active, receptive or blended approaches) and improving returns from the existing portfolio of customers, always focusing on the specific characteristics of each customer and our clients target market.  We seek to achieve these goals through (i) efficient contact, through predictive dialers (which are computerized systems that automatically dial batches of telephone numbers) and enhancement of contact lists, and (ii) the quality of the telemarketing personnel, achieved through recruiting focused on the appropriate profile of potential employees, regular training and motivation. ·Debt Collection.  We design debt collection strategies together with our clients to maximize              results, while emphasizing customer retention.  We participate from the early stages of developing our clients debt collection strategy through the actual execution of the strategy, using database        filters (systems that prioritize contacts and determine the type of service each customer will          receive), predictive dialers and other automated contact tools, such as voice mail and text               messages typically sent to wireless handheld devices, in order to maximize the likelihood of                customer contact and behavior models that enable us to categorize customers risk and identify the       most efficient techniques for interacting with customers.  In order to enhance our performance, we       launch pilot programs to test the statistical efficiency of specific tools and strategies. ·Technical Support.  We provide comprehensive technical product support for our clients customers.  For example, we handle troubleshooting calls of consumer products, respond to software and hardwareproblems, provide support for ISPs dial-up and broadband customers, and manage corporate IT help desks.For such services, we employ qualified personnel with specialized technical training in dedicated teams. ·Customer Retention.  We provide our clients with customer retention services, whether by persuading their end-customers not to cancel a service or by observing customer behavior and taking preventive measures to avoid cancellation requests.  We collaborate with our clients by mapping final customers opinions in an effort to ensure the adoption of adequate strategies for reversing intentions to cancel services. We also offer other services such as dispatch, back-office support and surveys, among others.  Furthermore, we continuously work with our clients to develop new products and service offerings. With the objective of exploring new business opportunities and developing new products, in April 2009, we initiated Todos operations.  Todo acts as a provider of technology services, with an initial focus on the contact center segment.  Through Todo, we intend to supplement our range of services and take advantage of our expertise and market relationships in order to expand our information technology services outsourcing activities. Todo was created from Contaxs own IT area, which we believe will facilitate its emergence as a significant player in this market segment.  Over time, Todo intends to expand its operations mainly to offerservices to companies that have their own contact centers, providing technological solutions for this market, which has shown a growing demand for specialist service providers. 29


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The percentages of revenues derived from each of the services listed above were as follows for the periods indicated: Year ended December 31,Services
     2009
     2008
     2007Customer Service
     58.8%
     54.0%
     53.0%Telemarketing
     14.1%
     15.7%
     13.7%Debt Collection
     15.3%
     15.0%
     17.1%Technical Support
     2.3%
     1.9%
     2.5%Customer Retention
     4.2%
     5.0%
     5.0%Other
     5.3%
     8.4%
     8.7%Total
     100.0%
     100.0%
     100.0%
  On a monthly basis, we handle approximately 180 million customer contacts over the telephone at our 30 contact center sites. Our technology infrastructure provides for the effective distribution of calls to one or more of our sites. Markets and Clients We provide contact center services primarily across the following sectors: ·Telecommunications.  We provide a full range of contact center services to Oi, our largest client.  Ois operations include fixed-line terminals, long-distance services, mobile services, as well as broadband and corporate voice and data services.  In addition to traditional customer related services, we deliver extensive customer retention and debt collection services for Ois retail and corporate customers.  Due to our strong relationship with Oi and because other telecom groups control their own contact center companies, we have not actively pursued other opportunities in this sector. ·Financial Services.We provide a broad range of services to the credit card, retail bank and insurance segments, as well as to consumer credit companies.  This sector continues to grow in importance for us since many financial institutions have in-house operations that fit into our strategy of focusing on clients with high volume and highly complex services.  In addition, new financial products and service offerings have expanded our opportunities in this sector. ·Utilities.There are several large companies in Brazil in the power, water and sewage, and gas distribution segments.  Currently, we provide services to a few power distribution companies in the Southeast and Northeast regions of Brazil.  We intend to continue to expand our activities in the utilities sector and believe we could benefit if there is further privatization in the water and sewage segment. ·Internet.  We have developed specific end-to-end services for Internet service providers, or ISPs, by servicing iG, Brazils largest ISP, and, more recently, Ois new ISP subsidiary.  We are particularly interested in providing customer acquisition, retention and technical support services to the growingnumber of broadband Internet access providers. Other key sectors include pay TV, travel and transportation.  We conduct all of our business in Brazil and all of it in Portuguese. 30


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The percentages of revenues with respect to each sector listed above were as follows for the periods indicated: Year ended December 31,Sector
     2009
     2008
     2007Telecommunications(1)
     57.3%
     51.2%
     50.8%Financial Services
     36.9%
     33.7%
     33.5%Utilities
     0.7%
     1.5%
     2.0%Internet
     0.0%
     0.2%
     1.3%Other(1)
     5.1%
     13.4%
     12.4%Total
     100.0%
     100.0%
     100.0%
 __________________________ (1)   Reflects the reclassification of a significant client from Other in 2007 and 2008 to Telecommunications in 2009. Revenues from such client amounted to R$143.2 million for the year ended December 31, 2009 (representing approximately 6.6% of our total revenue for such period) and R$136.4 million for the year ended December 31, 2008 (representing approximately 7.7% of our total revenue for such period). Client Contracts Most of our relevant contact center services agreements range from one to six-year terms and allow clients to terminate services after an initial lock-in period, which varies from six to 60 months.  Most of these contracts establish penalties calculated as a percentage of the estimated value due for the remaining term of the agreement.  We have historically established long-term relationships with our clients based on the renewal of our contracts and expansion of the services we provide. Pricing models have evolved over the last few years.  In the past, most of our contracts were based on capacity rental, where the client defined the number of workstations to be employed for a fixed price.  Most of our inbound service contracts are now billed based on speaking time, where the client pays for each minute of conversation between our operators and customers.  Other services are mostly priced on a pay-for-performance basis, where we either receive a combination of a fixed-rate fee plus a success fee or payments that are wholly performance-based.  Typically, performance-based compensation is used in debt collection and telemarketing services. Our services can be rendered on a fully-outsourced or partially-outsourced basis.  Partially-outsourced services may include providing our contact center infrastructure when clients desire to use their own employees or providing our human resources when clients have already invested in their own facilities. Nearly all of our contracts include service level agreements (SLAs) that define performance requirements and minimum quality thresholds.  Service Level Agreements are agreements between service providers and their customers that define, among other things, the services provided, the metrics associated with these services, acceptable and unacceptable service levels (e.g., speed-of-answer goals), liabilities on the part of the service provider and the customer in the case of non-performance, and actions to be taken in specific performance.  The most common service level agreement provision on inbound services is related to the time a customer should wait to be serviced.  This is typically measured as the minimum percentage of phone calls that should be answered in a maximum time frame (e.g., an 80/20 service level agreement provision requires that at least 80.0% of the calls will be answered in no longer than 20 seconds).  With the increased complexity of outsourced services, more service level agreement provisions are required by clients, such as service interruption, adherence to defined scripts, and even operator turnover.  If we do not meet a service level agreement provision, we may be liable for penalties or a price reduction of our services. 31


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 Our clients are entitled to receive penalties and indemnification from us when they face operational problems or damages resulting from an act of imprudence, negligence, gross negligence orwillful misconduct by us in connection with the delivery of our services.  These penalties, and consequently the respective amounts due thereunder, vary depending on the type and level of each failure.  Hence, we cannot quantify an amount for these penalties in advance, since it is only possible to determine the nature and extent of those failures when a specific event occurs.  Regarding our indemnification obligations, we have other contracts pursuant to which we may be required to pay the total amount of the damages incurred by a client, as calculated by the client, an arbitrator or a judge in a legal proceeding.  As a result, we are unable to estimate the amount of these potential indemnification obligations, since such amount would be directly related to the nature and extent of the damages incurred by our clients and caused by us, our directors, officers, employees or subcontractors.  Our exposure in any of these circumstances could be significant. Result Variance and Seasonality We experience variations in our results of operations primarily due to the timing of our clients customer relationship management initiatives, such as customer acquisition and sales campaigns.  For example, we experience higher activity in December, which is typically a month of higher volume of promotional activities and sales for our clients, while the beginning quarter of the year tends to be slower in volume of business due to it being a period of holidays and less working days. Our periodic results may also be impacted by the start of significant operations under a new contract or the termination of an existing one.  The start of a contract may adversely affect our results, since we incur start-up costs that are recovered throughout the course of the contract, such as hiring and training personnel and IT implementation.  The termination of our existing contracts may also adversely impact our results, as we would incur increases in costs relating to the severance of our employees and the reallocation of our assets, as well as suffer lower utilization rates of our facilities. Another relevant factor that may impact our results is the practice of annual rate adjustments, usually related to past inflation.  This practice is very common in Brazil, and some of our contracts allow for rate adjustments on an annual basis while some of our costs (e.g., telecommunications and leased facilities) have periodic rate adjustments according to past inflation.  If any significant client contract has its rate adjusted, our monthly results may be positively impacted in relation to the previous month.  We are currently in negotiations with the labor union, and any increase in our employees wages or benefits that may result from the conclusion of these negotiations may have an impact on our business until the contractual rate adjustments with our clients become effective. Our annual labor union negotiation typically results in compensation increases, which could take the form of a percentage salary increase and/or one-time payment.  In the event of the latter, our cash flow in a given period would be more acutely affected. Human Resource Management At December 31, 2009, our headcount totaled 78,200 employees.  We believe human resources are the key to the success of our business.  Accordingly, we continuously refine our approach to hiring, training and managing qualified personnel at all levels of our organization, which we believe to be one of our core strengths.  We offer classroom, online and on-the-job training programs for our employees, ranging from training regarding information about our clients and the products and services they offer to techniques relating to telephone-based sales and customer service.  Once hired, each new operator receives on-site training, the duration of which depends upon the complexity of the services to be provided. In an effort to guarantee productivity and quality of our employees performance, we have developed specific training programs related to customer service, telemarketing and debt collection techniques.  We also have specific training programs for activities with performance-based compensation services. We also focus on employee retention.  This effort is important since initial training, particularly for inexperienced and young recruits, is costly and time consuming.  Moreover, better-qualified and more experienced operators generally achieve higher productivity levels and greater revenue per workstation. 32


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We have an aggressive internal employee promotion program.  Our systems and tools allow us to track each operators performance using predefined indicators, such as punctuality, absence and productivity.  These systems allow us to reward our best employees and provide specific training for underachievers, seeking to achieve greater productivity and reduce total human resources costs.  We have variable compensation programs for activities that are linked to the achievement of performance-based goals. Facilities Our principal executive office, known as Passeio, is located in Rio de Janeiro, Brazil.  This facility currently serves as the headquarters for senior management and the financial, information technology, human resources and administrative departments.  Passeio also houses contact center operations, with 2,443 workstations, and it is currently our largest facility with 24,044 square meters.  At December 31, 2009, we had in operation a total of 30contact centers in seven different Brazilian states. We believe our existing facilities are adequate to meet current requirements and to accommodate minor expansions.  Instead of maintaining extra capacity for future demands, we have opted for a strategy of high capacity utilization.  In order to meet aggressive implementation requirements of new clients, we have developed a group of suppliers with standardized products and services, capable of quickly responding to our need for additional workstations or facility expansion.  Furthermore, in locations such as São Paulo and Rio de Janeiro, where we believe there is a higher likelihood of future growth from client demand, we seek to lease premises that allow for significant expansion, if necessary. We seek new locations where there are favorable workforce demographics, ample telecommunication and electricity services and easy access to transportation for employees.  We also perform a cost-benefit analysis of every potential location in light of rental costs, setup/retrofit costs, local tax incentives, safety features, and the cost of future expansion.  This has helped us to achieve competitive advantages in connection with the location of our facilities: (i) our operations are geographically spread out, covering a substantial part of the main economic areas of Brazil; and (ii) we have significant operations in places like the Northeast of Brazil which allow us to render services at generally lower costs, mainly as a result of local tax incentives and high performance of our personnel at lower labor costs. 33


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The following table sets forth additional information concerning our facilities at December 31, 2009:  Sites
     State
     # Work Stations
     # Employees
     Sq. Meters
     ExpirationPasseio(1)
     RJ
     1,958
     4,193
     24,044
     Nov. 10, 2010Makenzie
     RJ
     1,638
     3,161
     10,077
     Dec. 30, 2009 (5)Mauá
     RJ
     1,279
     3,825
     9,702
     Feb. 28, 2013Niterói
     RJ
     1,766
     4,681
     13,624
     Dec. 30, 2009 (5)Riachuelo
     RJ
     464
     1,461
     2,335
     Jan. 14, 2013São Cristóvão(2)
     RJ
     556
     20
     5,600
     Not ApplicableBeneditinos
     RJ
     928
     982
     1,330
     Mar. 31, 2013Engenho de Dentro
     RJ
     486
     671
     3,368
     Nov. 30, 2012Rio Comprido
     RJ
     402
     670
     6,479
     Oct. 31, 2013Alameda Santos
     SP
     Support Area
     
     1,110
     Mar. 25, 2012Alegria
     SP
     2,352
     5,041
     19,000
     Nov. 20, 2017Antártica
     SP
     2,544
     5,418
     21,621
     Jun. 13, 2014Augusta
     SP
     398
     3
     3,497
     May 31, 2011Inhaúma(3)
     SP
     739
     25
     3,350
     Jun. 30, 2011Lapa
     SP
     1,483
     4,077
     17,375
     Dec. 31, 2012Oliveira Coutinho(4)
     SP
     868
     21
     3,419
     Sept. 30, 2013Paulista/ Conj. Nacional
     SP
     2,399
     4,382
     14,711
     Apr. 23, 2012Rubens Meireles
     SP
     Support Area
     2
     2,752
     Jul. 2, 2011Contorno
     MG
     2,175
     6,335
     7,290
     Jul. 30, 2010Prado
     MG
     2,263
     5,371
     11,998
     Dec. 31, 2014Comércio
     BA
     1,750
     4,459
     11,000
     Mar. 30, 2014Fonte Nova
     BA
     1,562
     3,771
     10,296
     Dec. 30, 2009 (5)Fortaleza
     CE
     2,464
     6,090
     15,246
     Dec. 30, 2009 (5)Nascente
     CE
     243
     748
     2,248
     Dec. 31, 2013Aurora
     PE
     625
     1,336
     8,584
     Oct. 1, 2012Conquista
     PE
     862
     2,068
     9,256
     Feb. 24, 2011Príncipe
     PE
     685
     1,729
     3,805
     Dec. 30, 2009 (5)Santo Amaro
     PE
     470
     2,072
     40,270
     Oct. 20, 2015Navegantes
     RS
     1,242
     4,646
     12,103
     Dec. 31, 2015Brasília
     DF
     219
     512
     4,045
     Dec. 31, 2010Barão de Tefé(6)
     RJ
     
     143
     1,300
     Jan. 31, 2011Alameda Santos(6)
     SP
     
     198
     3,261
     Mar. 15, 2014Florianópolis(6)
     SC
     
     89
     695
     Jul. 1, 2012Total
     
     34,820
     78,200
     304,791
 __________________________ (1)        Includes both contact center operations and our headquarters. (2)       We acquired this real property in December 2007. We own the title deed, but it has not yet been registered at the Notary Public.  The price of the building and land acquired by Contax in December 2007 was R$3,459 thousand.  This site was launched to house operations for financial clients, where we manage the technological park and infrastructure of the clients contact center, while the client is in charge of personnel. (3)       These sites were launched to house operations for specific clients, where we manage the technological park and infrastructure of the contact centers, while the clients are responsible for personnel. (4)       Since March 3, 2007, we have been rendering services to a financial institution from this site, on which such financial institution is the lessor and is in charge of personnel in this site. (5)       We are currently negotiating with Oi the terms of renewal of the leases of these sites. (6)       Todo site. 34


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Information Technology Our growth and business success, among other factors, depends on highly effective technology, and therefore our new Technologies Department, has focused on: ·Research of new technologies and benchmarks to facilitate the growth of our business; ·Identification of potential suppliers or technologies adhering to our strategy; ·Evaluation of infrastructure solutions and products, in order to reduce operational costs and enhance business effectiveness; and ·Increasing efficiency and improving the performance of IT processes. In 2009, we made significant investments in telecommunications and IT infrastructure in an effort to meet our and our clients requirements.  We believe that we must continue to invest in the development of new and innovative systems on a timely basis in order to maintain our competitiveness. We use industry-standard software and hardware from IBM, Lenovo, Microsoft, Oracle and Cisco, EMC, Avaya, Nortel, SAP, Novell, Genesys, Dell, Altitude, Intervoice, Nice, CA, Symantec and others for operations and administrative functions, in addition to our own internally developed software and applications.  For the purposes of interacting with our clients databases, we have implemented highly customized services.  In connection with some services, we also utilize systems and software developed by our clients. We have developed the internal capability to design software services applicable to our business requirements.  Our in-house software development team is comprised of approximately 90 systems programmers and analysts.  We have successfully developed in-house systems that have resulted in a competitive advantage by allowing us to tailor our services as well as control and reduce our operational costs, particularly those related to employee productivity.  See  Our Strategy. We utilize sophisticated technology for our business, from our telephony platforms (Avaya and Nortel) to our workstations, computer equipment (Dell, IBM, Lenovo and others) and professional recorders, as well as productivity tools, such as predictive dialers, Interactive Voice Response Units, automated call distributors andworkforce management software.  Our customer service professionals have the tools to initiate and efficiently handlemillions of service interactions on a daily basis.  Our telephony infrastructure, partnered with Ois as well as other carriers data and telephony networks, provide several options when routing voice and data contacts throughout our different sites.  These platforms support such features as voice over IP, or VoIP, best services routing, skills-based routing and schedule adherence.  35


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Capital Expenditures The following table sets forth our capital expenditures for the periods indicated: Year ended December 31,2009
     2008
     2007(in thousands ofreais)Telecommunications and IT systems
     64,524
     110,540
     76,665Leasehold improvements
     75,417
     31,328
     33,287Furniture and fixtures
     11,274
     16,537
     12,249Other
     7,955
     9,525
     11,217Total capital expenditures
     159,170
     167,930
     133,418
 Our capital expenditure is primarily linked to our rate of growth, with a portion (approximately 20.0%) being applied towards general upgrades and quality improvements of our existing systems. Sales and Marketing Our commercial efforts are focused on the largest Brazilian economic conglomerates, which we believe have the potential need for a significant number of outsourced services.  As a result of this strategy, we channel virtually all of our sales efforts through our direct corporate sales force, consisting of seven key account managers, led by seven commercial managers and supported by a team of 30 people who areresponsible for supporting the key account managers in designing commercial proposals. According to our Leadership in Execution strategy, in 2005, we structured the Products Solutions Development team in order to enable us to deliver customized products to our clients.  Based on our understanding of our clients needs and specific requirements, this team generates customized solutions using in-house knowledge and experience.  Furthermore, this division is responsible for managing the entire service delivery process, interfacing with various other areas of Contax. Moreover, we also organize sales, products and marketing teams with two main guidelines: (1) structuring and developing Contaxs service offerings, focused on three lines of services: Customer Service, Telemarketing  and Debt Collection; and (2) assisting our operational divisions in implementing best practices. In 2006, we adopted a strategy known as WE MAKE CUSTOMERS FOR LIFE, which illustrates our commitment to, and alignment with, our clients long-term satisfaction.  This new vision encourages us to organize and present ourselves as a strategic partner, focused on our clients final customers, thus creating an interdependent relationship with our clients.  We intend to be a relationship company rather than a simple service company. Insurance Our assets and liabilities of material value and high risk are currently covered by insurance policies maintained by Contax Holding and Contax S.A., which provide coverage for material damage and loss of revenue arising from such damage.  Contax Holdings insurance policy is valid until January 2011, and Contax S.A.s insurance policies are valid until June 2011. We believe the applicable coverage amounts will be adequate for the nature and risks of our activities and sufficient to ensure the protection of our net worth and operational continuity.  All policies are renewable upon expiration. 36


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Our insurance policies comprise the following coverage, measured by the risks and nature of our assets: Coverage Type
     Amount Covered in 2010
     Amount Covered in 2009Property damage
     R$97,000 thousand
     R$81,427 thousandBusiness interruption
     R$47,556 thousand
     R$43,283 thousandGeneral liability
     R$10,000 thousand
     R$10,000 thousandDirectors and Officers liability
     U.S.$100,000 thousand
     U.S.$100,000 thousand
 Intellectual Property On December 30, 2008, Tele Norte Leste Participações S.A. transferred to us at no cost 18 trademark applications/registrations containing the word Contax filed before the Brazilian Patent and Trademark Office (Instituto Nacional de Propriedade Industrial).  The record of this assignment and the respective publication by the Brazilian PTO are still pending.  The portfolio includes 15 trademark registrations and three pending registrations. On November 18, 2008, Todo filed two trademark applications with the Brazilian PTO.  On March 20, 2009, Todo filed eight trademark applications, which have not yet been published for the knowledge of third parties.  All of Todos trademarks are pending registration, and two are being contested by third parties. There are currently seven domain names registered with the Contax name at the Center of Information and Coordination of Dot BR- NIC.BR (Núcleo de Informação e Coordenação do Ponto BR - NIC.br), the Brazilian institution responsible for registering domain names.  There are four domains (including www.contax-net.com.br and www.contaxt.com.br) registered under the name of Contax Holding (Contax Participações S.A.), one (www.contax.com.br) registered under the name of Contax S.A., and two (www.contax.net.br and www.contaxt.net.br) registered under the name of TNL.  The domain names registered by TNL will be assigned to us at no cost, upon authorization of NIC.BR. There is currently one domain name registered in name of Todo (www.todobpo.com.br) at the Center of Information and Coordination of Dot BR - NIC.BR (Núcleo de Informação e Coordenação do Ponto BR - NIC.br). Item 4A.      Unresolved Staff Comments Not applicable. Item 5.         Operating and Financial Review and Prospects The following discussion and analysis of our results of operations, financial condition and liquidity should be read in conjunction with our Consolidated Financial Statements and the related notes included elsewhere in this annual report. Executive Overview We provide contact center services, such as customer service, telemarketing, technical support, customer retention and debt collection.  We were the largest contact center services provider in Brazil in terms of net revenues in 2009 (R$2,161 thousand), based on information available in the most recent financial statements published by Brazilian contact center companies. Our services vary based on the nature of the contact interaction (i.e., whether the contact is inbound or outbound) and are generally rendered from our 34,820 workstations (as of December 31, 2009) through various communication channels, such as by telephone, web, mail and e-mail.  Our revenues are calculated based on a number of indicators, including the number of workstations, speaking time andperformance targets, which vary in accordance with the type of service and contractual arrangements we have with our clients. 37


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Our results of operations are significantly impacted by the following factors, among others: ·the acquisition or loss of a major client; ·fluctuations in demand for our services; ·our ability to pass through to our clients increases in costs; ·our ability to efficiently manage our workforce productivity; and ·success or failure with respect to our performance-based services. Acquisition or Loss of a Major Client The acquisition or loss of a major client may have a significant effect on our results of operations.  Beginning operations under a new contract may adversely impact our results of operations, since we incur start-up costs that are recovered throughout the course of the contract, such as hiring and training personnel and IT implementation.  The termination of our existing contracts may also adversely affect our results of operations, as we would incur costs to terminate employees and re-allocate assets, as well as suffer lower utilization rates of our facilities. Fluctuations in Demand for Our Services The increase and decrease of demand for our services by our major clients has a significant impact on our results of operations, particularly as such fluctuations affect capacity utilization rates.  The growth of our clients customer bases can increase the overall need for contact center services, such as customer service, telemarketing, debt collection and customer retention.  If our clients customer bases erode or other events occur, such as increased automated customer service or a decrease in call volume and/or speaking time, a decrease in our revenues could result. Our Ability to Adjust Rates Charged for Our Services Our ability to obtain rate adjustments to compensate for increased costs is a significant factor affecting our results of operations.  Our business is very labor intensive, and personnel costs are among the key factors impacting our costs.  These costs include wages, costs of employee benefits, payroll taxes and social security contributions.  For 2009, personnel costs accounted for 74.8% of our total costs, while the remaining 25.2% represented costs associated with third-party services, depreciation, amortization, rent and insurance. Our annual collective labor negotiations involve the discussion of compensation and benefits.  To protect against cost increases related to telecommunications, energy and our leased facilities as well as the impact of inflation, most of our contracts have annual rate adjustment clauses that allow for price increases to cover any such cost escalation.  We may decide not to exercise the right to adjust prices fully in view of competitive conditions and/or other client relationship issues. Our Ability to Efficiently Manage Our Workforce Productivity Our profitability depends largely on the productivity of our workforce.  Workforce productivity involves both traffic planning, which consists of designing facilities and resources to meet user requirements, and corresponding workforce management. 38


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Inbound services based on speaking time represented approximately 44.3% of our revenues in 2009.  Efficient traffic planning is key to the profitability of our services, by bringing the number of operators as close as possible to the levels required to deal with incoming call volume.  An excess number of operators, based on an overestimated forecast, may cause our profitability to decrease due to idle capacity.  In contrast, if there are more incoming calls than originally forecasted, we may not have enough operators to deal with the additional call volume, and we may be subject to service level agreement penalties. Workforce management involves team scheduling that requires the use of sophisticated planning tools to determine the number of employees scheduled during each shift for each type of service, according to our forecast of call volume and speaking time per call, as well as complying with all labor regulations related to our services.  We employ advanced planning and control software packages and have developed several systems that contribute to increased employee productivity.  These systems include proprietary software that links payroll to employee login time and a company-wide intranet that measures individual and team performance indicators.  A significant deviation in these performance indicators could have a material impact on our results of operations. Success or Failure with Respect to Our Performance-Based Services Approximately 31.9% of our revenues in 2009 were derived from operations with performance-based revenues, which involve telemarketing and debt collection services.  Performance targets include successful sales and collection percentages on bad debt, among other performance indicators.  For example, if we are able to collect more money in a given month, our revenue for such debt collection services can be significantly higher.  Our success or failure with respect to such performance-based services can significantly impact our results of operations in any given period. Key Events in 2009 Volume of Operations During the past fiscal year, we experienced an expansion in our volume of operations.  In addition to contracts with new clients, our growth resulted from the expansion of services provided to our existing clients (especially in the telecommunications and financial sectors).  This growth in new services required an increase of 8.3% in workstations, from 32,153 workstations at December 31, 2008 to 34,820 workstations at December 31, 2009.  Our headcount also increased 5.0%, from 74,499 employees at December 31, 2008 to 78,200 employees at December 31, 2009. The increase in the volume of our activities and also the ability to readjust contracts with clients to reflect cost increases contributed to an increase of 21.8% in revenues to R$2,161.0 million in 2009 as compared to R$1,774.7 million in 2008 (an increase of R$386.3 million). In 2009, Contaxs revenue growth resulted mainly from the increase in revenues from our existing clients, which represented approximately 91.0% of the total revenue increase.  Customer service continued to account for the biggest portion of revenue, representing 58.8% of the total in 2009.  Telemarketing and customer retention collectively accounted for 18.3% and debt collection accounted for 15.3% of revenue in 2009. Critical Accounting Policies and Estimates In preparing our consolidated financial statements, we have relied on estimates and assumptions derived from historical experience and various other factors that we deemed reasonable and relevant.  Critical accounting policies are those that are important to the portrayal of our financial condition and results of operations and require managements most difficult, subjective or complex judgments, estimates and assumptions. 39


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The application of these critical accounting policies often requires judgments made by management regarding the effects of matters that are inherently uncertain.  Our estimates, including but not limited to the provisions for contingent liabilities, may differ from the actual value of such assets or liabilities.  The following is a discussion of our critical accounting policies, including some of the variables, assumptions and sensitivities underlying the estimates relating to: ·revenue recognition; ·depreciation of property and equipment; ·payroll and related accruals; ·provisions for contingencies; ·deferred and recoverable income tax and social contribution; and ·share-based compensation. Revenue Recognition We recognize revenues on an accrual basis at the time services are rendered, except with respect to some of our performance-based services, which we recognize upon their measurement and acceptance by our client.  Most service contract revenues are calculated based on indicators such as quantity of workstations and speaking time and on performance targets.  Revenues are calculated based on information available in our IT systems that relate to the volume of data services rendered to each client.  Revenues related to our performance-based services are calculated based on data available in our and our clients IT systems.  In addition, we usually allocate operation managers to review, reconcile and discuss such indicators with clients.  Some revenue adjustments are recorded after discussions with such clients. Depreciation of Property and Equipment We depreciate property and equipment using the straight-line method at rates we judge compatible with the useful lives of the underlying assets.  In 2007, the useful lives of IT equipment and Furniture and fixtures were reviewed due to the reduction of the estimated economic useful life of assets acquired before December 31, 2006.  The evaluation and determination of the new economic useful life of these assets was performed in accordance with the rules of A.B.N.T  Brazilian Association of Technical Rules by a specialized consultant qualified for this activity.  Given the complex nature of our telecommunications and IT systems, the estimates of useful lives require considerable judgment and are inherently uncertain, due to rapidly changing technology and practices in our business sector, which could cause early obsolescence of such systems. Payroll and Related Accruals Payroll and related accruals are the most significant costs of our operations and are calculated and recorded on an accrual basis by our payroll system.  Payroll and related accruals include wages and salaries, paid vacation, Christmas bonus (décimo terceiro salário,or thirteenth salary), social security charges, executive profit sharing plan and employees payroll tax withholdings, most of which are defined by Brazilian labor law. For paid vacation provisions, each employee is entitled to a 30-day calendar paid annual vacation, corresponding to 133.3% of a monthly salary.  We record a monthly provision for paid vacations, until such benefit is paid (when employees effectively take their vacations).  For the thirteenth salary payment provision, we record a monthly provision equal to 1/12 of each employees monthly salary until such benefit is paid.  Fringe benefits, such as paid transportation and meal vouchers, are recognized as expenses on a monthly basis when provided to employees. 40


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Managements executive profit sharing plan is performance-based, based on the achievement of several of our financial and quality targets, as well as individual employees targets, determined on an annual basis.  This provision is recorded on a monthly basis and is recalculated at year-end based on our best estimate of targets attained, as set in the annual budget process, but the actual total amount is only final after being reviewed and approved by our Board of Directors. Provisions for Contingencies The preparation of our consolidated financial statements requires us to make estimates and assumptions regarding contingencies that affect our overall financial condition or relate to the changes in the actual value of liabilities at the date of the consolidated financial statements and accounting for the expenses arising during the reported period.  Such contingencies include those related to the legal proceedings discussed in Note 21 to our Consolidated Financial Statements. Provisions for contingencies are recognized for the amounts of probable losses, as determined by our management based on legal advice from in-house and external legal counsels regarding the outstanding contingent matters.  We continuously evaluate the provisions for contingencies based on changes in relevant facts, circumstances and events, such as judicial decisions, that may impact our estimates, which in turn could have a material impact on our results of operations and shareholders equity.  While management believes that the current provisions for contingencies are adequate, there can be no assurance that these factors will not change in the future. Deferred and Recoverable Income Tax and Social Contribution We record deferred tax assets arising from temporary differences between the accounting bases of assets and liabilities and their tax bases. Deferred tax assets are recognized only to the extent we expect to generate sufficient future taxable profit, based on projections and forecasts prepared by our management.  These projections and forecasts include several assumptions related to our performance, exchange rates, service volumes, tax rates and other factors that could differ from current estimates. There is no time limit for the use of tax loss carryforwards according to current Brazilian tax regulations.  However, accumulated tax losses may only offset up to 30.0% of the annual taxable profit. Share-based Compensation We measure the cost of equity-settled transactions with employees and management by reference to the fair value of the equivalent equity instrument at the date at which such transactions were effected. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the options granted. These estimates also require determining inputs to the valuation model, including the expected life of the stock option, volatility, dividend yield and certain assumptions. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 25 to our Consolidated Financial Statements. 41


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Results of Operations Results of Operations for the Year Ended December 31, 2009 compared with the year ended December 31, 2008 Year ended December 31,
     Period over period change
     Period over period percentage change
     Results as a percentage of revenue for the year ended December 31,2009
     2008
     Favorable (unfavorable)
     Favorable (unfavorable)
     2009
     2008(in thousands ofreais, except percentages)Revenue(1)
     2,161,019
     1,774,728
     386,291
     22%
     100%
     100%Cost of services
     (1,760,164)
     (1,507,603)
     (252,561)
     17%
     (81)%
     (85)%Gross profit
     400,855
     267,125
     133,730
     50%
     19%
     15%Finance Income
     24,531
     32,547
     (8,016)
     (25)%
     1%
     2%Selling, general and administrative expenses
     (166,303)
     (119,772)
     (46,531)
     39%
     (8)%
     (7)%Finance costs
     (39,922)
     (32,597)
     (7,325)
     23%
     (2)%
     (2)%Other operating expenses, net
     (13,440)
     (18,626)
     5,186
     (28)%
     (1)%
     (1)%Profit before tax
     205,721
     128,677
     77,043
     60%
     10%
     7%Income tax and social contribution
     (74,664)
     (45,848)
     (31,716)
     63%
     (4%)
     (3)%Minority interest
     634
     (3)
     637
     
     0%
     0%Net income
     131,691
     82,826
     48,865
     59%
     6%
     5%
 __________________________ (1)       Revenue is presented on a consolidated basis, net of sales taxes, returns, allowances and discounts. Revenue In 2009, revenue increased by R$386,291 thousand compared to 2008, representing an increase of 21.8%, from R$1,774,728 thousand in 2008 to R$2,161,019 thousand in 2009.  This growth was achieved through: (i) the increase in the volume of operations with our existing clients (R$240.2 million); (ii) contractual adjustments to reflect increased costs of services rendered (R$92.6 million); (iii) new business in several segments, including retail, financial and services (R$34.4 million); and (iv) revenue from the adjustment of the scope of our services already rendered under a client contract (R$19.1 million). Customer service continued to account for the largest portion of revenue, representing 58.8% of revenue in 2009.  Telemarketing and debt collection accounted for 14.1% and 15.3%, respectively, of revenue in 2009.  Customer retention and other services accounted for 4.2% and 5.3%, respectively, of revenue in 2009, while technical support represented 2.3%. In 2009, Contax recorded strong revenue growth in all of its services, with an increase of 30.3% in customer service, 20.8% in debt collection and 2.5% in telemarketing.  The performance of the customer service offering was mainly a result of an increase in client activities in the telecommunications, financial and pay-TV industries.  The governmental decree that regulates customer assistance services became effective on December 1, 2008, contributing to increasing client demand in 2009 for services that comply with the new rules.  The growth in telemarketing and customer retention activities basically reflects the increase in active telemarketing operations designed to attract new clients.  The growth of the debt collection segment was mainly attributable to the expansion of collection portfolios in the telecommunications and financial industries, which contributed to the increase in revenue.  42


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Cost of Services Total cost of services increased by R$252,561 thousand in 2009, representing an increase of 16.8% from R$1,507,603 thousand in 2008 to R$1,760,164 thousand in 2009.  Of the total costs of services in 2009, 74.9% related to personnel expenses (73.6% in 2008), mainly payroll, social security charges, benefits and training, among others.  The remaining 25.1% (26.4% in 2008) related to expenditures in connection with third-party services, including maintenance of equipment, rental of properties and data circuits, expenditures related to facilities, general expenses and depreciation.  The cost variation in 2009, when compared to 2008, occurred mainly due to the growth of services rendered upon demand by our clients, since approximately 90% of the costs are variable and therefore directly related to the growth of business volume. Personnel expenses in 2009 were mainly affected by an increase of 5.0% in headcount (from 74,499 employees at December 31, 2008 to 78,200 employees at December 31, 2009) and by an increase of R$65.1 million due to salary increases provided for in collective bargaining agreements. Costs related to third-party services increased 16.2% in 2009, reflecting mainly the increase in costs of infrastructure and facilities-related services (electricity, security, cleaning, telecommunications and building maintenance) incurred in connection with the expansion of our operations and facilities. In 2009, depreciation decreased by R$6.5 million, or 6.2%.  The decrease in 2009 reflects a one-time adjustment decreasing the useful lives of certain leased IT equipment and furniture in 2008.  In 2009, no such adjustment was made. Finance Income In 2009, finance incomedecreased by 24.6%as compared to 2008, corresponding to a R$8,016 thousanddecreaseto R$24,531 thousand in 2009 from R$32,547 thousand in 2008.  Thedecrease was due to lower amounts of financial investments and lower interest rates in comparison to 2008. Selling, General and Administrative Expenses In 2009, selling, general and administrative expenses increased by 38.9% as compared to 2008, corresponding to a R$46,531 thousand increase to R$166,303 thousand in 2009 from R$119,772 thousand in 2008, essentially due to (i) a R$20.1 million increase in personnel expenses, related to the expansion of our management team; (ii) a R$6.5 million increase in rental and facilities expenses due to the expansion of facilities and business support areas; (iii) R$10 million of  expenses related to our stock option plan; and (iv) R$5 million of expenses related to consulting services for the strategic evaluation and restructuring of the product development area, as well as other specialized business support services. Finance Costs In 2009, finance costs totaled R$39,922 thousand as compared to R$32,597 thousand in 2008.  The R$7,325 thousand increase was mainly due to the increase in outstanding indebtedness under financing from BNDES. Other Net Operating Expenses Other net operating expenses decreased by R$5,186 thousand to R$13,440 thousand in 2009 from R$18,626 thousand in 2008.  The decrease was primarily due to (i) a reversal of provisions for labor contingencies, pursuant to which previously provisioned amounts were decreased to reflect historical averages of amounts paid per claim, and (ii) a reduction in costs relating to labor related litigation.  43


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Income Tax and Social Contribution In 2009, income tax and social contribution totaled R$74,664 thousand, and our effective tax rate was generally in line with the amounts determined under prevailing laws.  The increase over income tax and social contribution of R$45,848 thousand in 2008 reflects the increase in taxable income in 2009. Net Income As a result of the foregoing, we recorded net income of R$131,691 thousand in 2009, an increase of R$48,865 thousand, or 59.0%, compared to 2008. Results of Operations for the Year ended December 31, 2008 compared with the Year ended December 31, 2007 Year ended December 31,
     Period over period change
     Period over period percentage change
     Results as a percentage of revenue for the year ended December 31,2008
     2007
     Favorable (unfavorable)
     Favorable (unfavorable)
     2008
     2007(in thousands ofreais, except percentages)Revenue(1)
     1,774,728
     1,365,815
     408,913
     30%
     100%
     100%Cost of services
     (1,507,603)
     (1,174,106)
     (333,497)
     28%
     (85)%
     (87)%Gross profit
     267,125
     191,709
     75,416
     39%
     15%
     13%Finance Income
     32,547
     16,647
     15,900
     96%
     2%
     1%Selling, general and administrative 
expenses
     (119,772)
     (86,755)
     (33,017)
     38%
     (7)%
     (6)%Finance costs
     (32,597)
     (20,193)
     (12,404)
     61%
     (2)%
     (1)%Other operating expenses, net
     (18,626)
     (15,579)
     (3,047)
     20%
     (1)%
     (1)%Profit before tax
     128,677
     85,829
     42,848
     50%
     7%
     5%Income tax and 
social contribution benefit
     (45,848)
     (28,087)
     (17,761)
     63%
     (3)%
     (2)%Minority interest
     (3)
     
     (3)
     
     0%
     0%Net income
     82,826
     57,742
     25,084
     43%
     5%
     3%
 __________________________ (1)Revenue is presented on a consolidated basis, net of sales taxes, returns, allowances and discounts. Revenue In 2008, revenue increased by R$408,913 thousand compared to 2007, representing an increase of 29.9%, from R$1,365,815 thousand in 2007 to R$1,774,728 thousand in 2008.  This growth was achieved through: (i) the expansion of the volume of operations with our existing clients, especially in the telecommunications and financial sector; (ii) the adjustment of fees in connection with existing contracts to reflect increase in costs of services rendered; and (iii) new businesses in several segments, including retail, financial and services. Customer service continued to account for the largest portion of revenue, representing 54.0% of revenue in 2008.  Telemarketing and debt collection, which we believe have a greater growth potential, accounted for 15.7% and 15.0%, respectively, of revenue in 2008.  Customer retention and other services accounted for 5.0% and 8.4%, respectively, of revenue in 2008, while technical support represented 1.9%. In 2008, Contax recorded strong revenue growth in all of its services with an increase of 32.4% in customer service, 48.9% in telemarketing, 29.9% in customer retention and 14.0% in debt collection.  The performance of the customer service offering was mainly a result of an increase in client activities in the telecommunications, financial and pay-TV industries.  The governmental decree that regulates customer assistance services became effective on December 1, 2008, contributing to increasing client demand forservices that comply with the new rules.  The growth in telemarketing and customer retention activities basically reflects the increase in active telemarketing operations designed to attract new clients.  The growth of the debt collection segment was mainly attributable to the expansion of collection portfolios in the telecommunications and financial industries, which increased revenue. 44


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Cost of Services
 Total cost of services increased by R$333,497 thousand in 2008, representing an increase of 28.4% from R$1,174,106 thousand in 2007 to R$1,507,603 thousand in 2008.  Of the total costs of services in 2008, 73.6% related to personnel expenses (73.5% in 2007), mainly payroll, social security charges, benefits and training, among others.  The remaining 26.4% (26.5% in 2007) related to expenditures in connection with third-party services, including maintenance of equipment, rental of properties and data circuits, expenditures related to facilities, general expenses and depreciation.  The cost variation in 2008, when compared to 2007, occurred mainly due to the growth of services rendered upon demand by our clients, since approximately 90.0% of the costs are variable and therefore directly related to the growth of business volume. Personnel expenses in 2008 were affected by an increase of 21.3% in headcount (from 61,397 employees at December 31, 2007 to 74,499 employees at December 31, 2008), and by an increase of R$30,100 thousand relating to the collective bargaining agreement and adjustments to the food and health benefit agreements. Costs related to third-party services increased 31.2% in 2008, reflecting mainly the increase in costs of infrastructure and IT equipment maintenance caused by the expansion of our operations.  It is worth noting that in 2008 we expanded the number of more sophisticated workstations, which require more complex technological solutions and higher maintenance costs.  The main expense items were: (i) R$22.3 million in services related to the maintenance of IT equipment (hardware and software); and (ii) R$24.5 million in infrastructure and facilities-related services (electricity, security, cleaning, telecommunications and building maintenance).  Rental and insurance costs increased 47.3%, mainly in connection with the leasing of new sites and contractual adjustments, plus the rental of third-party infrastructure to meet client demand. In 2008, depreciation increased by R$11,672 thousand, or 12.5%, mainly due to the increase in acquisitions of property and equipmentduring the period whose impact on depreciation was further affected by the adoption of new depreciation criteria in 2007,which led the monthly depreciation rates in the areas of IT equipment and furniture and fixtures to be reviewed due to the reduction of the economic useful life estimate of assets.  See  Critical Accounting Policies  Depreciation of Property and Equipment. Finance Income In 2008, finance income grew by 95.5% as compared to 2007, corresponding to a R$15,900 thousand increase to R$32,547 thousand in 2008 from R$16,647 thousand in 2007.  Income from our investments increased R$14,664 thousand due to higher average funds balances, mainly deriving from financing received from BNDES between October 2007 and November 2008, in the aggregate amount of R$216,730 thousand, combined with higher yields on financial investments. Selling, General and Administrative Expenses In 2008, selling, general and administrative expenses grew by 38.1% as compared to 2007, corresponding to a R$33,017 thousand increase to R$119,772 thousand in 2008 from R$86,755 thousand in 2007, essentially due to two important factors: (i) a R$13.1 million increase in personnel expenses, related to the expansion of our management team; and (ii) a R$8.0 million increase in third-party service expenses, mainly related to specialized consulting expenses, as well as a R$9.6 million increase in expenses related to marketing, sponsorship and donations.  45


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Finance Costs In 2008, finance costs totaled R$32,597 thousand as compared to R$20,193 thousand in 2007.  The R$12,404 thousand increase was due to the increased expenses relating to interest on loans (R$16,520 thousand in 2008 compared to R$2,249 thousand in 2007), arising from the increase in outstanding indebtedness under financings from BNDES. Other Net Operating Expenses Other net operating expenses increased by R$3,047 thousand to R$18,626 thousand in 2008 from R$15,579 thousand in 2007.  The increase was due primarily to an increase of labor lawsuits that in turn caused us to increase our provisions for contingencies by R$3,131 thousand. Income Tax and Social Contribution In 2008, income tax and social contribution totaled R$45,848 thousand, and our effective tax rate was generally in line with the amounts determined under prevailing laws.  The increase over income tax and social contribution of R$28,087 thousand in 2007 reflects principally the increase in taxable income in 2008. Net Income  As a result of the foregoing, we recorded net income of R$82,826 thousand in 2008, an increase of R$25,084 thousand, or 43.4%, over 2007. Liquidity and Capital Resources  Cash and cash equivalents as of the end of 2009, 2008 and 2007 were equal to R$357,853 thousand, R$355,928 thousand and R$240,310 thousand, respectively.  Following is a summary of the principal changes in cash flows during the past three years.  Cash Flow from Operating Activities  Net cash flows from operating activities increased R$26,039 thousand, representing an increase of 10.2%, from R$252,748 thousand in 2008 to R$278,456 thousand in 2009.  This increase can be principally explained by the increase in net income for the year of R$48,865 thousand, as compared to 2008, which was partially offset by (i) a R$22,491 thousand increase in working capital requirements, mainly due to an increase in accounts receivable and a decrease in payroll related accruals and (ii) a R$14,527 thousand increase in payments and a reduction in provisions related to labor and other claims.  Net cash flows from operating activities increased R$49,572 thousand, representing an increase of 24.4%, from R$203,176 thousand in 2007 to R$252,748 thousand in 2008.  This increase can be principally explained by: (i) the increase in net income for the year of R$25,087 thousand, as compared to 2007 and (ii) a R$15,328 thousand increase in other liabilities (mainly explained by R$16,850 thousand of proceeds resulting from the auctioning of grouped shares from the reverse stock split, which had not been paid to the former holders of fractional shares) (see Item 18. Financial Statements). These effects were partially offset by a R$8,639 thousand increase in deferred income tax and social contribution. Cash Flows from (used in) Investing Activities Net cash flows used in investing activities increased R$17,444 thousand, representing a 9.5% increase, from R$184,507 thousand in 2008 to R$201,951 thousand in 2009.  This increase relates mainly to a long-term financial investment made in 2009, which was partially offset by lower investments in property, equipment and intangible assets in 2009. 46


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Net cash flows used in investing activities increased R$41,686 thousand, representing a 29.2% increase, from R$142,821 thousand in 2007 to R$184,507 thousand in 2008.  This increase relates to business expansion of our operations during the year, which required increased investments in property and equipment.  The increase in capital expenditure for property and equipment is positively correlated with the growth of our business. Cash Flows from (used in) Financing Activities Net cash flows from financing activities was R$47,376 thousand in 2008 compared to net cash used in financing activities of R$74,910 thousand in 2009.  This change is mainly due to the fact that we had no new financings in 2009 compared to R$117,165 thousand of proceeds received pursuant to BNDES financings in 2008. Net cash used in financing activities was R$51,344 thousand in 2007 compared to net cash flows from financing activities of R$47,376 thousand in 2008.  This change is mainly explained by (i) the increase in the proceeds received from BNDES financings in the amount of R$16,671 thousand; and (ii) the lower amount of share buybacks conducted in 2008. As long as we continue to experience a natural growth of our business and results of operations, we believe that our current cash and cash equivalents and cash flows from operations will be adequate to meet anticipated working capital needs, continued expansion objectives and anticipated levels of capital expenditures for the foreseeable future.  At the same time, we continue to seek attractive sources of financing to support future growth opportunities. Management believes that the resources available to us are sufficient for our present requirements and will be sufficient to meet our anticipated requirements for capital expenditures and other cash requirements for the 2010 fiscal year. Contractual Obligations The table below shows our contractual obligations at December 31, 2009: Payments due by periodContractual obligations
     Total
     Less than
1 year
     1-3 years
     3-5 years
     More than
5 years(in thousands ofreais)Capital (finance) lease
     14,017
     10,118
     3,899
     
     Operating lease (facilities)(1)
     36,994
     7,333
     13,040
     9,749
     6,872Financings (BNDES)(2)
     204,591
     55,070
     149,521
     
     Total
     255,602
     72,521
     166,460
     9,749
     6,872
 __________________________ (1)   Most of our facilities lease agreements can be terminated before their expiration, with one to six months prior notice, subject to a penalty equivalent to three times the monthly rent. (2)   Includes estimated interest payments. Off-Balance Sheet Arrangements  As of December 31, 2009, we did not have any off-balance sheet liabilities.  47


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 Item 6.         Directors, Senior Management and Employees We are managed by a Board of Directors (Conselho de Administração) and a Board of Executive Officers (Diretoria).  According to our by-laws, members of the Board of Directors are appointed by our shareholders, which in turn, nominate the Executive Officers. Board of Directors The Board of Directors is currently composed of 12 regular members and 12 alternates, each serving a three-year term.  The Board of Directors holds regular meetings once every three months, and additional special meetings may be called by any member of the Board of Directors at any time. With regard to the appointment of Directors, Brazilian corporate law and CVM regulations provide the following: (i)            holders of preferred shares representing at least 10.0% of the total capital stock of a company may appoint one member to the Board of Directors and the corresponding alternate member; (ii)           holders of common shares representing at least 15.0% of the total common shares with voting rights may appoint one member to the Board of Directors and the corresponding alternate member; and (iii)          if items (i) and (ii) above do not occur, holders of common shares and holders of preferred shares representing together more than 10.0% of the total capital of a company may jointly appoint one member to the Board of Directors and the corresponding alternate member. These rights may only be exercised by shareholders who can prove continuous share ownership during the three months prior to a shareholders meeting. Brazilian corporate law determines that shareholders holding more than 5.0% of common shares are entitled to exercise cumulative voting rights (voto múltiplo) so as to increase their chances of electing at least one member to the Board of Directors.  Under the cumulative voting process, each voting share is entitled to a number of votes equal to the number of Board of Directors seats being filled at the relevant shareholders meeting, which votes can be cast for one or more candidates.  As a result of cumulative voting, controlling shareholders may be prevented from controlling all seats of the Board of Directors, while minority shareholders may be allowed to appoint at least one member of that body.  Common shareholders participating in the cumulative voting process will not be counted for the purposes of appointing Board members in the circumstances described in (ii) and (iii) of the preceding paragraph. None of our Directors have service contracts with Contax Holding or with Contax S.A. providing for benefits upon termination of their employment.  The members of our Board of Directors were appointed for a three-year term beginning from our Annual Shareholders Meeting held on April 7, 2009 until our Annual Shareholders Meeting in 2012.  As a result of the resignation of certain of these members, replacement directors were appointed at the Board of Directors meeting held on May 4, 2010, with a term ending on the date of the Annual Shareholders Meeting in 2012. 48


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The following are the current members of our Board of Directors and their respective positions: Name
     PositionFernando Antônio Pimentel de Melo
     ChairmanPedro Jereissati
     DirectorCarlos Jereissati
     DirectorCristina Anne Betts
     DirectorArmando Galhardo Nunes Guerra Junior
     DirectorOtávio Marques de Azevedo
     DirectorMarcel Cecchi Vieira
     DirectorAntonio Adriano Silva
     DirectorJosé Luis Prola Salinas
     DirectorSérgio Francisco da Silva
     DirectorNewton Carneiro da Cunha
     DirectorManuel Jeremias Leites Caldas
     Director
 The following are brief biographies of the members of our Board of Directors: Fernando Antônio Pimentel de Melo.Born August 29, 1953, he holds a degree in law from the Federal University of Pernambuco.  He has been the CEO of the Fundação Atlântico de Seguridade Social since March 2005.  He has been an active member of the Board of Directors of CTX Participações S.A. since April 2008.  He was an alternate member of the Board of Directors of Telemar Participações S.A. from April 2006 to April 2009.  He also acted as the CEO of the Fundação Telebrás de Seguridade Social (SISTEL) from 2000 to 2004, and as its pension officer from 1991 to 2000.  Previously he acted as the CEO of ABRAPP from 2001 to 2007.  He was appointed as a full member of the Board of Directors of Contax Participações S.A. in April 2009, and as Chairman of the Board of Directors in May 2009. Pedro Jereissati.Born May 24, 1978, he holds a degree in Business Administration from Fundação Armando Álvares Penteado - FAAP, and obtained an MBA from Kellogg School of Management of the Northwestern University, in Chicago, USA, in 2005.  He joined the Jereissati group in 1995, and currently holds the position of CEO of Telemar Participações S.A., the controlling company of Tele Norte Leste Participações S.A.  He worked for the Jereissati group in the real estate area, which is composed of the shopping center area and office buildings area.  In 1998, he was transferred to the Jereissati groups telecommunications company, LF Tel S.A., where he holds the position of officer.  He was the Vice President of Finance of Iguatemi Empresa de Shopping Centers S.A. from 2005 to 2007.  He is the Vice President and Superintendent of the holding company, La Fonte Telecom S.A.  He was a member of the Board of Directors of Pegasus Telecom and is a member of the Board of Directors of holding companies, such as Jereissati Participações S.A., Iguatemi Empresa de Shopping Centers S.A., Telemar Participações S.A., Coari Participações S.A., Calais Participações S.A., CTX Participações S.A., Privatinvest Participações S.A. and Alium Participações S.A., as well as of the telecommunications companies Telemar Norte Leste S.A., Tele Norte Celular Participações S.A., TNL PCS S.A., Tele Norte Leste Participações S.A. and Brasil Telecom S.A. He is also a Director of the Telemar Institute (Oi Futuro).  He was appointed as a full member of the Board of Directors of Contax Participações S.A. in April 2009. Carlos Jereissati.  Born September 4, 1971, he graduated in Business Administration from the Escola de Administração de Empresas of Fundação Getúlio Vargas (FGV-SP) in 1994 and attended post-graduate courses abroad, including: Management for Success (University of Michigan Business School, 2002), Spring Convention (International Council of Shopping Centers, 1998, 1999 and from 2002 to 2006) and Real Estate Finance & Investment (Euromoney Training, 1998).  He has been part of the management team of Iguatemi Empresa de Shopping Centers (IESC) since 1996, of which he is currently President.  He is a member of the Board of Directors of holding companies such as Jereissati Participações S.A., LF Tel S.A., La Fonte Telecom S.A., Telemar Participações S.A., CTX Participações S.A. and the telecommunications company Tele Norte Leste Participações S.A.  He served as President and Vice 49


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President of the Brazilian Association of Shopping Centers S.A. (ABRASCE) from 2002 to 2004 and 2005 to 2006, and serves on its Consultative Council.  He was an advisor to the Economic and Social Development Council and has been a member of the Brazil Voluntary Association (IBRAVO) since 1995 and associated with the International Council of Shopping Centers (ICSC) since 1994.  In 2007, he was elected a Young Global Leader, a title awarded by the World Economic Forum.  He was appointed as a full member of the Board of Directors of Contax Participações S.A. in April 2009. Cristina Anne Betts.  Born October 20, 1969, she obtained a degree in Business Administration from the Fundação Getúlio Vargas (FGV) in 1991 and holds an MBA from INSEAD in France.  She has been Vice President of Finance of Iguatemi Empresa de Shopping Centers S.A. since April 2008.  Previously she worked at PriceWaterhouse (1992-1995), Banco Credit Suisse First Boston Garantia (1995-1999), Bain & Company (1999-2004) and TAM Linhas Aéreas S.A.  At TAM Linhas Aéreas S.A., she was the Director of Strategic Planning and Controller, and also was the head of the Investor Relations area (2004-2008).  She was appointed as a full member of the Board of Directors of Contax Participações S.A. in April 2009. Armando Galhardo Nunes Guerra Junior.Born February 13, 1956, he graduated in Business Administration, Accounting and Economics from the Universidade Católica de Minas Gerais in 1978.  He developed projects in the areas of management and restructuring for companies like Braspérola, Portal Clicon, Cia AIX de Participações, Andrade Gutierrez, Brasil Ferrovias, Ponteio Lar Shopping and Shopping Píer 21.  He has previously served as the President of UNIPAR  União de Indústrias Petroquímicas S.A., FEM  Projetos, Construções e Montagens S.A. and MRS Logística S.A.  He was also the Director of the Mines and Energy Cabinet and member of the National Council of Privatization responsible for oversight of the state-owned steel companies, CVRD and DNPM, from March 1990 until October 1993.  He serves on the boards of the following companies: Cosipar  Cia Siderúrgica do Pará.Kepler Weber S/A, MASB  Desenvolvimento Imobiliário S.A and ESTRE Ambiental S.A.He has previously served on the boards of the following companies: Quattor Participações S.A., Brasil Ferrovias, Unipar, Cosipa, CSN and CST.  He was appointed to the Board of Directors of the Contax Participações S.A. on May 4, 2010. Otávio Marques de Azevedo.Born May 31, 1951, he holds a degree in Electrical Engineering from the Pontifícia Universidade Católica  Minas Gerais (1974), and has vast experience in the Brazilian telecommunications sector.  He was the President of the Board of Directors of the telecommunications company Tele Norte Leste Participações S.A. (TNL) from October 2003 until October 2004.  He was the Executive Vice-President of TNL and served as its Executive President from August 1998 until February 1999, and was responsible for the implementation of TNLs first business plan.  In February 1999, he was elected a member of the Advisory Board of Anatel, serving as its President from February 2001 until February 2002.  He is also the CEO of AG Telecom Participações S.A.  He has been the President of Grupo Andrade Gutierrez and of Andrade Gutierrez Telecomunicações Ltda. since 1993.  From 1991 to 1993, he was the Vice-President of Telebrás.  Currently, he is the President of the Board of Directors of holding companies, such as Telemar Participações S.A, CTX Participações S.A., Privatinvest Participações S.A. and Alium Participações S.A., and has served on the boards of the telecommunications companies Telemar Norte Leste S.A., Tele Norte Celular Participações S.A., TNL PCS S.A., Tele Norte Leste Participações S.A., Brasil Telecom S.A. and Contax Participações S.A, since being appointed on May 4, 2010. Marcel Cecchi Vieira.Born April 27, 1974, he holds a degree in Mechanical Engineering from the Universidade de São Paulo, and an MBA from the Tuck School of Business at Dartmouth, and in 2008, he became a CFA.  He was a manager and a partner at Angra Partners Gestão de Recursos e Assessoria Financeira from 2004 until 2009, during which time he was Member of the Board of the Concessão Metroviária do Rio de Janeiro S.A. and a member of the Fiscal Council of Brasil Telecom Participações S.A.  He also worked as a manager of the consulting firm Accenture do Brasil Ltda.  He was appointed to the Board of Directors of the Company on May 4, 2010. Antonio Adriano Silva.Born March 2, 1944, he holds a degree in Business Administration from University of North Alabama and has been the Chief of Staff for the Vice President of Brazil since 2002.  Previously, he worked at Coteminas  Cia. de Tecidos Norte de Minas from 1979 to 2002, at Asa Criaçãode Publicidade from 1976 to 1979 and at Associação Comercial de Minas from 1973 to 1976.  He was also a Technical Advisor to Brazilian Senator José Alencar for four years (1999-2002) and has been a member of the Board of Directors of CEMIG  Companhia Energética de Minas Gerais since 1999. 50


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José Luís Prola Salinas.Born October 19, 1963, he holds a bachelors degree in Accounting from the Universidade do Oeste de Santa Catarina  UNOESC, with post graduate degrees in Training for Senior Executives from Fundação Getúlio Vargas do Rio de Janeiro - FGVRJ, in Management Development from the Universidade do Oeste de Santa Catarina  UNOESC, in Audit and Cost from the Universidade Federal da Santa Catarina  UFSC and in Business Management from theUniversidade Federal do Rio Grande do Sul UFRGS.  He has been the Vice-President of Technology and Logistics at Banco do Brasil S.A. since July, 2007, and from August 2003 until July 2007, he was the General Auditor.  He also worked for Banco do Brasil S.A. in the following positions: General Manager, Master Advisor, Division Manager and Chief Advisor.  He is a faculty member of the Associação de Ensino Unificado do Distrito Federal - AEUDF/ICAT and of the Universidade de Brasília  UNB, and has been a faculty member of the Universidade do Oeste de Santa Catarina  UNOESC and of the Universidade de Brasília  UNB/DCI.  He was a Board Member at Santos Brasil Terminais de Containers from April 2004 until May 2006, and at Contax Participações S.A. from April 2006 until June 2008, and was re-elected as a member of the Board of Directors of Contax Participações S.A. on May 4, 2010.  He was a member of the Fiscal Council of Fundação Banco do Brasil from July 2003 until August 2007 and was an alternate member of the Fiscal Council of Caixa de Previdência dos Funcionários do Banco do Brasil  PREVI from May 2003 until May 2004.  He has been a member of the Board of Directors of COBRA Tecnologia S.A. since January 2008, and an alternate member of the Deliberative Board (Conselheiro Deliberativo) since June 2004. Sérgio Francisco da Silva.Born January 3, 1962, he holds a degree in Psychology from Universidade Paulista  São Paulo, and post-graduate degrees in Project (2004) and Planning, Budgeting and Public Management (2005), both from Fundação Getúlio Vargas.Mr. Silva is currently enrolled in an MBA program at Instituto Brasileiro de Mercados de Capitais - IBMEC.He has held the position of Director of Administration and Information Technology of Fundação dos Economiários Federais since August 2007.  Previously, he was Executive Director of APCEF/SP from 1992 to 1994, a member of Caixa Econômica Federals (CEF) Labor Relations Committee from 1996 to 1997, a member of the National Executive Board of CEFs Employees from 1996 to 1998, a member of the São Paulo State Health Board from 1998 to 1999, Health Secretary for the Bank Workers Union of São Paulo, Osasco Region from 1997 to 2000, a member of the Board of Directors of SÃO PAULO CONFIA from 2000 to 2002, Finance Secretary for the Bank Workers Union of São Paulo, Osasco Region from 2000 to 2002, a member of the Boards of Directors of Fiago Participações S.A. and Telenorte Celular Participações, and Director of Benefits and Administration with Fundação dos Economiários Federais from 2003 to 2007.  He was a member of the Audit Committee of Brasil Telecom Participações S.A. in 2008 and 2009. Newton Carneiro da Cunha.Born July 7, 1955, he holds a degree and a post graduate degree in Corporate Finance from the Universidade Estácio de Sá, and an MBA from theEstudos Aplicados à Previdência  IDEAS / COPPE / UFRJ.  He also holds a Masters degree in Pension Plan Management from Alcalá University, Spain.  He has been an Executive Officer of Fundação Petrobrás de Seguridade Social  PETROS since 2007, and served as Secretary General of PETROS from 2003 to 2007.  Mr. Cunha is also the CFO of  Estacionamento Cinelândia and a Director of TermoBahia S.A. Manuel Jeremias Leite Caldas.Born January 8, 1956, he holds a degree in Electrical Engineering from Instituto Militar de Engenharia - IME and a masters degree and a doctorate in Economics from Fundação Getúlio Vargas - FGV.He is a Financial Consultant to Alto Capital Gestora de Recursos since 2007.From 1996 to 2006, he worked at Banco PEBB S.A. as the Technical Department Manager and Chief Economist.  Mr. Caldas also served as Research Officer to Banco Gulfinvest S.A. in 1995 and Economic Department Manager of Banco Nacional S.A. between 1991 and 1994.  He was also a Senior Financial Analyst at Banco Bozanno Simonsen S.A. in 1990 and worked at Light SESA as an Engineer between 1981 and 1990.  51


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Executive Officers Our by-laws provide that the Board of Executive Officers shall consist of a President (CEO), a Chief Financial Officer (CFO) and up to three other officers.  The Executive Officers are to be elected by the Board of Directors for a term of three years and may be removed from office at any time.  The current Executive Officers were last appointed at our Board of Directors Meeting held on May 5, 2009, and will serve until the first Board of Directors Meeting following the Annual Shareholders Meeting in 2012. The following are our current Executive Officers and their respective positions:  Name
     PositionFrancis James Leahy Meaney
     President (CEO)Michel Neves Sarkis
     Chief Financial Officer (CFO)/Investor Relations OfficerJosé Luiz Cardoso Albano
     OfficerEduardo Nunes de Noronha
     Officer
 Francis James Leahy Meaney.  Born November 4, 1964, he holds a B.A. in Economics from the University of Notre Dame and an MBA from Harvard Business School.  He also completed the Advanced Management Program at INSEAD.  He is our founder and has been our CEO since our inception in 2000.  He is active in various contact center industry organizations, including ABT (Brazilian Association of Telemarketing Companies) of which he is a Vice President.  Previously, he was a Vice President at Global Crossing Latin America in Miami from 1999 to 2000, General Manager for Conectel, the leading paging company in Brazil, from 1997 to 1999 and management consultant for various consumer products companies in Latin America between 1990 and 1997.  He began his career at Credit Suisse First Boston in New York, where he worked from 1986 to 1988. Michel Neves Sarkis.  Born February 28, 1969, he holds a Bachelors Degree in Management from UFES  Universidade Federal do Espírito Santo, a degree in Accounting from Faculdade Costa Braga  São Paulo and an MBA from Pontifícia Universidade Católica  São Paulo.  He has acted as our CFO since April 2001 and was designated Investor Relations Officer in December 2004.  Prior to joining us, he worked for five years as an auditor at PricewaterhouseCoopers from June 1990 to August 1995.  He also acted as Divisional Controller of Pepsi in Minas Gerais and Rio de Janeiro for more than two years, from August 1995 to November 1997, where he was responsible for the financial department.  In November 1997, he was appointed General Manager of the Rio de Janeiro Division of Conectel Paging Company.  In 1999, he joined Prosegur Brazil as General Manager of the Bahia and Espírito Santo Division. José Luiz Cardoso Albano.  Born January 6, 1962, he holds a Bachelors Degree in Management from Faculdade Cândido Mendes and a Bachelors Degree in Marketing from Universidade Federal de Minas Gerais and in Human Resources from FGV Minas Gerais.  He also holds a Bachelors Degree in Business Administration from Fundação Dom Cabral.  He has acted as our Executive Officer since May 2002.  Prior to becoming our Operating Officer, he acted as General Manager of Oi in Rio Grande do Norte.  He has also been responsible for the management of Ois contact center in Fortaleza, which centralized and coordinated the operations of seven states of the northeast region of Brazil.  Previously, he worked as a contact center manager for TIM / Maxitel, a mobile telephony carrier in Belo Horizonte (from 1999 to 2000).  He previously acted as an Operational Manager of the Minas Gerais and Brasília branch offices of Quatro A, a contact center company (from 1996 to 1999).  Also, he worked at Cimentos Mauá (from 1987 to 1994). Eduardo Nunes de Noronha.  Born July 29, 1971, he holds a graduate degree in Mechanical Engineering from Universidade Federal de Minas Gerais, a postgraduate degree in Quality Engineering from Pontifícia Universidade Católica de Minas Gerais and has undertaken the Advanced Management Program at Fundação Dom Cabral/INSEAD.  He has acted as our COO since July 2009.  Prior to joining us, he worked for three years as a Quality Assurance Supervisor of Delphi Automotive System in the Packard Division from March 1995 to February 1998.  He also has acted as Quality Engineer, HumanResources and was Plant Manager of AmBev in Minas Gerais, São Paulo and Rio de Janeiro for more than seven years, from February 1998 to March 2005.  In 2005, he worked for Rio de Janeiro Refrescos, a Coca Cola bottler, as an Industrial Director responsible for production and distribution in the Espirito Santo and Rio de Janeiro regions.  From April 2006 to April 2009, he was the Human Resources and Management Director of Sadia. 52


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Fiscal Council
 According to Brazilian corporate law, the Fiscal Council (conselho fiscal) of a company does not need to operate on a permanent basis.  As a general rule, it shall only be installed, and its members elected, if so required by shareholders representing 10.0% of our common shares or 5.0% of our preferred shares outstanding.  However, CVM Rule 324/00 provides that publicly held companies with capital stock above R$150 million (which is our case) shall install the Fiscal Council if so required by shareholders representing at least  2.0% of common shares or 1.0% of preferred shares. If installed, the Fiscal Council shall consist of three to five effective members and their corresponding alternates, elected at a shareholders meeting for a term ending on the date of the Annual Shareholders Meeting following their election.  At our Annual Shareholders Meeting held on April 28, 2010, our controlling shareholders required the installation of our Fiscal Council and five members and corresponding alternates were elected to serve on our Fiscal Council. The Fiscal Council operates in accordance with the relevant provisions set forth under Brazilian corporate law and in our by-laws.  Under such provisions, the Fiscal Council is a corporate body, independent from our Board of Directors and Board of Executive Officers and from our independent registered public accounting firm.  The Fiscal Councils primary responsibility under Brazilian law is to monitor managements activities, review the financial statements, and report its findings to the shareholders. Brazilian corporate law further establishes that the Fiscal Council may not include members that are:  (i) on the Board of Directors; (ii) on the Board of Executive Officers; (iii) employed by us or a controlled company; or (iv) spouses or relatives of our management, up to and including the third degree of relationship.  Under Brazilian corporate law, holders of preferred shares have the right to elect separately one member of the Fiscal Council.  Also, under Brazilian corporate law, minority groups of shareholders that hold at least 10.0% of the voting shares also have the right to elect separately one member of the Fiscal Council. Despite some apparent similarities to the U.S. audit committee as provided for under the Sarbanes-Oxley Act, a Fiscal Council established under Brazilian corporate law has not typically been considered equivalent or comparable to a U.S. audit committee formed according to the provisions of the Sarbanes-Oxley Act and the New York Stock Exchange, or NYSE, listing standards.  The listing standards of the São Paulo Stock Exchange, where our shares are listed, do not require that companies listed with it form or maintain a permanent Fiscal Council or a comparable U.S. audit committee-type body.  As a result, our Fiscal Council will not be upgraded to discharge the same responsibilities of a U.S. audit committee formed according to the provisions of the Sarbanes-Oxley Act and the NYSE listing standards. The following table sets forth the persons elected to our Fiscal Council at our Annual Shareholders Meeting held on April 28, 2010, who shall serve as members of that body until the Annual Shareholders Meeting of 2011. Name
     PositionSidnei Nunes
     ChairmanEder Carvalho Magalhães
     Regular MemberSérgio Mamede Rosa do Nascimento
     Regular MemberAloisio Kok
     Regular MemberVanessa Montes de Moraes
     Regular Member
 53


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Sidnei Nunes.Born September 28, 1959, he holds an MBA from the Universidade de São Paulo and is also a graduate in Management and Accounting from Faculdade de Administração Paulo Eiró.  He serves as a Director of Iguatemi Empresa de Shopping Centers S.A., La Fonte Telecom, LFTEL S.A. and Grande Moinho Cearense S.A. and as an Executive Officer of Jereissati Participações S.A., La Fonte Telecom S.A. and LF TEL S.A. since 1995. Mr. Nunes served as CFO of  Iguatemi Empresa de Shopping Centers S.A. from 1995 to 2008 and as a member of the Fiscal Council of Oi subsidiaries in Ceará and Sergipe between 2000 and 2001. Eder Carvalho Magalhães.Born July 1, 1968, he holds an MBA from IBMEC  Instituto Brasileiro de Mercado de Capitais and is a graduate in Accounting from Instituto Cultural Newton Paiva Ferreira.  He is the controller at Grupo Andrade Gutierrez since 1995.  Since 2002, Mr. Magalhães has also been the Executive Officer in charge of real estate at Grupo Andrade Gutierrez.  He has also served as Controller at Fiat Finanças Brasil Ltda. from 1993 to 1995 and worked at Pricewaterhouse from 1987 to 1992. Sergio Mamede Rosa do Nascimento.Born April 29, 1954, he holds an MBA from IBMEC  Instituto Brasileiro de Mercado de Capitais and is a graduate in Physics from Universidade de Franca and has a post graduate degree in Economics Engineering from UDF  Associação de Ensino Unificado do Distrito Federal.He also served as a member of our Board from April 2006 until April 2009.  Mr. Nascimento served as CFO at Companhia de Seguros Aliança do Brasil from 1999 to 2003 and worked at Banco do Brasil in several different capacities, such as Technical Consultant to the CEO and Chief of Socio-economic Research Department.  He also served as a Board member appointed by Banco do Brasil at the Superior Council of  its Pension Fund. Aloisio Kok.Born December 24, 1948, he obtained a degree in Economics fromUniversidadede São Paulo - USP,and has taken a number of courses in Brazil and abroad, including Risk Management for Banking Programme from Institut Européen dAdministration des Affaires - INSEAD in 1997.  He was CFO of Banco de Boston S.A. and Banco Bandeirantes S.A. and Vice-President of ABN Amro Bank S.A.  Mr. Kok is amember of the Board of Directors ofCia. de Ferro Ligas da Bahia - Ferbasa since 2008. Vanessa Montes de Moraes.  Born September 21, 1981, she holds an MBA and a degree in Economics from IBMEC  Instituto Brasileiro de Mercado de Capitais, and holds a degree in continuing education in Corporate Law and Capital Markets from Fundação Getúlio Vargas.  She is a partner in Argucia Capital Management, where she has been responsible for Compliance, Risk and Products since 2006.  From 2003 to 2005, she was an analyst and manager of equities at Mellon Global Investments. Compensation of Directors, Executive Officers and Fiscal Council Members For the year ended December 31, 2009, the aggregate amount of compensation, including cash and benefits in kind and stock options, paid by Contax to all of its Directors, Executive Officers and Fiscal Council members was approximately R$17,874 thousand.  Contax is not required under Brazilian law to disclose, and has not otherwise disclosed, the compensation of its Directors, Officers or Fiscal Council members on an individual basis. Share Ownership As of May 31, 2010, the members of Contax Participações S.A.s Board of Directors and Fiscal Council together beneficially owned less than 0.10% of its common shares or total capital stock. On April 16, 2007, the General Shareholders Meeting approved the Stock Option Plan, pursuant to article 168, paragraph 3, of Law no. 6,404/76. Our Executive Officers are limited to purchasing up to 5.0% of the Companys total capital stock. As of May 31, 2010, our Board of Directors and Executive Officers beneficially owned the following percentage of our shares: 54


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Name
     Position
     Common Shares
     Preferred SharesQty.
     Total %
     Qty.
     Total %Fernando Antônio Pimentel Melo
     Chairman
     *
     *
     *
     *Pedro Jereissati
     Director
     *
     *
     *
     *Carlos Jereissati
     Director
     *
     *
     *
     *Cristina Anne Betts
     Director
     *
     *
     *
     *Armando Galhardo Nunes Guerra Junior
     Director
     *
     *
     *
     *Otávio Marques de Azevedo
     Director
     *
     *
     *
     *Marcel Cecchi Vieira
     Director
     *
     *
     *
     *Antonio Adriano Silva
     Director
     *
     *
     *
     *José Luis Prola Salinas
     Director
     *
     *
     *
     *Sérgio Francisco da Silva
     Director
     *
     *
     *
     *Newton Carneiro da Cunha
     Director
     *
     *
     *
     *Manuel Jeremias Leites Caldas
     Director
     *
     *
     *
     *
 __________________ *      Less than 1% of the class of shares.  Name
     Position
     Common Shares
     Preferred SharesQty.
     Total %Francis James Leahy Meaney
     President (CEO)
     *
     *
     Michel Neves Sarkis
     Chief Financial Officer (CFO)/
     *
*
     *
*
     Investor Relations OfficerJose Luiz Cardoso Albano
     Officer
     *
     *
     Eduardo Nunes Noronha
     Officer
     *
     *
     
 __________________________ *      Less than 1% of the class of shares Employees As of December 31, 2009, we had a total of 78,200 employees distributed among the following locations: City/State
     EmployeesRio de Janeiro/RJ
     15,126Niterói/RJ
     4,681São Paulo/SP
     19,167Salvador/BA
     8,230Recife/PE
     7,205Fortaleza/CE
     6,838Belo Horizonte/MG
     11,706Porto Alegre/RS
     4,646Brasilia/DF
     512Florianópolis/SC
     89Total
     78,200
 The employees are distributed between our administrative (8.1%) and operational (91.9%) areas. 55


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As of December 31, 2009, approximately 25.1% of our employees were members of the telecommunications company workers and switchboard operators unions.  These unions represent the employees professional category and are affiliated with the Interstate Federation of Telecommunications Workers (Federação Interestadual dosTrabalhadores em Telecomunicações Fittel) or National Federation of Telecommunications (Federação Nacional de Telecomunicações Fenatel).  The base date for the collective labor bargaining agreement for the category is May, at which time salary adjustments are negotiated.  The conditions of the collective labor bargaining agreement are negotiated annually and in a centralized manner with Fittel and the unions of the states where we have operations.  These negotiations are carried out between union representatives and a team of experienced negotiators from Contax S.A. We maintain a courteous and professional relationship with the union representatives and invite them to visit our sites on a regular basis to show the labor condition improvements that we continue to make for our employees. Employee Benefits We provide the following benefits to our employees:  (i) medical plan; (ii) dental plan; (iii) life insurance; (iv) food program for employees who work six hours per day; (v) meal program for employees who work eight hours per day; (vi) transportation; (vii) discount plan with certain pharmacies; (viii) funeral expenses plan; and (ix) daycare assistance.  Officers, managers and coordinators are also entitled to mobile telephones with monthly credits varying from R$60 to R$120. Career and Salary Plan Our remuneration structure was last updated in the second half of 2006, in order to remain competitive in the market and maintain our Career and Salary Plan in line with our goals, taking into consideration our employees satisfaction, as well as rewarding individual performance.  There have not been any major changes since then, but it is important to note that it was also designed to provide additional opportunities for our employees, establishing the guidelines for promotions. Employees assigned to some of our operations, such as telemarketing, retention, debt collection units and Orbitall operations are eligible for variable remuneration, linked to the achievement of individual as well as collective goals. All employees are eligible for our profit sharing plan, which is linked to both our performance and individual goals set annually. Outsourcing We engage service companies to provide services related to activities, such as janitorial services, security, office assistants and helpdesk. Workplace Health and Safety As required by law, we maintain two workplace health and safety programs: the occupational health program (Programa de Controle Médico de SaúdeOcupacional), or PCMSO, and the workplace risk prevention program (Programa dePrevenção de Riscos Ambientais), or PPRA.  In addition, we maintain a safety-at-work program (Comissão Interna de Prevenção de Acidentes).  We also carry out ergonomic and noise level studies and have a workplace exercise program to help prevent work-related injuries.  56


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Item 7.         Major Shareholders and Related Party Transactions Major Shareholders We have two classes of share capital outstanding, common shares and preferred shares.  Only the common shares have full voting rights.  The preferred shares have limited voting rights in connection with certain matters.  See Item 10. Additional Information  Memorandum and Articles of Association  Voting Rights. The following table sets forth the beneficial ownership of our common shares by CTX Participações S.A. and by other shareholders holding five percent or more of our common shares, as of May 31, 2010.  Except for the shareholders listed below, we are not aware of any other shareholder beneficially owning more than five percent of our common shares.  None of the major shareholders listed below have any different or special voting rights attached to their shares. Shareholders
     Number of
common
shares owned
     Percentage of
outstanding
common sharesCTX Participações S.A.
     15,217,822
     69.1%Fator
     2,159,200
     9.4%Eton Park
     1,314,200
     5.7%Total
     18,691,222
     81.0%
 The following table sets forth, as of June 17, 2010, information concerning the ownership of the common voting shares of CTX Participações S.A. CTX Participações S.A. shareholders
     Number of
common
shares owned
     Percentage of
outstanding
common sharesLF TEL S.A
     705,461,176
     22.8%AG Telecom Participações S.A.
     352,730,588
     11.4%Luxemburgo Participações S.A.
     352,730,588
     11.4%BNDES Participações S.A.  BNDESPAR
     463,234,641
     15.0%Caixa de Previdência dos Funcionários do Banco do Brasil  PREVI
     354,506,323
     11.5%Fundação Atlântico de Seguridade Social  FASS
     177,253,761
     10.2%Fundação dos Economiários Federais  FUNCEF
     273,688,936
     8.9%Fundação Petrobrás de Seguridade Social  PETROS
     273,688,935
     8.9%Others
     18
     0.0%Total
     3,090,611,008
     100.0%
 CTX Participações S.A.s Shareholders Agreements Certain of CTX Participações S.A.s shareholders are party to two shareholders agreements with respect to their interests in CTX Participações S.A. AG Telecom Participações S.A., Luxemburgo Participações S.A. (current denomination of Andrade Gutierrez Investimentos em Telecomunicações S.A.), L.F. Tel S.A., BNDES Participações S.A., Fundação Petrobrás de Seguridade Social  PETROS, Fundação dos Economiários Federais  FUNCEF, Caixa de Previdência dos Funcionários do Banco do Brasil  PREVI  and Fundação Atlântico de Seguridade Social are parties to a Shareholders agreement, dated April 25, 2008, which governs: (1) special procedures and quorum requirements for the approval of certain corporate resolutions by the management; (2) rules for the election of the members of the board of directors, fiscal council and executive officers; (3) rules with regard to voting rights during the general shareholders meetings of CTX Participações; (4) conditions which would constitute a lien on the shares or subscription rights; (5) requirements with regard to the exercise of the right of first refusal and thepreemptive rights of the shareholders in the case of a disposal and subscription of shares of CTX Participações; (6) tag-along rights in which the direct or indirect transfer of control of CTX Participações can only be effected; and (7) appraisal rights in the case of a disposal of shares of CTX Participações in the event of a transfer of control of the shareholder. 57


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In accordance with the first Shareholders agreement, CTX Participações controlling shareholders have also agreed to exercise their voting rights in the shareholders meetings of CTX Participações in order to:  (1) maintain their investment in Contax Participações S.A.; and (2) have CTX Participações properly manage Contax Participações S.A. and its subsidiaries and assure decisions and actions by the companies management are taken in the companies best interests and according to market conditions.  Under the first Shareholders agreement, CTX Participações shareholders must meet prior to any general shareholders or Board of Directors meeting of CTX Participações or any of their affiliates to vote on the matters to be subsequently submitted at those meetings ( Prior Meetings).  Each controlling shareholder is entitled to one vote at the Prior Meeting, and all decisions taken in this meeting bind all the controlling shareholders votes in the general shareholders meetings, including votes of shareholders who have not participated in the Prior Meeting.  The controlling shareholders are also bound to ensure that directors appointed by them vote at meetings of the board of directors in accordance with decisions taken at the Prior Meetings and that such decisions are implemented.  Except as otherwise provided in the shareholders agreements, resolutions at the Prior Meetings are passed by the vote of holders of a simple majority of shares.  However, certain matters, such as matters relating to related party transactions and approval of the candidate for the position of CEO of Contax Participações, require the approval of 66.7% of the shares affected by such Shareholders agreement; changes in preferences and capital increases require the approval of 70.0% of the shares affected by such shareholders agreement; and changes in the corporate purpose and any decision resulting in the change of control of CTX Participações requires the approval of 84.0% of the shares affected by such Shareholders agreement. AG Telecom Participações S.A., Luxemburgo Participações S.A. (current denomination of Andrade Gutierrez Investimentos em Telecomunicações S.A.), L.F. Tel S.A. and Fundação Atlântico de Seguridade Social (CTX Participações controlling shareholders) are parties to a second Shareholders agreement, also dated April 25, 2008.  This second instrument governs: (1) voting rights during the general shareholders meetings of CTX Participações; (2) the holding of Prior Meetings; and (3) the transfer of CTX Participações shares owned by its controlling shareholders. Holders of ADSs In the United States, the preferred shares trade in the form of American Depositary Shares, or ADSs, each preferred share is represented by five ADRs of the same type, issued by The Bank of New York, as depositary, pursuant to a Deposit Agreement among us, the Depositary and the registered holders and beneficial owners of ADSs from time to time.  Our ADSs are not listed on any stock exchange in the United States. Related Party Transactions Set forth below is a description of the related party transactions that are material to us.  Related party transactions refer to any loans receivable, accounts receivable from services rendered and any other debts with our shareholders, subsidiaries, unconsolidated affiliates or shareholders.  For further information about transactions with related parties, see Note 26 to our Consolidated Financial Statements. Oi/Contax Contracts We are a party to two main related party agreements with Oi (our main client encompassing Tmar and its wholly owned subsidiary TNL PCS S.A., both of which are indirectly under common control with us): (i) an agreement related to contact center services provided by us to Oi, on a fully outsourced basis; and (ii) an agreement related to telecommunications services provided by Oi to us.  Such agreements were executed on November 30, 2004 and duly approved at Tmars Extraordinary Shareholders Meeting on December 17, 2004. 58


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Prior to such contracts, we performed all contact center activities for Oi under various contracts, both on a fully outsourced as well as on a partially outsourced basis. The total amount of our gross operating revenue derived from Oi was R$1,124.6 million in 2009, R$966.6 million in 2008 and R$744.2 million in 2007, representing 50.3%, 51.1% and 50.7%, respectively, of our total revenue in those years.  Our relationship with Oi currently comprises several distinct and independent services, such as customer services for Ois fixed-line business, outbound telemarketing to attract additional mobile customers, customer support for prepaid and postpaid mobile users, technical support for broadband subscribers and debt collection services. Oi, in turn, is our main telecommunications services provider (fixed-switched telecommunications service, mobile services, long distance/toll-free, data, and other services) and, most importantly, provides such services, directly or through us, to some of our clients, at their option.  The total amount paid to Oi and its subsidiaries for these services was equal to R$21,157 thousand in 2009, R$26,584 thousand in 2008 and R$24,706 thousand in 2007, or 1.6%, 1.8% and 2.1% of our total cost of services and operating expenses in 2009, 2008 and 2007, respectively.  While Oi currently provides most of our telecommunications services, if it were to become unable or unwilling to provide these services, we believe that we would be able to obtain such services from another provider with a minimum of disruption to our business. Todo/Contax Contracts Todo was created as a supplier of technological solutions designed specifically for contact center operations, having as its first customer Contax S.A., which practically outsourced its entire IT department to Todo.  Through Todo, we intend to supplement our present range of services and take advantage of its expertise and market relationships in order to expand our information technology services outsourcing activities. BNDES/Contax Contracts In 2007, we entered into a loan agreement with BNDES for the total amount of approximately R$216 million with the purpose of financing the expansion of our installed capacity, upgrading current facilities, training programs, improving service quality and productivity and investments in marketing activities, within the PROSOFT-Corporate (Software Industry and Correlated Services Development Program). In October 2007, the first tranche of the BNDES loan was provided in the amount of R$100 million, followed by additional tranches on January 28, January 30, June 12 and November 18, 2008, in the amounts of R$40.0 million, R$10.0 million, R$61.8 million and R$4.9 million, respectively, totaling an aggregate of R$216.7 million. In March 2010, we entered into a credit facility agreement with BNDES in the amount of R$323.5 million.  For a more detailed description of this BNDES loan, see Item 10. Addition Information  Material Contracts. Facilities Lease Agreements Some of our facilities are located on real estate that is leased from related parties.  Most of these related-party lease agreements are with Oi.  Lease expense for all related party lease agreements totaled R$9,502 thousand, R$7,218 thousand and R$6,219 thousand in 2009, 2008 and 2007, respectively.  59


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Transactions with our Board of Directors or Executive Officers None of the members of our Board of Directors or Executive Officers, or any close member of their respective families, has or has had any direct interest in any transaction effected with us which is or was unusual in its nature or conditions, or significant to our business. As of December 31, 2009, no outstanding loans or guarantees thereof had been made to the members of the Boards of Directors or Executive Officers or the Fiscal Council, or any close member of their respective families. CTX Participações Loan Agreement In March 2010, CTX Participações, our parent company, and one of our executive officers entered into a loan agreement, which was negotiated individually by the executive officer and without involvement of the Company, pursuant to which CTX Participações loaned such officer an amount of R$15,769 thousand.  The loan is repayable on March 30, 2011 and bears no interest. Item 8.         Financial Information Consolidated Statements and Other Financial Information See Item 18.  Financial Statements. Legal Proceedings General We are party to a number of legal actions arising from our regular course of business.  Although the amount of the total liability that could arise with respect to these actions cannot be accurately predicted, in our opinion, such actions, if decided adversely to us, would not, individually or in the aggregate, have a material adverse effect on our financial condition and results of operations.  We are subject to contingencies with respect to tax, labor and other claims.  The composition of our contingency provisions is as follows as of the dates indicated: At December 31,2009
     2008(in thousands ofreais)NatureLabor
     48,362(1)(2)
     51,651Tax
     10,944
     11,927Civil
     615
     573Total
     59,921
     64,151
 __________________________ (1)Pursuant to the service agreement executed by Oi and Contax S.A., Oi shall be responsible for labor claims arising from the transfer of labor agreements from Oi to Contax S.A.  These amounts have been recorded as Receivable Credits.  The amount of labor claims for which Oi is responsible as of December 31, 2009 was R$7,955 thousand, with the other R$40,407 thousand being labor claims filed against Contax S.A. by employees and former employees. (2)On September 30, 2009, Contax reviewed the amounts provisioned for labor contingencies to reflect historical averages of amounts paid per claim, which resulted in a reversal of provisions for contingencies in the amount of R$11,799 thousand, of which R$7,558 was reduced from the Receivable Credits account referred to above and R$4,241 thousand was recognized as other operating income.  60


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Labor Judicial As a part of our ongoing operations, we have been named as a defendant in a number of lawsuits brought by our employees, labor unions and the Labor Public Prosecution Office (Ministério Público do Trabalho).  We have established what we believe to be an adequate reserve to cover these claims. As at December 31, 2009, we were involved in approximately 7,009 employment-related legal proceedings, as compared to 5,287 as at December 31, 2008.  The total estimated amount involved in these proceedings at December 31, 2009 was R$504,919 thousand (U.S.$289 thousand), as compared to R$358,700 thousand (U.S.$205,441 thousand) at December 31, 2008.  We record provisions for any contingent liabilities based upon our historical losses in similar lawsuits. At December 31, 2009, our provisions for labor related contingencies amounted to approximately R$48,362 thousand (U.S.$27,699 thousand), as compared to R$51,651 thousand (U.S.$29,582 thousand) at December 31, 2008. As of December 31,2009(in thousands ofreais)Types of risk(1)Probable
     48,362Possible/Remote
     456,557Total
     504,919
 __________________________ (1)   The types of risk have been determined by our management, based on the opinion of external legal counsel and existing legal precedents. Most of these proceedings relate to claims for: (i) overtime; (ii) salary equalization; (iii) continuity of service; and (iv) damages, pain and suffering.  The increase in the number of labor law suits, from 5,287 at December 31, 2008 to 7,009 at December 31, 2009,is directly related to the significant increase in the number of employees since 2004. Administrative Proceedings As at December 31, 2009, approximately 37 notices of alleged violations of labor laws were pending against us. The amounts involved in such notices of infraction depend on the type of violation, the number of employees involved, and whether the alleged violation is a first time offense. As of December 31, 2009, in order to file administrative appeals, we had made administrative deposits, as required by law, in the approximate amount of R$119,283 thousand (U.S.$68,318 thousand). We have disputed all these notices of infraction before the administrative authority and are awaiting a final decision in these administrative proceedings.  Nevertheless, if such decisions are not favorable to us in administrative courts, we are allowed and intend to appeal to the judicial courts in order to request not only annulment of any and all liabilities assigned to us by the administrative courts,but also reimbursement for administrative appeals filedon the contingency of payment. The alleged labor violations relate mainly to the following infractions:  (i) noncompliance with workplace health and safety rules; (ii) failure to grant intraday and weekly rest breaks; (iii) failure to satisfy disabled worker hiring quotas; and (iv) failure to establish an Internal Commission for the Prevention of Accidents (Comissão Interna de Prevenção de Acidentes). Under Brazilian law, if a company has more than 100 employees, two to five percent of its employees must be rehabilitated social security beneficiaries or qualified persons with disabilities.  Because of our inability to meet this quota, in September 2002, we entered into a Conduct Adjustment Term (Termo deAjuste de Conduta), with the Attorney General for Labor, under which we weregranted a period of three years to meet the hiring quota.  However, even though we implemented a program aimed at hiring rehabilitated social security beneficiaries and persons with disabilities, the positions available could not be filled. 61


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In January 2010, the Office of the Regional Labor Superintendent notified us of claims in connection with charges for social contribution and contributions to the employee dismissal fund (fundo de garantia por tempo de serviço) related to employee transportation vouchers.  The amount claimed in the notification is R$29 million.  We are defending this claim, and we believe that the risk of loss is remote. Tax As of December 31, 2009, we were party to18tax-related judicial claims (being defendants intwoof these claims) mainly related toPIS/COFINS,services tax (ISS) and social security taxes owed to the National Institute of Social Security (Instituto Nacional de Seguridade Social- INSS). Our total provisions for tax contingencies amounted to R$10,944 thousand (U.S.$6,268 thousand) as of December 31, 2009, and relate mainly toPIS/COFINStax in the amount of R$8,457 thousand (U.S.$4,844 thousand) and provisions for tax claims in the amount of R$2,248 thousand (U.S.$1,288 thousand) relating to tax on services, or ISS. Civil As of December 31, 2009, we were subject to90civil lawsuits, 89 of which involved claims in an amount less than R$50,000. Contax S.A. has been fined by the Empresa Brasileira de Correios e Telégrafos, a postal services company, for breach of contractual obligations under a contact center services agreement.  The fines total an amount equivalent to R$2,645 thousand (U.S.$1,515thousand) for alleged violation of confidentiality over telephone messages; failure to transfer reserved telephone lines (0800); and failure to recover 100% of the telephone calls.  Despite what is believed to be the strong legal grounds to challenge the fairness of such fines, Contax S.A. has recorded provisions in an amount of R$441.6 thousand (U.S.$252.9thousand) as of December 31, 2009. Policy on Dividend Distributions The preferred shares are entitled under our by-laws to receive, to the extent of available distributable profits and reserves, a non-cumulative preferred dividend in an amount equal to the greater of (i) six percent per year on the amount resulting from the division of the subscribed capital by the total amount of our shares, and (ii) three percent of the equity value of the share, or the Preferred Dividend.  To the extent there are additional distributable profits, we are also required to distribute to all shareholders an amount equal to at least 25.0% of the adjusted net income, or the General Dividend, determined in accordance with Brazilian corporate law.  Our obligation to pay General Dividends to holders of preferred shares will be met inasmuch as a Preferred Dividend is paid.  Payment of General Dividends may be limited to the net realized income for the year, provided that the difference is recorded as unrealized reserve.  Net income recorded in unrealized income reserve, when realized and as long as not offset by losses for subsequent years, should be added to the first dividend declared after realization.  We may also make additional distributions to the extent of available distributable profits and reserves.  All of the aforementioned distributions may be made as dividends or as tax-deductible interest on capital.  See Item 10.  Additional Information  Memorandum and Articles of Association  Allocation of Net Income and Distribution of Dividends. Significant Changes See Item 5. Operating and Financial Review and Prospects.  62


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Item 9.         The Offer and Listing Information Regarding the Price History of the Stock to Be Offered or Listed The principal trading market for the preferred shares is the BM&FBovespa.  As of May 31, 2010, we had approximately one thousand shareholders. The preferred shares commenced trading separately on the BM&FBovespa in August 2005.  The following table sets forth the reported high and low closing sale prices for preferred shares on the BM&FBovespa for the periods indicated, adjusted for dividends and interest on capital. Reaisper
Preferred Share(1)High
     Low2005
     14.50
     6.3752006
     65.80
     8.002007
     14.25
     8.7520081st Quarter
     13.25
     9.402nd Quarter
     12.75
     8.753rd Quarter
     11.73
     9.384th Quarter
     10.50
     5.3820091st Quarter
     11.74
     8.752nd Quarter
     14.29
     10.023rd Quarter
     20.45
     13.284th Quarter
     25.00
     18.632010January
     28.14
     22.89February
     25.49
     23.00March
     26.01
     24.04April
     25.09
     20.91May
     22.45
     19.99
 __________________________ (1)   Prices per share have been adjusted to reflect the reverse stock split in November 2007 and the reverse stock split and simultaneous stock split in January 2010. See Item 4. Information on the Company  History and Organizational Structure  Reverse Stock Split and Stock Split.  Source:Bloomberg In the United States, the preferred shares trade in the form of ADSs, each ADS representing one-fifth of a preferred share, issued by the Depositary pursuant to a Depositary Agreement among the Company, the Depositary and the registered holders and beneficial owners from time to time of ADSs.  As of May 31, 2010, there were 3,199 thousand ADSs outstanding.  The following table sets forth the reported high and low closing sales prices for ADSs for the period indicated. 63


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 U.S. dollars per ADS(1)High
     Low2005
     1.30
     0.402006
     1.65
     0.662007
     1.45
     0.7920081st Quarter
     1.37
     1.022nd Quarter
     1.52
     0.993rd Quarter
     1.39
     0.904th Quarter
     0.92
     0.4120091st Quarter
     0.96
     0.732nd Quarter
     1.40
     0.823rd Quarter
     2.21
     1.284th Quarter
     2.78
     2.052010January
     3.07
     1.57February
     2.68
     2.07March
     2.79
     2.25April
     2.72
     2.36May
     2.44
     2.07
 __________________________ (1)   Prices per ADS have been adjusted to reflect the reverse stock split in November 2007 and the reverse stock split and simultaneous stock split in January 2010. See Item 4. Information on the Company  History and Organizational Structure  Reverse Stock Split and Stock Split. Source:The Bank of New York ADR Information Trading on the Brazilian Stock Exchanges  BM&FBovespa is the only Brazilian stock exchange on which private equity and private debt may be traded. BM&FBovespa trading sessions are from 10:00 a.m. to 5:00 p.m., São Paulo time.  During daylight saving time in the United States, the sessions are held from 9:00 a.m. to 4:00 p.m., São Paulo time (closing call is from 4:55 p.m. to 5:00 p.m.).  Equity trading is executed fully electronically through an order-driven trading system calledMegabolsa.  Additionally, the home broker system through the Internet allows retail investors to transmit orders directly to the BM&FBovespa.  The BM&FBovespa also permits trading from 5:45 p.m. to 7:00 p.m. on an online system connected toMegabolsaand Internet brokers called the After Market.  The After Market session is restricted to certain stocks that were traded through the electronic system.  Trading on the After Market is subject to regulatory limits on price volatility and on the volume of shares transacted through Internet brokers.  The CVM has discretionary authority to suspend trading in shares of a particular issuer under specific circumstances.  Securities listed on the BM&FBovespa may also be traded off the exchange under specific circumstances, but such trading is very limited. Settlement of transactions is effected three business days after the trade date, without adjustment for inflation.  Delivery of and payment for shares are made through the facilities of separate clearinghouses for each exchange, which maintain accounts for the member brokerage firms.  The seller is ordinarily required to deliver the shares to the exchange on the second business day following the trade date.  The clearing house for the BM&FBovespa isCompanhia Brasileira de Liquidação e Custódia,or CBLC, which is owned, among others, by BM&FBovespa. In order to better control volatility, the BM&FBovespa has adopted a circuit breaker mechanism pursuant to which trading sessions may be suspended for a period of 30 minutes or one hour whenever the index of the stock exchange falls 10% or 15%, respectively, compared to the previous days closing index. 64


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If the market falls more than 15% compared to the previous day no more pauses are taken.  The circuit breaker is not allowed to be started during the last 30 minutes of the trading session. The BM&FBovespa, is significantly less liquid than the NYSE or other major exchanges around the world.  As at December 31, 2009, the aggregate market capitalization of the 385 companies listed on the BM&FBovespa was equivalent to R$2.3 trillion (U.S.$1.3 trillion) and the 10 largest companies listed on that exchange represented approximately 53.3% of the total market capitalization of all listed companies.  In contrast, as at December 31, 2009, the aggregate market capitalization of the 2,773 companies listed on the NYSE was U.S.$16.8 trillion and the 10 largest companies listed on the NYSE represented approximately 11.5% of the total market capitalization of all listed companies. The Brazilian equity market is relatively small and illiquid compared to major world markets.  Although any of the outstanding shares of a listed company may trade on the BM&FBovespa, in most cases fewer than half of the listed shares are actually available for trading by the public, the remainder being held by small groups of controlling shareholders, by government entities or by one principal shareholder.  For this reason, data showing the total market capitalization of Brazilian stock exchanges tend to overstate the liquidity of the Brazilian equity market. The average daily trading volume of the BM&FBovespa for December 2009 was approximately 13.1 billion shares, which corresponds in terms of value to R$6.7 billion (U.S.$3.8 billion). Trading on Brazilian stock exchanges by nonresidents of Brazil is subject to certain limitations under Brazilian foreign investment legislation.  See Item 10. Additional Information  Exchange Controls and Other Limitations Affecting Shareholders. Regulation of the Brazilian Securities Market The Brazilian securities markets are regulated by the CVM, which regulates the stock exchanges and the securities markets generally, and by the Brazilian Central Bank, which has, among other powers, licensing authority over brokerage firms and regulates foreign investment and foreign exchange transactions.  The Brazilian securities markets are governed by (i) Law no. 6,385, as amended and supplemented, which is the principal law governing the Brazilian securities markets; (ii) Brazilian corporate law (Law no. 6,404/76), as amended and supplemented; and (iii) the regulations issued by the CVM, the CMN and the Brazilian Central Bank, or collectively, the Securities Laws. Under Brazilian corporate law, a company is either public, acompanhiaaberta, such as Contax, or private, acompanhia fechada.  All public companies are registered with the CVM and are subject to reporting requirements.  A company registered with CVM may have its securities traded either on the BM&FBovespa or in the Brazilian over-the-counter market.  Shares of companies listed on the BM&FBovespa may not simultaneously trade on the Brazilian over-the-counter market.  The shares of a public company may also be traded privately, subject to certain limitations.  To be listed on the BM&FBovespa, a company must apply for registration with the CVM and the BM&FBovespa.  Once the BM&FBovespa has admitted a company to listing and the CVM has accepted its registration as a public company, its securities may be traded on the BM&FBovespa. The trading of securities on the BM&FBovespa may be suspended at the request of a company in anticipation of the announcement of a material event.  Trading may also be suspended by the BM&FBovespa or the CVM, based on or due to a belief that, among other reasons, a company has provided inadequate information regarding a material event or has provided inadequate responses to inquiries by the CVM or the BM&FBovespa. The trading of shares is prohibited and/or restricted under certain circumstances as follows:  (i) trading by the company of its own shares except for cancellation or maintenance in treasury for further disposal, according to Rule 10/80, issued by the CVM; (ii) trading by persons who, as a result of their position, title or relationship with the company, have knowledge of the impending disclosure of a materialevent; and (iii) trading by directors, officers and members of any technical or advisory body established pursuant to a companys by-laws during the 15-day period before the disclosure of the companys quarterly and annual financial statements. 65


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The Brazilian securities markets are principally governed by the Securities Laws, as well as by regulations issued by the CVM and the CMN.  These laws and regulations, among others, provide for disclosure requirements, restrictions on insider trading and price manipulation, and protection of minority shareholders.  However, the Brazilian securities markets are not as highly regulated and supervised as the U.S. securities markets or markets in certain other jurisdictions. Recent changes to Brazilian corporate laws and regulations increased the rights of minority shareholders, including holders of preferred shares, by granting them restricted voting rights.  The amended Brazilian corporate law also granted more regulatory power to the CVM. Law No. 11,638/07, effective as of January 1, 2008 and as amended by Law No. 11,941/09, introduced changes to the Brazilian corporate law to be applied in 2010 to financial statements of financial institutions and publicly-held companies.  These changes primarily seek to facilitate the process of converging Brazilian GAAP to IFRS, and permit the CVM to issue new accounting standards and procedures consistent with international accounting standards.  In addition, to ensure consistent presentation of financial statements in prior periods, these changes will require 2009 financial statements to be disclosed together with 2010 financial statements in order to provide comparative information within the financial statements. Disclosure Requirements Through Instruction no. 358, the CVM revised and consolidated the requirements regarding the disclosure and use of information relating to material facts and acts of publicly held companies, including the disclosure of information in the trading and acquisition of securities issued by publicly held companies. The requirements include provisions that: ·establish the concept of a material fact that triggers the reporting requirements.  Material facts include decisions made by the controlling shareholders, resolutions of the general shareholders meeting and of management of the company, or any other facts related to the companys business (whether occurring within the company or otherwise somehow related thereto) that may influence the price of its publicly traded securities, or the decision of investors to trade such securities or to exercise any of such securities underlying rights; ·specify examples of facts that are considered to be material, which include, among others, the execution of shareholders agreements providing for the transfer of control, the entry or withdrawal of shareholders that maintain any managing, financial, technological or administrative function with or contribution to the company, and any corporate restructuring undertaken among related companies; ·require the Investor Relations Officer to publish and inform the CVM and also the stock exchange and entities of the organized over-the-counter market where the securities issued by the company are traded, as the case may be, of any material events that have occurred or are related to their business; ·require the controlling shareholders, directors, members of the administrative council, members of the Fiscal Council and of any technical and consultative bodies, according to the by-laws, to report any material event they are aware of to the Investor Relations Officer, who will provide for its disclosure.  In the event those people referred to above have personal knowledge about material events and verify omission by the Investor Relations Officer towards investors in the fulfilling ofhis communication and disclosure duties, they will only be exempt from liability if they communicate the material events to the CVM immediately; 66


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·require simultaneous disclosure of material facts to all markets in which the companys securities are admitted for trading; ·require the acquirer of a controlling stake in a company to publish material facts, including its intention to promote, or not, within a year, the cancellation of the registration of publicly-held companies; ·establish rules regarding disclosure requirements in the acquisition and disposal of a material stockholding stake; and ·forbid the use of insider information. On December 7, 2009, the CVM enacted CVM Instruction 480, establishing new rules for registration and disclosure of information of issuers of securities admitted for trading in the local regulated markets.  The new regulation focuses on improving the quality of the information reported by issuers.  The annual information report (informações anuais  IAN) was replaced by the reference form (formulário de referência), which must contain all relevant information regarding the issuer and be updated (i) annually, within five months from the closing date of the relevant fiscal year, and (ii) within seven business days after the occurrence of certain events.  The reference form must also be updated and incorporated by reference in the case of any public distribution of securities by the relevant issuer. On December 17, 2009, the CVM enacted CVM Instruction 481 to regulate key issues involving general shareholders meetings of publicly-held companies, including: (i) the extent of information and documents to be provided in support of call notices and that are to be disclosed to shareholders prior to such meetings; and (ii) public proxy solicitation in connection with the exercise of voting rights.  The purpose of CVM Instruction 481 is to: (i) improve the quality of information that must be disclosed by companies to their shareholders and to the market prior to shareholders meetings; (ii) encourage the use of the internet to disclose information; and (iii) lower the cost of voting and proxy solicitations in order to increase shareholders participation at shareholders meetings. Item 10.       Additional Information Memorandum and Articles of Association In addition to the description in this Item 10, you should also review the copy of our by-laws incorporated by reference as an exhibit to this annual report.Under Brazilian corporate law, no memorandum or articles of association are required.  Our only constitutive documents are the by-laws and the minutes of the General Shareholders Meeting that provided for our incorporation. Organization We are a listed company duly registered with the CVM under no. 01910-0 and our by-laws are filed under no. 33.3.0027541-0 with the Board of Trade (JuntaComercial) of the State of Rio de Janeiro.  According to Article 3 of our by-laws, our business purpose is to participate, directly or indirectly, in other companies as partner, shareholder or quotaholder, in Brazil or abroad.  We have no present intention of listing our shares on any organized market or stock exchange in the United States. Except as described in this section, our by-laws do not contain provisions addressing the duties, authority or liabilities of Directors and senior management, which are instead established by Brazilian corporate law.  67


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Qualification of Directors Brazilian corporate law provides that only shareholders of a company may be appointed to its Board of Directors.  There is no minimum share ownership or residency requirement for qualification as a Director.  If a Director is a non-Brazilian resident, he or she must appoint an attorney-in-fact to receive service of process. According to Brazilian corporate law, persons disqualified by special law, or sentenced for a bankruptcy offense, fraud, bribery or corruption, misappropriation of public funds or embezzlement, crimes against the national economy or decency or public property, or to any criminal sanction which precludes, even temporarily, access to public office are disqualified for election to an administrative office in the corporation.  A person who has been declared by the CVM to lack capacity is also ineligible to an administrative office in a publicly held corporation. The officers shall have unblemished reputations and are ineligible, except if a waiver is granted by the general shareholders meeting, in the following cases:  (i) holding of a position in a competing company, especially on the management board or advisory or finance committees; and (ii) conflicting interests with the company. Allocation of Net Income and Distribution of Dividends Our by-laws require the Board of Directors to recommend, at each annual shareholders meeting, the allocation of net income from the preceding fiscal year as follows: ·5.0% to a legal reserve, not to exceed 20.0% of the paid-in capital of Contax; ·at least 25.0% of adjusted net income against payment of dividends.  As required by Brazilian corporate law, such amount will be increased if required to satisfy payment of dividends of preferred shares; and ·respecting the entry in the reserve for profits to be realized, the remaining net income should be allocated in the reserve for expansion for working capital purposes.  The total amount registered in the reserve for expansion together with the amount entered in profit reserves is limited to the total amount recorded as paid-in capital. Whenever we accumulate or reserve profits, the Board of Directors can authorize the allocation of interim dividends, as provided under Brazilian corporate law.  In general, we have to pay dividends first to holders of preferred shares and then to holders of common shares.  The remaining balance will be distributed equally among all of the shares of our capital stock.  Dividends not claimed within three years of the date on which they were made available for distribution will revert to us.  See Item 8.  Financial Information  Policy on Dividend Distribution. In lieu of the payment of dividends as stated above, we may elect to make payments to shareholders characterized as interest on our capital.  See  Taxation  Brazilian Tax Considerations  Distribution of Interest on Capital. Shareholders Meetings and Proxy Solicitation The annual shareholders meetings are held once a year, generally during the first four months following the end of the fiscal year.  Extraordinary meetings can be called at any time. Our shareholders have the power to decide any matters related to our corporate purpose and to pass any resolutions they deem necessary for our protection and development through a shareholders vote at a shareholders meeting. 68


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We convene the shareholders meetings by publishing a notice in the national edition ofValor Econômico, a Brazilian newspaper, and also in the Official Gazette of the State of Rio de Janeiro (Diário Oficial do Estado doRio de Janeiro).  The notice must be published no fewer than three times, the first of which must be at least 15 calendar days prior to the scheduled meeting date. Such call notice must always contain the meeting place, date and time and a detailed agenda.  CVM Instruction 481 of December 17, 2009 determines the requirements with respect to which documents and information must be made available to the shareholders prior to the first call notice.  CVM Instruction 481 also requires that such documents and information be made electronically available on the companys website. The Board of Directors, or, in some specific situations set forth in Brazilian corporate law, the shareholders or the Fiscal Council, if installed, has the power to call shareholders meetings.  A shareholder may be represented at a shareholders meeting by its attorney-in-fact so long as that attorney-in-fact was appointed within one year of such meeting.  The attorney-in-fact must be another shareholder, a member of our management, a lawyer, or a financial institution.  The power of attorney granted to the attorney-in-fact must comply with certain formalities set forth by Brazilian law. In order to be legally convened after a first call, a shareholders meeting must obtain a quorum representing at least one-quarter of the issued and outstanding voting capital.  If this quorum is not met, a shareholders meeting can be held with any quorum after a second call has been published.  However, if the purpose of a shareholders meeting is to amend our by-laws, shareholders representing at least two-thirds of the issued and outstanding voting capital must be present.  If this quorum is not met, the Board of Directors may call a second meeting with notice given at least eight calendar days prior to the scheduled meeting, in accordance with the rules of publication described above.  No minimum quorum requirements apply to a second meeting, except that certain voting requirements may still apply as described below. CVM Instruction 481 regulates public proxy solicitations in connection with the exercise of voting rights at a shareholders meeting.  All material used in connection with a proxy solicitation must be filed with the CVM and becomes publicly available on its website. For the purposes of conducting a public proxy solicitation, shareholders holding at least 0.5% of a companys shares can require a list of its shareholders from the company indicating shareholders addresses and the number of shares held.  CVM Instruction 481 also allows companies to implement electronic systems in order to distribute and receive proxy solicitations among its shareholders.  As of the date of this annual report, we do not have an electronic system in place for such purpose. Voting Rights Each common share entitles its holder to one vote at our shareholders meetings.  Except as otherwise provided by law, resolutions of a shareholders meeting are passed by the vote of holders of our common shares.  Abstentions are not taken into account. Holders of preferred shares may acquire full voting rights if we fail to pay dividends for three consecutive years.  They will continue to have voting rights until dividends are duly paid. Pursuant to Brazilian corporate law, the approval of the following matters requires:  (i) a separate vote ofshareholders representing the majority of each class of the outstanding, adversely affected preferred shares; and (ii) avote of shareholders representing the majority of the issued and outstanding common shares: ·the creation of preferred shares or the increase of an existing class of shares without preserving their proportion with other classes of shares, except as already authorized by our by-laws; 69


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·a change of a preference, privilege or redemption or amortization provision of any class of preferred shares; and ·the creation of a new class of preferred shares that has a preference, privilege or redemption or amortization provision which is superior to those of existing preferred shares. Preferred shareholders do not have a vote on any other matter in addition to the ones previously mentioned, except that they can elect one member and respective alternate to sit on our Fiscal Council, if installed, and, if they come to hold more than 10.0% of our capital stock, they can elect one member and respective alternate to sit on our Board of Directors.  See Item 6. Directors, Senior Management and Employees. Notwithstanding the actions described above, the approval of a majority of the holders of the issued and outstanding common shares is required to approve the following matters: ·a reduction of the mandatory dividend set forth in our by-laws; ·the approval of a merger, spin-off or consolidation; ·our participation in a group of companies, orgrupo de sociedades, the management of which is coordinated through contractual relationships and equity ownership, as defined under Brazilian corporate law; ·a change in our business purpose; ·the creation of founders shares (partes beneficiárias); ·the cessation of our liquidation process; and ·approval of our dissolution. Pursuant to Brazilian corporate law, holders of common shares, voting at a shareholders meeting, have the exclusive power to: ·amend the by-laws, including changing the rights of holders of common shares; ·elect or dismiss members of the Board of Directors or Fiscal Council, if installed; ·review the yearly accounts prepared by management and accept or reject managements financial statements, and decide on the allocation of:  (i) net profits for payment of the mandatory dividend; and (ii) funds to the various reserve accounts; ·authorize the issuance of debentures and founders shares (partes beneficiárias), except that the Board of Directors is empowered to approve the issuance of simple debentures that are not convertible into shares and have no real guarantee; ·suspend the rights of shareholders who have not fulfilled their obligations as imposed by law or by the by-laws; ·accept or reject the valuation of assets contributed by a shareholder in consideration for issuance of capital stock; 70


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·pass resolutions authorizing:  (i) the reorganization of our legal form; (ii) our merger, spin-off, dissolution or liquidation; and (iii) the election or dismissal of liquidators and the inspection of their accounts; and ·authorize our management to file for bankruptcy or requestconcordata(a reorganization process similar to Chapter 11 proceedings under U.S. bankruptcy law). Related Party Transactions According to Brazilian corporate law, a shareholder may not vote on resolutions to approve the following matters:  (i) an evaluation report of property transferred by such shareholder as capital contribution to a company; (ii) the accounts of such shareholder while serving as an officer of a company; or (iii) any other resolution that may benefit such shareholder personally or in which such shareholder and the company may have a conflicting interest.  Resolutions passed with a vote of a conflicted shareholder may be voided and such shareholder held liable for damages and required to account to the company for any benefits incurred. Brazilian corporate law also provides that a Director or Officer shall not take part in any (i) corporate transaction in which they have an interest that conflicts with those of the company, or (ii) decision made by other Directors or Officers regarding such conflicting transaction.  The conflicted Director or Officer shall disclose their impediment to the other Directors or Officers and request that the nature and extent of their interests be recorded in the minutes of the meeting of the Board of Directors or of the Board of Executive Officers.  In addition, a Director or Officer may only execute contracts with a company under reasonable and fair terms in line withprevailing market standards or in accordance with the same guidelines that the company would observe when executing contracts withunrelated third parties.  Any business executed by such Director or Officer and the company which conflicts with these rules may be voided and the Director or Officer required to account to the company for any benefits incurred. Appraisal Rights Brazilian corporate law provides that under certain circumstances a shareholder has the right to require that its equity interests in a company be redeemed for payment.  Such payment shall not be lower than the companys pro-rata net worth (as per its most recently approved balance sheet) unless an independent valuation were to determine a lower economic value for the companys equity value. Appraisal rights may be exercised: (i)            by the dissenting or nonvoting holders of the adversely affected class of shares (including any holder of preferredshares of an adversely affectedclass) in the event that theholders ofamajorityof all outstanding common shares authorize: ·the creation of preferred shares or an increase of an existing class of shares without preserving their proportion with other classes of shares, except as already authorized in our by-laws; ·a change in the preferences, privileges, or redemption or amortization provisions of any class of preferred shares; or ·the creation of a new class of preferred shares that has a preference, privilege, or redemption or amortization provision that is superior to those of existing preferred shares. 71


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(ii)           by all dissenting or nonvoting shareholders, in the event that the holders of a majority of all outstanding common shares authorize: ·a reduction of the mandatory dividend set forth in our by-laws; ·the approval of our consolidation or merger into another company; ·our participation in agrupo de sociedades; ·a change in our business purpose; ·our spin-off, if such spin-off implies (a) a change in our business purpose (except if the spun-off assets revert to a company whose main purpose is the same as ours), (b) a reduction of the mandatory dividend set forth in our by-laws, or (c) our participation in agrupode sociedades; or ·the acquisition of control of another company at a price which exceeds certain limits set forth in Brazilian corporate law. Notwithstanding the above, in the event that we are consolidated or merged with another company, become part of agrupo de sociedades, or acquire the control of another company for a price in excess of certain limits imposed by Brazilian corporate law, holders of any type or class of shares that are marketable and dispersed in the market will not have appraisal rights.  Shares are considered marketable when that type or class of shares is part of a general stock exchange index, as defined by the CVM, in Brazil or abroad.  Shares are considered dispersed in the market when the controlling shareholder, the parent company or other companies under its control hold less than half the total amount of that share type or class. Dissenting or nonvoting shareholders are also entitled to appraisal rights in the event that the entity resulting from a merger or spin-off does not have its shares listed in an exchange or traded in the secondary market within 120 days from the shareholders meeting that approved the relevant merger or spin-off. Dissenting or nonvoting shareholders are only entitled to appraisal rights when they are shareholders of record at the time of the first notice calling for a shareholders meeting to vote on this matter is published or at the time when a material fact (fato relevante) was announced, whichever occurs earlier. Appraisal rights lapse 30 days after publication of the minutes of the shareholders meeting that gave rise to such appraisal rights, except when the resolution is approved pending confirmation by the holders of preferred shares (such confirmation to be given at special meeting to be held within one year).  In this event, such 30-day period for dissenting shareholders begins at the date of publication of the minutes of the shareholders meeting.  Within 10 days after expiration of the exercise period of appraisal rights, we are entitled to reconsider any resolution or decision that gave rise to such appraisal rights, in the event that the reimbursement of shares held by dissenting shareholders is deemed to have a negative impact on our financial stability. In any one of the situations explained above, shares would be redeemable at their net book value, based on the most recent balance sheet approved by shareholders.  The reimbursement amount can only be lower than the net book value amount if it is based on the economic value of the enterprise, as determined by an appraisal process in accordance with Brazilian corporate law.  If the shareholders meeting that gave rise to such appraisal rights is held more than 60 days after the date of the most recently approved balance sheet, shareholders may require that the reimbursement value of their shares be calculated based on a new balance sheet dated up to 60 days prior to that shareholders meeting.  72


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Liquidation Procedures In the event of our liquidation, the holders of preferred shares would be entitled to priority in relation to holders of common shares in the reimbursement of capital, with no premium.  The reimbursement amount to which they would be entitled is based on the portion of the capital stock represented by the preferred shares, as adjusted from time to time to reflect any capital increases or reductions.  First, after all our creditors have been paid, the residual assets, if any, would be applied towards the amount of capital represented by preferred shares to its respective holders.  Once holders of preferred shares have been fully reimbursed, the holders of the common shares will be reimbursed, to the extent of remaining assets, if any, on the portion of the capital stock represented by common shares.  All our shareholders will participate equally and ratably in any remaining residual assets. Form and Transfer of Securities Our shares are maintained in book-entry form with a transfer agent, Banco do Brasil S.A., or the Registrar, that serves as the registrar for those of our shares that will be freely traded on the BM&FBovespa.  To make a transfer of shares, the Registrar makes an entry in the register by debiting the share account of the transferor and crediting the share account of the transferee. Transfers of shares by a foreign investor are made in the same way and executed by the investors local Custodian on the investors behalf. The BM&FBovespa and clearing systems, such as member brokerage firms and banks, control Brazils clearing house for equity of Brazilian listed companies, the CBLC.  Shareholders may choose, at their discretion, to hold their shares through the CBLC.  Shares are added to the CBLC system through Brazilian institutions that have clearing accounts with the CBLC.  Our shareholder registry indicates which shares are kept at the CBLC system. Transfer of Control The sale of a controlling block of shares of a publicly held company, such as Contax, can only be effected if the acquirer undertakes to make a public offering to purchase the remaining common shares at a price equal to at least 80.0% of the amount paid for each voting share in such controlling block.  Such public offering must comply with the rules issued by the CVM.  In addition, the acquirer may grant the option to the minority shareholders to keep their shares upon receipt of a premium equal to the difference between the market value of the shares and the amount paid for the shares comprising the controlling block. The concept of sale of control is defined by Brazilian corporate law and regulations as the direct or indirect: (i) transfer of (A) shares included in the controlling block or subject to a shareholders agreement, or (B) securities convertible into voting shares; or (ii) assignment of shares and other securities subscription rights, or rights attached to securities convertible into shares, that may result in the disposal of control of a company. Amendments Our by-laws were further amended on November 13, 2009, to reflect the reverse stock split and simultaneous stock split as approved at our Extraordinary Shareholders Meeting held on that date.  As a result, the caption of article 5 of our by-laws now has the following wording:  Article 5  The Companys Capital Stock comprises R$223,873,116.10 (two hundred and twenty three million, eight hundred and seventy three thousand, one hundred and sixteen reais and ten centavos), divided into 59,770,600 shares, of which 23,089,600 are common shares and 36,681,00 are preferred shares, all registered book-entry shares with no par value. 73


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Article 13 of our by-laws was last amended after our Extraordinary Shareholders Meeting held on June 17, 2008 to increase the maximum number of members of our Board of Directors from 11 to 13 members. Disclosure of Shareholder Ownership Brazilian regulations establish that the controlling shareholders, directly or indirectly, and those shareholders who elected the members of the Board of Directors or Fiscal Council, if installed, as well as any other person or group of persons acting together or representing the same interest and who directly or indirectly hold 5.0% or more of any type or class of shares in a publicly held company, disclose their respective shareholdings to the company.  In the event that an acquisition results in a change of control of a company or of its administrative structure, as well as when the acquisition results in the obligation to make a public tender offer, the acquirer of the control of such company shall publish a press release regarding the shareholdings, as required by Brazilian regulations.  The Investor Relations Officer is responsible for transmitting the information to the CVM and the stock exchanges.  Every 5.0% increment or disposal in shareholding must be similarly disclosed.  See Item 9. The Offer and ListingDisclosure Requirements. Material Contracts Oi and Orbitall Services Agreements We are a party to a material contract with Oi relating to contact center services rendered by us to Oi, which was executed on November 30, 2004 and duly approved at Tmars Extraordinary Shareholders Meeting on December 17, 2004. The total amount of our revenues derived from Oi was R$1,086.5 million in 2009, R$906.6 million in 2008 and R$692.1 million in 2007, representing 50.3%, 51.1% and 50.7%, respectively, of our revenues in those years.  Our relationship with Oi is currently comprised of several distinct and independent services, such as customer services for Ois; fixed-line business, outbound telemarketing to attract additional mobile customers, customer service for prepaid and postpaid mobile users, technical support for broadband subscribers and debt collection services. On April 1, 2004, Orbitall, one of Brazils main credit card processing companies, executed an agreement with us (the Orbitall Agreement), according to which we agreed to provide contact center services to the customers of Orbitalls clients, such as Citibank, Credicard, Itaucard, Banespa, Sodexo, VR Vales and Medial Saúde.  Prior to its amendment on December 18, 2009, the Orbitall Agreement accounted for a significant portion of our revenues (second only to the Oi services agreement).  Such amendment provided for a further one-year term with an automatic renewal clause for each subsequent year (unless a termination notice is delivered by either party 30 days prior to any annual renewal date).  In connection with the amendment, we also entered into a separate contract with Orbitalls parent company, Banco Itaú Unibanco.  Several services previously provided to Orbitall are now being provided under the Banco Itaú Unibanco contract, rather than under the Orbitall contract. BNDES Loan Agreement On June 20, 2007, our Board of Directors approved the loan agreement of approximately R$216 million from BNDES (the Brazilian Development Bank) to our subsidiary Contax S.A., as approved by the Executive Board of BNDES on May 22, 2007.  Repayment will occur within a six-year settlement term, including a two-year grace period, with an annual cost of TJLP (the Brazilian long-term interest rate) plus 2.0%. The funds are for increasing installed capacity, upgrading current facilities, training programs, improving service quality and productivity and investments in marketing activities, within the PROSOFT- Corporate (Software Industry and Correlated Services Development Program). 74


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In October 2007, the first tranche of the BNDES loan was provided in the amount of R$100 million, followed by additional tranches on January 28, January 30, June 12 and November 18, 2008, in the amounts of R$40 million, R$10 million, R$61.8 million and R$4.9 million, respectively, totaling an aggregate of R$216.7 million. On March 12, 2010, Contax S.A. entered into a financing agreement with BNDES comprised of two loans in the principal amounts of R$281.4 million (the A loan) and R$42.1 million (the B loan).  The outstanding principal amount of these loans is payable in 60 equal monthly installments commencing on October 15, 2011. The A loan bears interest at 1.73% per annum plus the TJLP rate (a Brazilian long-term interest rate) plus 1.0% per annum, and the proceeds were used to upgrade our existing facilities, improve the quality of service and fund training programs and investments for research and development.  The B loan bears interest at 4.5% per annum, and the proceeds were used to purchase machinery and equipment through an industrial equipment financing program run by the Brazilian Special Agency for Financing Industrial Equipment (Agência Especial de Financiamento Industrial FINAME). As of May 31, 2010, BNDES had disbursed approximately R$70 million under the A loan and R$11 million under the B loan. As of May 31, 2010, the TJLP rate was 6.0% per annum.  Banco do Nordeste do Brasil Loan Agreement On March 16, 2010, Contax S.A. entered into a financing agreement with Banco do Nordeste do Brasil under which Banco do Nordeste do Brasil disbursed a loan in the principal amount of R$51 million.  The outstanding principal amount of this loan is payable in 36 equal monthly installments commencing on April 16, 2012.  Provided that each of the installments is paid on the due date, this loan will bear interest at a rate of 8.5% per annum.  If any installment is not paid on the relevant due date, the loan will bear interest at a rate of 10.0% per annum. Exchange Controls and Other Limitations Affecting Shareholders There are no restrictions on ownership of our capital stock by individuals or legal entities domiciled outside Brazil.  However, the right to convert dividend payments and proceeds from the sale of preferred shares into foreign currency and to remit such amounts outside Brazil is subject to restrictions under foreign investment legislation and foreign exchange regulations, which generally requires, among other things, that the relevant investments be registered with the Brazilian Central Bank.  Such restrictions on the remittance of foreign capital abroad could hinder or prevent the acting as custodian for the Depositary of the preferred shares underlying the ADSs, or holders who have exchanged ADSs for preferred shares from converting dividends, distributions or the proceeds from any sale of such preferred shares into U.S. dollars, as the case may be, and remitting such U.S. dollars abroad.  Holders of ADSs could be adversely affected by delays in, or refusal to grant any, required government approval for conversions of Brazilian currency payments and remittances abroad of amounts owed to holders of ADSs.  See Item 3. Key Information  Risk Factors  Risks Relating to the ADSs and the Preferred Shares. Foreign investors may register their investments under Law no. 4,131 or Resolution no. 2,689 of the CMN. Registration under Law no. 4,131 or under Resolution no. 2,689 generally enables foreign investors to convert into foreign currency dividends, other distributions and sales proceeds received in connection with registered investments and to remit such amounts abroad.  Resolution no. 2,689 affords favorable tax treatment to foreign investors who are not resident in a tax haven jurisdiction, or Tax Haven, which is defined under Brazilian tax laws as a country that does not impose taxes or where the maximum income tax rate is lower than 20.0%. All investments made by a foreign investor under Resolution no. 2,689 will be subject to an electronic registration with the Brazilian Central Bank. 75


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Under Resolution no. 2,689, foreign investors may invest in almost all financial assets and engage in almost all transactions available to local investors in the Brazilian financial and capital markets, provided that certain requirements are fulfilled.  In accordance with Resolution no. 2,689, the definition of foreign investor includes individuals, legal entities, mutual funds and other collective investment entities, domiciled or headquartered abroad. Resolution no. 2,689 prohibits the offshore transfer or assignment of title to Brazilian securities, except in the cases of (i) corporate reorganization effected abroad by a foreign investor, or (ii) inheritance. Pursuant to Resolution no. 2,689, foreign investors must: ·appoint at least one representative in Brazil with powers to take action relating to the foreign investment; ·complete the appropriate foreign investor registration forms; ·obtain registration as a foreign investor with the CVM; and ·register their foreign investment with the Brazilian Central Bank. Securities and other financial assets held by the foreign investor pursuant to Resolution no. 2,689 must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Brazilian Central Bank or the CVM or in registry, clearing and custody systems authorized by the Brazilian Central Bank or the CVM.  In addition, the trading of securities is restricted to transactions carried out in exchanges or in organized over-the-counter markets recognized by the CVM. Resolution no. 1,927 of the CMN provides for the issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers. Under the mechanics of an ADS program, the custodian for the Depositary holds those shares that correspond to the ADSs issued abroad so that such shares are blocked from trading on the BM&FBovespa.  The Depositary will keep a record of the ADS holders and record the transfers of ADSs made by such ADS holders.  Distributions made by us will be paid to the custodian, who will remit such distribution outside Brazil to the Depositary, so that it can in turn distribute these proceeds to the ADS holders of record. To allow that dividends paid inreaisbe legally converted into U.S. dollars and remitted outside Brazil to holders of ADSs, the Brazilian Central Bank has issued an electronic certificate of foreign capital registration in the name of the Depositary, which is kept by the custodian on the Depositarys behalf.  Pursuant to the electronic certificate of foreign capital registration, the custodian is allowed to convert, into foreign currency, dividends and other distributions denominated inreaiswith respect to the preferred shares represented by ADSs and remit the proceeds of such distributions outside Brazil to the Depositary, so that it can in turn forward such proceeds to the ADS holders of record. In the event that a holder of ADSs exchanges such ADSs for preferred shares, the holder will be entitled to continue to rely on the Depositarys electronic certificate of foreign capital registration for five business days after the exchange, after which the holder must seek to obtain its own electronic certificate of foreign capital registration with the Brazilian Central Bank.  Pursuant to Central Bank Resolution No. 3.845 of December 17, 2009, if an investor elects to hold preferred shares after cancellation of corresponding ADSs, a simultaneous exchange transaction must be effected in order to obtain a certificate of registration of such shares with the Central Bank.  This transaction will be subject to tax in Brazil.  For more information, see TaxationBrazilian Tax ConsiderationsOther Brazilian Taxes.  Unless the preferred shares are held by a duly registered investor pursuant to Resolution no. 2,689 or unless a holder of preferred shares applies for and obtains a new certificate of registration, such holder may not be able to convert into foreign currency and remit outside Brazil the proceeds from the disposition of, or distributions with respect to, the preferred shares.  Also, if not registered under Resolution no. 2,689, such holder will besubject to less favorable Brazilian tax treatment than a holder of ADSs.  In addition, if the foreign investor resides in a Tax Haven, the investor will also be subject to less favorable tax treatment.  See Item 3. Key Information.  Risk Factors  Risks Relating to the ADSs and Preferred Shares  If you surrender your ADSs and withdraw preferred shares, you risk losing the ability to remit foreign currency abroad and certain Brazilian tax advantages and  Taxation  Brazilian Tax Considerations. 76


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Under current Brazilian legislation, the federal government may impose temporary restrictions on remittances of foreign capital abroad in the event of a serious imbalance or an anticipated serious imbalance of Brazils balance of payments.  For approximately six months in 1989 and early 1990, the Brazilian government froze all dividend and capital repatriations held by the Brazilian Central Bank that were owed to foreign equity investors, in order to preserve Brazils foreign currency reserves.  These amounts were subsequently released in accordance with federal government directives.  There can be no assurance that the Brazilian government will not impose similar restrictions on foreign repatriations in the future.  See Item 3. Key Information. Risk Factors  Risks Relating to Brazil. Registered Capital Investments in preferred shares by (i) a holder not deemed to be domiciled in Brazil for Brazilian tax purposes, (ii) a non-Brazilian holder, who is registered with the CVM under Resolution no. 2,689, or (iii) the Depositary are eligible for registration with the Brazilian Central Bank.  Such registration (the amount so registered being referred to as Registered Capital) allows the remittance outside Brazil of foreign currency, converted at the commercial market rate, acquired with the proceeds of distributions on and amounts realized through dispositions of such preferred shares.  The Registered Capital per preferred share purchased in the form of an ADS, or purchased in Brazil and deposited with the Depositary in exchange for an ADS, will be equal to its purchase price (stated in U.S. dollars).  The Registered Capital per preferred share withdrawn upon cancellation of an ADS will be the U.S. dollar equivalent of (i) the average price of a preferred share on the BM&FBovespa on the day of withdrawal; or (ii) if no preferred shares were traded on that day, the average price on the BM&FBovespa during the 15 trading sessions immediately preceding such withdrawal.  The U.S. dollar equivalent will be determined on the basis of the average commercial market rates quoted by the Brazilian Central Bank on such date or dates. A non-Brazilian holder of preferred shares may experience delays in effecting Brazilian Central Bank registration, which may consequently delay remittances of currencies abroad.  Such a delay may adversely affect the amount in U.S. dollars received by the non-Brazilian holder. Taxation The following summary contains a description of the principal Brazilian and U.S. federal income tax consequences of the acquisition, ownership and disposition of shares or ADSs.  Such summary does not, however, purport to be a comprehensive description of all the tax considerations that may be relevant to adecision to purchaseshares or ADSs.  The summary is based upon the tax laws of Brazil and the United States and regulations under these tax laws as currently in effect, which are subject to change.  Although there is at present no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may culminate in such a treaty.  No assurance can be given, however, as to whether or when a treaty will enter into force or how it will affect the U.S. holders of shares or ADSs.  Prospective holders of preferred shares or ADSs should consult their own tax advisors as to the tax consequences of the acquisition, ownership and disposition of shares or ADSs in their particular circumstances. Brazilian Tax Considerations The following discussion summarizes the principal Brazilian tax consequences of the acquisition, ownership and disposition of shares or ADSs by a non-Brazilian holder.  The following is a general discussion only, and therefore does not specifically address all of the Brazilian tax considerations applicable to any particular non-Brazilian holder.  It is based upon the tax laws of Brazil as in effect on thedate of this filing, which are subject to change, possibly with retroactive effect, and to differing interpretations, which may result in different tax consequences from those described below. 77


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The tax consequences described below do not take into account the effects of any tax treaties or reciprocity of tax treatment entered into by Brazil and other countries.  Please note that Brazil has not entered into any tax treaty with the United States.  Also, the discussion does not address any tax consequences under the tax laws of any state or municipality of Brazil either.  Each prospective investor is urged to consult its own tax advisor about the Brazilian tax consequences of an investment in our shares or the ADSs. Taxation of Dividends Dividends paid by us in cash or in kind from profits of periods beginning on or after January 1, 1996 (i) to the Depositary in respect of shares underlying ADSs or (ii) to a non-Brazilian holder in respect of shares, will generally not be subject to Brazilian withholding tax.  Dividends paid from profits generated before January 1, 1996 may be subject to Brazilian withholding tax at varying rates, according to the tax legislation applicable to each corresponding year. Distribution of Interest on Capital Brazilian corporations may make payments to shareholders characterized as interest on our capital as an alternative form of making dividend distributions.  The rate of interest may not be higher than the Brazilian long-term interest rate, or TJLP, as determined by the Central Bank from time to time.  The total amount distributed as interest on capital may not exceed the greater of (i) 50.0% of net income (after social contribution on profits and before the provision for corporate income tax and the amounts attributable to shareholders as shareholders interest on equity) for the year in respect of which the payment or credit is made or (ii) 50.0% of retained earnings for the year prior to the year in respect of which the payment or credit is made.  Payments of interest on capital are decided by the shareholders on the basis of recommendations of a Companys Board of Directors. Distribution of interest on capital paid to Brazilian and non-Brazilian holders of shares, including payments to the Depositary in respect of shares underlying ADSs, are deductible by us for Brazilian corporate income tax purposes.  Such payments are subject to Brazilian withholding tax at the rate of 15.0%, except for payments to persons situated in Tax Havens (as defined below) which are subject to tax at a 25.0% rate.  Pursuant to Brazilian law, a Tax Haven is any country or location that does not impose income tax or where the income tax rate is lower than 20.0% or where the local legislation imposes restrictions on disclosing the shareholding composition or the ownership of the investment or the ultimate beneficiary of the income. No assurance can be given that our Board of Directors will not recommend that future distributions of profits will be made by means of interest on capital instead of by means of dividends. Amounts paid as interest on capital (net of applicable withholding tax) may be treated as payments in respect of the dividends we are obligated to distribute to our shareholders in accordance with our by-laws and Brazilian corporate law.  Distributions of interest on capital in respect of our shares, including distributions to the Depositary in respect of shares underlying ADSs, may be converted into U.S. dollars and remitted outside of Brazil, subject to applicable exchange controls. Taxation of Gains Outside Brazil According to Law no. 10,833 of December 29, 2003, capital gains realized on the disposition of assets located in Brazil by a non-Brazilian holder, whether to another non-Brazilian resident or to Brazilian residents, are subject to taxation in Brazil.  In this sense, if the shares are disposed of by a non-Brazilian holder, as they are defined as assets located in Brazil, such holder will be subject to income tax on the gainsassessed, following the rules described below, whether the disposition is conducted in Brazil or abroad and with a Brazilian resident or not. 78


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Regarding ADSs, although the matter is not free from doubt, the gains realized by a non-Brazilian holder on the disposition of ADSs to another non-Brazilian holder would not be taxed in Brazil, based on the theory that ADSs do not constitute assets located in Brazil for purposes of Law no. 10,833/03. However, we cannot assure you that Brazilian courts would adopt this theory.  Thus, the gain on a disposition of ADSs by a non-Brazilian holder to a resident in Brazil (or possibly even to a non-Brazilian holder in the event of a judicial determination that ADSs would constitute assets located in Brazil) may be subject to income tax in Brazil. The Brazilian tax authorities have issued a normative instruction confirming that, pursuant to Law no. 10,833, they intend to assess income tax on capital gains earned by non-Brazilian residents who earn a capital gain on the disposition of assets located in Brazil, regardless of whether the buyer is a Brazilian resident or not.  Holders of ADSs outside Brazil may have grounds to assert that Brazilian Law no. 10,833 does not apply to sales or other dispositions of ADSs, as ADSs are not assets located in Brazil.  However, except in the situations described below under the heading  Taxation of Gains in Brazil, the sale or other disposition of shares abroad would be subject to the provisions of Law no. 10,833.  Considering the general and unclear scope of such provisions and the lack of a final judicial ruling in respect thereof, we are unable to predict whether such understanding will ultimately prevail in of Brazil. Any capital gains arising from sales or other dispositions outside Brazil would be subject to Brazilian income tax at the rate of 15.0% or, if the investor is located in a Tax Haven, 25.0%.  Law no. 10,833 requires the purchaser of our shares outside Brazil or its attorney-in-fact in Brazil to withhold the income tax.  A disposition of shares can only occur abroad if an investor decides to cancel its investment in ADSs and register the underlying shares as a direct foreign investment under Law no. 4,131. Taxation of Gains in Brazil The deposit of shares in exchange for ADSs may be subject to Brazilian tax on capital gains at the rate of 15.0%, or 25.0% in the case of Tax-Haven residents, if the acquisition cost of the shares is lower than (a) the average price per share on a Brazilian stock exchange on which the greatest number of such shares were sold on the day of deposit; or (b) if no shares were sold on that day, the average price on the Brazilian stock exchange on which the greatest number of  shares were sold in the 15 trading sessions immediately preceding such deposit.  In such case, the difference between the acquisition cost and the average price of the shares calculated as above will be considered to be a capital gain subject to taxation.  Such taxation may not be applicable in case of non-Brazilian holders registered under Resolution no. 2,689 (other than Tax-Haven residents), who are currently not subject to income tax in such a transaction. The withdrawal of ADSs in exchange for shares is not subject to Brazilian tax.  Any exercise of preemptive rights relating to the ADSs will not be subject to Brazilian taxation.  Any gain on the sale or assignment of preemptive rights relating to shares by the depositary on behalf of holders of ADSs will be subject to Brazilian income taxation according to the same rules applicable to the sale or disposition of shares. As a general rule, gains realized as a result of a disposition or sale transaction of a share are the positive difference between the amount realized on the sale or exchange and the shares acquisition cost.  Under Brazilian law, income tax rules on such gains can vary depending on the domicile of the non-Brazilian holder, the type of registration of the investment by the non-Brazilian holder with the Central Bank and how the disposition is carried out, as described below. Capital gains assessed on non-Brazilian holders on a disposition of shares carried out on the Brazilian stock exchange (which includes the organized over-the-counter market) are: 79


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·exempt from income tax when realized by a non-Brazilian holder that (1) has registered its investment in Brazil with the Central Bank under the rules of Resolution no. 2,689, and (2) is not a Tax Haven resident; or ·subject to income tax at a rate of 15% in any other case, including a case of gains assessed by a non-Brazilian holder that is not registered under the rules of Resolution no. 2,689, or is a Tax Haven resident.  In these cases, withholding income tax of 0.005% of the sale value will be applicable and can be later offset with the eventual income tax due on the capital gain. Any other gains assessed on a disposition of our shares that is not carried out on a Brazilian stock exchange are subject to income tax at the rate of 15%, except for a Tax Haven resident which, in this case, is subject to income tax at the rate of 25%.  Transactions conducted in the Brazilian over-the-counter market through a financial institution or other entity authorized by the Central Bank, but not through a system authorized by the Central Bank, are subject to withholding income tax of 0.005% of the sale value, which can be later offset with the eventual income tax due on the capital gain. The current preferential treatment for non-Brazilian holders of ADSs and non-Brazilian holders of shares under Resolution no. 2,689 may not continue in the future. In the case of a redemption of shares or a capital reduction by a Brazilian corporation, with subsequent withdraw of the ADSs, the positive difference between the amount received by the non-resident and the acquisition cost of the shares redeemed is treated as capital gain derived from the sale or exchange of shares not carried out on a Brazilian stock exchange market and is therefore subject to income tax at the rate of 15.0%, or 25.0%, as the case may be. Any exercise of preemptive rights relating to our shares will not be subject to Brazilian taxation.  Gains on the sale or assignment of preemptive rights relating to our shares by the Depositary may be subject to Brazilian taxation, according to the same rules applicable to the sale or disposition of shares.  Tax authorities may attempt to tax such gains even when the sale or assignment of such rights takes place outside Brazil, based on the provisions of Law no. 10,833, as described above. As a non-Brazilian holder of ADSs, you may cancel your ADSs and exchange them for shares and no income tax may be levied on such exchange, as long as the appropriate rules are complied with in connection with the registration of the investment with the Central Bank. Tax on Foreign Exchange and Financial Transactions Foreign Exchange Transactions Brazilian law imposes a Tax on Foreign Exchange Transactions, or IOF/Exchange Tax, on the conversion ofreaisinto foreign currency and on the conversion of foreign currency intoreais.  As from January 2008, the IOF/Exchange Tax rate applicable to almost all foreign currency exchange transactions is 0.38%, except for: (i) foreign exchange transactions for the inflow of funds related to investments by a non-Brazilian holder in the Brazilian financial and capital markets, in which case the rate is 2%; and (ii) payment of dividends and interest on shareholders equity related to the investment mentioned under item (i) above, in which case the rate is zero. Upon the cancellation of ADSs, if an investor elects to hold preferred shares corresponding to such ADSs, pursuant to Resolution No. 3.845 of December 17, 2009, a simultaneous exchange transaction is required to be effected and such transaction will subject to IOF/Exchange at the rate of 0.38%. Notwithstanding these rates currently in force, the President is legally entitled to increase the rate of the IOF/Exchange to a maximum of 25% of the amount of the currency exchange transaction, but only on a prospective basis.  80


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Tax on Transactions Involving Bonds and Securities Brazilian law imposes a Tax on Transactions involving Bonds and Securities, or IOF/Bonds Tax, due on transactions involving bonds and securities, including those carried out on a Brazilian stock exchange.  The rate of IOF/Bonds Tax applicable to transactions involving common or preferred shares and common and preferred ADSs is currently zero, although the President is permitted to increase such rate at any time up to 1.5% of the amount of the taxed transaction per each day of the investors holding period, but only to the extent there is a gain realized on the transaction and only on a prospective basis.  IOF/Bonds Tax is levied at a rate of 1.5% on the assignment of shares traded in the Brazilian stock market in connection with the issuance of ADSs. Other Brazilian Taxes There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of shares or ADSs by a non-Brazilian holder except for gift and inheritance taxes levied by some states in Brazil on gifts made or inheritances bestowed by individuals or entities not resident or domiciled in Brazil or in the relevant state to individuals or entities that are resident or domiciled within such state in Brazil. There are no Brazilian stamp, issue, registration, or similar taxes or duties payable by holders of shares or ADSs. As a general rule, until December 31, 2007, transactions carried out in Brazil that resulted in the transfer of funds from an account maintained with a Brazilian financial institution were subject to the Temporary Contribution on Financial Transactions, or CPMF Tax, at the rate of 0.38%.  However, as of January 1, 2008, the CPMF Tax is no longer in force and should not be levied on any debit to bank accounts carried after that date. Certain Material United States Federal Income Tax Considerations The following summarizes certain material U.S. federal income tax considerations applicable to the ownership and disposition of preferred shares or ADSs.  The discussion that follows is based upon the U.S. Internal Revenue Code of 1986, as amended, or the Code, final, temporary and proposed U.S. Treasury Regulations, administrative rulings and judicial decisions now in effect, all of which are subject to change (possibly with retroactive effect) or differing judicial interpretations.  We have not sought, and will not seek, any ruling from the U.S. Internal Revenue Service, or the IRS, with respect to the tax consequences discussed herein.  Consequently, the IRS may disagree with or challenge any of such tax consequences. This discussion deals only with preferred shares or ADSs held as capital assets and does not purport to deal with persons in special tax situations, such as financial institutions, insurance companies, tax-exempt organizations, regulated investment companies, real estate investment trusts, dealers in securities or currencies, persons holding shares as a position in a straddle or as part of a hedging or conversion transaction for tax purposes, U.S. Holders (as defined below) whose functional currency is not the U.S. dollar, partnerships or other entities treated as partnerships for U.S. federal income tax purposes, or persons liable for alternative minimum tax.  Furthermore, this discussion does not purport to deal with persons who own, directly or indirectly, 10.0% or more of the total combined voting power of all classes of our stock entitled to vote or 10.0% or more in value of our outstanding stock.  Holders should consult their own tax advisors concerning the application of U.S. federal income tax laws to their particular situations as well as any consequences of the ownership and disposition of preferred shares or ADSs arising under the laws of any other taxing jurisdiction. This summary assumes that we are not a passive foreign investment company, or PFIC, for U.S. federal income tax purposes.  See the discussion under  U.S. Holders  Passive Foreign Investment Company Rules below.  81


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U.S. Holders As used herein, a U.S. Holder is a beneficial owner of preferred shares or ADSs that is, for U.S. federal income tax purposes: an individual who is a citizen or resident of the United States, a corporation, or any other entity taxable as a corporation, created or organized in or under the laws of the United States or any state thereof or the District of Columbia, an estate the income of which is subject to U.S. federal income tax regardless of its source, or a trust if (i) a court within the United States is able to exercise primary supervision over the trusts administration and one or more United States persons have the authority to control all substantial decisions of the trust or (ii) the trust has in effect a valid election under applicable U.S. Treasury Regulations to be treated as a U.S. person. If a partnership (or an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds or disposes of preferred shares or ADSs, the tax treatment of a partner in that partnership will generally depend on the status of the partner and the activities of the partnership.  Partners in partnerships holding preferred shares or ADSs should consult their own tax advisors about the U.S. federal income tax consequences to them of holding or disposing of preferred shares or ADSs. Treatment of ADS For U.S. federal income tax purposes, a U.S. Holder of an ADS is considered the owner of the preferred shares represented by the ADS.  Accordingly, the conversion of ADSs to preferred shares or the conversion of preferred shares to ADSs will not be a taxable transaction for U.S. federal income tax purposes, and, except as otherwise noted, references in this discussion to the ownership of preferred shares include ownership of the preferred shares underlying the corresponding ADSs. Receipt of Distributions For U.S. federal income tax purposes, a U.S. Holder generally will recognize, to the extent of our current and accumulated earnings and profits, as determined under U.S. federal income tax principles, dividend income on the receipt of distributions of cash or property on preferred shares (including amounts withheld to reflect Brazilian withholding taxes and distributions of interest on capital as described above under  Brazilian Tax Considerations) equal to the U.S. dollar value of such distributions on the date of actual or constructive receipt.  Distributions in excess of our current and accumulated earnings and profits will decrease (but not below zero) a U.S. Holders adjusted tax basis in the preferred shares, and any remaining amount of the distribution will be taxed as gain from the sale or exchange of the preferred shares.  Because we do not expect to maintain calculations of our earnings and profits in accordance with U.S. federal income tax principles, U.S. Holders should expect that a distribution will generally be reported as dividend income for U.S. federal income tax purposes. Under current law, dividends received before January 1, 2011 by non-corporate U.S. Holders on shares of certain foreign corporations will be subject to U.S. federal income tax at lower rates than other types of ordinary income if certain conditions are met.  However, because our preferred shares and ADSs are not listed, and we do not intend to list the preferred shares or ADSs, on an established securities market in the United States and there is no income tax treaty between Brazil and the United States, we currently do not expect that those conditions will be met with respect to our preferred shares or ADSs.  Thus, we do not expect that dividends we pay will qualify for such reduced rates. Dividends paid on preferred shares will not be eligible for the dividends received deduction available to certain U.S. corporate shareholders. If we make distributions with respect to our preferred shares in a currency other than the U.S. dollar, for U.S. federal income tax purposes, the amount of the distribution will generally equal the fair market value in U.S. dollars of such foreign currency on the date of actual or constructive receipt.  A U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt, and will generally recognize gain or loss when it sells or exchanges the foreign currency.  Such gain or loss willbe taxable as ordinary income or loss from U.S. sources.  The amount of any property other than money that we distribute with respect to our preferred shares will equal its fair market value on the date of distribution. 82


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Distributions to U.S. Holders that are treated as dividends for U.S. federal income tax purposes generally will be treated as income from sources outside the United States, and generally will be foreign source passive income for foreign tax credit purposes.  Subject to the requirements and limitations imposed by the Code and the Treasury Regulations thereunder, a U.S. Holder may elect to claim any Brazilian tax withheld or paid with respect to any dividends distributed on shares as a foreign tax credit against the U.S. federal income tax liability of the U.S. Holder.  In addition, subject to certain limitations, U.S. Holders who do not elect to claim the foreign tax credit may claim a deduction for any Brazilian tax withheld or paid with respect to shares.  Complex rules determine the availability of the foreign tax credit, and U.S. Holders should consult their tax advisors to determine whether and to what extent U.S. Holders may claim foreign tax credits. Section 305 of the Code provides special rules for the tax treatment of preferred stock.  According to the Treasury Regulations under that section, the term preferred stock generally refers to stock which enjoys certain limited rights and privileges (generally associated with specified dividend and liquidation priorities) but does not participate in corporate growth to any significant extent.  While our preferred shares have some preferences over our common shares, the preferred shares are not fixed as to dividend payments or liquidation value; thus, although the matter is not entirely clear, we believe and have taken and intend to continue to take the position, that the preferred shares should be treated as common stock within the meaning of Section 305 of the Code.  If the preferred shares are treated as common stock for purposes of Section 305 of the Code, distributions to U.S. Holders of additional shares of such common stock or preemptive rights relating to such common stock with respect to their preferred shares or ADSs that are made as part of a pro rata distribution to all shareholders in most instances will not be subject to U.S. federal income tax.  On the other hand, if the preferred shares are treated as preferred stock within the meaning of Section 305 of the Code, and if a U.S. Holder receives a distribution of additional shares or preemptive rights as described in the preceding sentence, such distributions (including amounts withheld in respect of any Brazilian taxes) will be treated as dividends that can be included in the U.S. Holders gross income to the same extent and in the same manner as distributions payable in cash.  In that event, the amount of such distribution (and the basis of the new shares or preemptive rights so received) will equal the fair market value of the shares or preemptive rights on the date of distribution. Sale, Exchange or Other Taxable Disposition of Preferred Shares Upon a sale, exchange or other taxable disposition of preferred shares, a U.S. Holder will generally recognize gain or loss in an amount equal to the difference between the amount realized on the sale, exchange or other taxable disposition and the U.S. Holders adjusted tax basis in the preferred shares so sold, exchanged or otherwise subject to disposition.  Any gain or loss recognized will generally be capital gain or loss, and the capital gain or loss will generally be long-term capital gain or loss if the U.S. Holder has held or is treated as having held the preferred shares for more than one year at the time of such sale, exchange or other taxable disposition.  Long-term capital gains recognized by non-corporate U.S. Holders (including individuals) are currently subject to reduced rates of taxation.  The deductibility of capital losses is subject to limitations. The gain or loss from the sale or other disposition of shares will generally be treated as income from sources within the United States for foreign tax credit purposes.  Consequently, in the case of a sale, exchange or other taxable disposition of preferred shares, a U.S. Holder may not be able to claim a foreign tax credit for Brazilian tax imposed on the gain unless it has other income from foreign sources against which it can appropriately apply the credit.  Alternatively, the U.S. Holder may take a deduction for the Brazilian income tax, provided that the U.S. Holder elects to deduct all foreign taxes paid or accrued for the taxable year.  83


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Passive Foreign Investment Company Rules Based upon current estimates of our gross income, gross assets and the nature of our business, we do not believe that we are, and we do not expect the preferred shares to be considered shares of, a PFIC for U.S. Federal income tax purposes for our current taxable year (although the determination cannot be made until the end of such taxable year), and we do not expect to be classified as a PFIC for the foreseeable future.  In general, a foreign corporation is a PFIC if, for any taxable year in which the U.S. Holder holds stock in the foreign corporation, at least 75.0% of such corporations gross income is passive income or at least 50.0% of the value of such corporations assets (determined on the basis of a quarterly average) produce passive income or are held for the production of passive income.  The determination of whether the preferred shares constitute shares of a PFIC is a factual determination made annually and thus may be subject to change.  Subject to certain exceptions, once a U.S. Holders preferred shares are treated as shares in a PFIC, they remain shares in a PFIC. If, contrary to our belief, we were treated as a PFIC, a U.S. Holder would be subject to special rules with respect to (i) gain realized on the sale or other disposition of preferred shares and (ii) any excess distribution by us to the U.S. Holder (generally, any distribution during a taxable year that exceed 125.0% of the average annual taxable distribution the U.S. Holder received on the preferred shares during the preceding three taxable years or, if shorter, the U.S. Holders holding period for the preferred shares).  Under those rules (i) the gain or excess distribution would be allocated ratably over the U.S. Holders holding period for the preferred shares, (ii) the amount allocated to the taxable year in which the gain or excess distribution is realized and to taxable years before the first day we became a PFIC would be taxable as ordinary income, and (iii) the amount allocated to each other year (with certain exceptions) would be subject to tax at the highest U.S. federal income tax rate in effect for that year, and an additional amount equal to the interest charge generally applicable to underpayments of tax would be imposed in respect of the tax attributable to each such year. A U.S. Holder that owns preferred shares during any year we are a PFIC must file IRS Form 8621.  In general, if we are treated as a PFIC, the rules described in the second paragraph of this section can be avoided by a U.S. Holder that elects to be subject to a mark-to-market regime with respect to our shares.  A U.S. Holder may elect mark-to-market treatment for its preferred shares, provided that the preferred shares constitute marketable stock as defined in applicable U.S. Treasury Regulations.  A U.S. Holder electing the mark-to-market regime generally would treat any gain recognized under mark-to-market treatment or on an actual sale as ordinary income and would be allowed an ordinary deduction for any decrease in the value of preferred shares in any taxable year and for any loss recognized on an actual sale, but only to the extent, in each case, of previously included mark-to-market income not offset by previously deducted decreases in value.  A U.S. Holders basis in preferred shares would increase or decrease by gain or loss taken into account under the mark-to-market regime.  A mark-to-market election is generally irrevocable. The rules described in the second preceding paragraph can also be avoided by a U.S. Holder that elects to treat us as a qualified electing fund.  However, this option will not be available to U.S. Holders because we do not currently plan to provide U.S. Holders with information sufficient to permit U.S.  Holders to make such election. Non-U.S. Holders A Non-U.S. Holder is a holder of our preferred shares or ADSs who is neither a U.S. Holder nor an entity or arrangement treated as a partnership for U.S. federal income tax purposes. Non-U.S. Holders generally will not be subject to U.S. federal income or withholding tax on dividends received from us with respect to preferred shares, unless such income is considered effectively connected with the Non-U.S. Holders conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, the income is attributable to a permanent establishment or, in the case of an individual Non-U.S. Holder, a fixed base maintained in the United States). 84


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Non-U.S. Holders generally will not be subject to U.S. federal income tax on any gain recognized upon the sale, exchange or other taxable disposition of preferred shares unless the gain is effectively connected with the Non-U.S. Holders conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, the income is attributable to a permanent establishment or, in the case of an individual Non-U.S. Holder, a fixed base maintained in the United States) or such Non-U.S. Shareholder is an individual who is present in the United States for 183 days or more during the taxable year of such sale, exchange or other taxable disposition and certain other conditions are met.  If the first exception applies, the Non-U.S. Holder will be subject to U.S. federal income tax on the sale, exchange or other taxable disposition as if such Non-U.S. Holder were a U.S. Holder, as described above.  If the second exception applies, then the Non-U.S. Holder will generally be subject to U.S. federal income tax at a rate of 30.0% on the amount by which such Non-U.S. Holders U.S. source capital gains exceed such Non-U.S. Holders U.S. source capital losses. In addition, any effectively connected dividends or gains realized by a Non-U.S. Holder that is a corporation for U.S. federal income tax purposes may also be subject to an additional branch profits tax at a rate of 30.0% (or such lower rate as may be specified by an applicable income tax treaty). Information Reporting and Backup Withholding In general, information reporting requirements will apply to dividends paid in respect of our shares to non-corporate U.S. Holders or the proceeds received on the sale, exchange or redemption of shares by non-corporate U.S. Holders, and such amounts may be subject to U.S. backup withholding (currently at a rate of 28.0%).  Backup withholding will not apply, however, to a U.S. Holder that (i) is a corporation or comes within certain enumerated categories of persons and, when required, demonstrates this fact or (ii) furnishes a correct taxpayer identification number and makes certain other required certifications.  Generally, a U.S. Holder will provide such certifications on IRS Form W‐9 (Request for Taxpayer Identification Number and Certification) or other substitute form.  A U.S. Holder that is required to but does not furnish us with its correct taxpayer identification number may also be subject to penalties imposed by the Internal Revenue Service.  Non-U.S. Holders generally will not be subject to United States information reporting or backup withholding.  However, Non-U.S. Holders may be required to provide certification of their non-U.S. status in connection with payments received in the United States or through certain U.S.-related financial intermediaries.  Backup withholding is not an additional tax and may be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS. HOLDERS OF PREFERRED SHARES OR ADSS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS, AS WELL AS ANY CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF PREFERRED SHARES OR ADSS ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION. Documents On Display You may read and copy the reports and other information we file with the Securities and Exchange Commission, including this annual report and the exhibits thereto, at the Commissions Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and at the Commissions regional offices at 175 W. Jackson Boulevard, Suite 900, Chicago, Illinois 60604, and 3 World Financial Center, Room 4300, New York, New York 10281.  You may also obtain copies of these materials by mail from the Public Reference Room of the Commission at 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates.  You may obtain information on the operation of the Commissions Public Reference Room by calling the Commission in the United States at 1-800-SEC-0330.  You may also access our annual reports and some of the other information we file with or submit to the Commission electronically through the Commissions website atwww.sec.gov.  85


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Item 11.       Quantitative and Qualitative Disclosures About Market Risk Virtually none of our revenues or costs are exposed to foreign currency fluctuations since they are not directly or indirectly pegged to the U.S. dollar or any other foreign currency.  We have some exposure to foreign exchange risk as a portion of our capital expenditures is comprised of investments in technology equipment which, while not denominated in foreign currencies, are indirectly impacted by the changes in exchanges rates as they contain imported parts.  In 2009, approximately 43% of our capital expenditures included such equipment. Interest rate risk arises from the possibility of the Company incurring losses derived from interest rate variations that increase the financial expenses related to financings.  We continuously monitor market interest rates with the purpose of evaluating the possible need to engage in transactions that seek to mitigate the risk of fluctuations in these rates.  If interest rates increased by 1.0%, the additional amount of annual interest expense would increase by R$2,051 thousand. Item 12.       Description of Securities Other than Equity Securities A. Debt Securities. Not applicable. B. Warrants and Rights. Not applicable. C. Other Securities. Not applicable. D. American Depositary Shares. Fees Paid by Our ADS Holders The Depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them.  The Depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. Persons holding, depositing or withdrawing shares must pay
     
     For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
     
     Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property
Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminatesRegistration or transfer fees
     
     Transfer and registration of shares on our share register to or from the name of the Depositary or its agent when you deposit or withdraw sharesExpenses of the Depositary
     
     Converting foreign currency to U.S. dollarsTaxes and other governmental charges the Depositary or the custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes
     
     As necessaryAny charges incurred by the Depositary or its agents for servicing the deposited securities
     
     As necessary$0.02 or less per ADS (or portion thereof)
     
     Any cash distributions
Other services performed by the Depositary in administering the ADRs
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Fees and Payments from the Depositary to Us  In 2009, we did not receive any fees or payments from the Depositary.  PART II Item 13.       Defaults, Dividend Arrearages and Delinquencies Not applicable. Item 14.       Material Modifications to the Rights of Security Holders and Use of Proceeds On October 17, 2007, we effected a reverse split of all shares representing our capital stock at the ratio of 20 shares for each share of the same type and, on January 15, 2010, we effected, a reverse stock split of all shares representing our capital stock at the ratio of one share for every fifty shares of the same type.  Simultaneously with the January 2010 reverse stock split, we effected a stock split at a ratio of 200 shares for one share of the same type.  See Item 4. Information on the Company  History and Organizational Structure  Reverse Stock Split and Stock Split. Item 15.       Controls and Procedures Disclosure Controls and Procedures As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.  Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.  Based upon and as of the date of our evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective, at the reasonable assurance level, to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms, and (ii) accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Managements Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over our financial reporting.  Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with IFRS, as issued by the IASB.  Internal control over financial reporting includes maintaining records that in reasonabledetail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our consolidated financial statements in accordance with generally accepted accounting principles; providing reasonable assurance that receipts and expenditures of our assets are made only in accordance with management and directors authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements would be prevented or detected on a timely basis.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that degree of compliance with the policies or procedures may deteriorate. 87


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Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on this evaluation, management concluded that the Companys internal control over financial reporting was effective as of December 31, 2009. Attestation Report of the Registered Public Accounting Firm  See report of Deloitte Touche Tohmatsu Auditores Independentes, an Independent Registered Public Accounting Firm, included under Item 18. Financial Statements, on pages F-3 and F-4. The effectiveness of our internal control over financial reporting as of December 31, 2009 has been audited by Deloitte Touche Tohmatsu Auditores Independentes, our registered independent accounting firm, which opinion is stated in their report, included herein. Changes in Internal Controls There has been no change in our internal controls over financial reporting during the fiscal year ended December 31, 2009 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.  Item 16A.    Audit Committee Financial Expert We are not subject to any listing standards that require us to form an audit committee pursuant to the Sarbanes-Oxley Act or a board of auditors formed pursuant to local laws that could substantially discharge the duties of an audit committee formed pursuant to the Sarbanes-Oxley Act.  See Item 6. Directors, Senior Management and Employees  Fiscal Council.  As a result, we have not identified a member of our Board of Directors who would qualify as an audit committee financial expert. Item 16B.    Code of Ethics The Company has adopted a Code of Ethics that applies to its Directors, Officers, managers, controlling shareholders and members of the Fiscal Council in accordance with CVM rules satisfying the requirements of Brazilian Law.  A copy of this Code of Ethics is incorporated herein by reference to Exhibit 11.1 to our Registration Statement on Form 20‐F filed on August 10, 2005.  The Companys Code of Ethicsdoes not address allof the principles set forth by the SEC in Section 406 of the Sarbanes-Oxley Act.  However, it does contain many of the principles set forth in the SECs definition of a Code of Ethics, including standards that are (i) reasonably designed to promote full, fair, accurate and timely disclosure in reports and documents that we file with, or submit to, the SEC, and (ii) reasonably designed to deter certain wrongdoing, principally the prohibition against trading on inside information.  Since the adoption of its Code of Ethics, we have not granted any implicit or explicit waivers from any provision thereof to the officers described above.  88


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Item 16C.    Principal Accountant Fees and Services Fees for professional services provided by PricewaterhouseCoopers Auditores Independentes and Deloitte Touche Tohmatsu Auditores Independentes, the Companys former and current (respectively) independent registered public accounting firm, in 2008 and 2009, respectively, in each of the following categories are as follows: Total Fees2008
     2009(in thousands ofreais)Audit Fees(1)
     882(2)
     863(3)Total
     882
     863
 __________________________ (1)   Audit Fees for the years ended December 31, 2008 and 2009 consist of fees billed for professional services rendered for the audits and reviews of the consolidated financial statements of the Company and other services normally provided in connection with statutory and regulatory filings.  The audit fees include expenses related to compliance with the Sarbanes-Oxley Act. (2)   Fees paid to PricewaterhouseCoopers Auditores Independentes, our independent registered public accounting firm for the year ended December 31, 2008. (3)   Fees paid to Deloitte Touche Tohmatsu Auditores Independentes, our independent registered public accounting firm for the year ended December 31, 2009.  Pre-approval of Policies and Procedures Our Board of Directors is currently responsible for the oversight of our independent auditors work.  Our Board of Directors policy is to pre-approve all audit and non-audit services provided by Deloitte Touche Tohmatsu.  These services may include audit services, audit-related services, tax services and other services, as described above.  In such an event, the Board of Directors sets forth its pre-approval in detail, listing the particular services or categories of services which are pre-approved, and setting forth a budget for such services.  The Board of Directors has designated its chairman, currently Mr. Fernando Antônio Pimentel Melo, to issue such pre-approval in certain circumstances. Item 16D.    Exemptions from the Listing Standards for Audit Committees Not applicable. Item 16E.    Purchases of Equity Securities by the Issuer and Affiliated Purchasers   89


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Total Number of Shares
Purchased(1)
     Average Price
Paid Per Share
     Total Number of Shares
Purchased as Part of
Publicly Announced
Programs(1)
     Maximum Number of
Shares That May Yet Be Purchased Under the
Programs(1)Periods in 2009(2)
     Preferred
     Common
     Preferred
     Common
     Preferred
     Common
     Preferred
     CommonJanuary 1 to 31
     
     
     
     
     
     
     
     February 1 to 28
     
     
     
     
     
     
     
     March 1 to 31
     
     
     
     
     
     
     
     April 1 to 30
     
     
     
     
     
     
     
     May 1to 31
     
     
     
     
     
     
     
     June 1 to 30
     
     
     
     
     
     
     
     July 1 to 31
     
     
     
     
     
     
     
     August 1to 31st
     
     
     
     
     
     
     
     Sept. 1 to 30
     
     
     
     
     
     
     
     October 1 to 31
     
     
     
     
     
     
     1,945,000
     699,800Nov. 1 to 30
     
     800
     
     R$21.25
     
     800
     1,945,000
     699,000December 1 to 31
     
     12,000
     
     R$24.71
     
     12,000
     1,945,000
     687,000Total
     
     12,800
     
     R$24.49
     
     12,800
     1,945,000
     687,000
 __________________________ (1)   Number of shares has been adjusted to reflect the reverse stock split in November 2007 and the reverse stock split and simultaneous stock split in January 2010. See Item 4. Information on the Company  History and Organizational Structure  Reverse Stock Split and Stock Split. (2)   All shares acquired pursuant to the fifth share buyback program for the acquisition of a maximum of 699,800 of our common shares and 1,945,000 of our preferred shares, approved at our Board of Directors meeting held on October 27, 2009.  Total Number of Shares
Purchased(1)
     Average Price
Paid Per Share
     Total Number of Shares
Purchased as Part of
Publicly Announced
Programs(1)
     Maximum Number of
Shares That May Yet Be Purchased Under the
Programs(1)Periods in 2010(2)
     Preferred
     Common
     Preferred
     Common
     Preferred
     Common
     Preferred
     CommonJanuary 1 to 31
     
     
     
     
     
     
     
     February 1 to 28
     
     84,400
     
     R$28.91
     
     84,400
     1,945,000
     602,600March 1 to 31
     
     131,500
     
     R$29.44
     
     131,500
     1,945,000
     471,100April 1 to 30
     
     
     
     
     
     
     
     May 1 to 31
     
     15,500
     
     R$26.53
     
     15,500
     1,945,000
     455,600Total
     
     231,400
     
     R$29.05
     
     
     1,945,000
     455,600
 __________________________ (1)   Number of shares has been adjusted to reflect the reverse stock split in November 2007 and the reverse stock split and simultaneous stock split in January 2010. See Item 4. Information on the Company  History and Organizational Structure  Reverse Stock Split and Stock Split. (2)   All shares acquired pursuant to the fifth share buyback program for the acquisition of a maximum of 699,800 of our common shares and 1,945,000 of our preferred shares, approved at our Board of Directors meeting held on October 27, 2009. Item 16F.    Change in Registrants Certifying Accountant Previous Independent Registered Public Accounting Firm On April 16, 2009, Contax S.A. dismissed PricewaterhouseCoopers Auditores Independentes as its independent registered public accounting firm.  Contax S.A.s Board of Directors participated in andapproved the decision to dismiss PricewaterhouseCoopers Auditores Independentes as the Companys independent registered public accounting firm. 90


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The reports of PricewaterhouseCoopers Auditores Independentes on the financial statements prepared in accordance with IFRS for the years ended December 31, 2008 and 2007 contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. During the years ended December 31, 2008 and 2007 and through April 16, 2009, there were no disagreements with PricewaterhouseCoopers Auditores Independentes on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of PricewaterhouseCoopers Auditores Independentes, would have caused them to make reference thereto in their reports on the financial statements for such years. During the years ended December 31, 2008 and 2007 and through April 16, 2009 there were no reportable events (as defined in Item 16F(a)(1)(v) of Form 20-F). PricewaterhouseCoopers Auditores Independentes has furnished a letter addressed to the SEC, dated June 28, 2010, agreeing with the above statements. See copy of such letter in Item 19. Exhibits. New Independent Registered Public Accounting Firm As of April 16, 2009, Contax S.A. engaged Deloitte Touche Tohmatsu Auditores Independentes as its new independent registered public accounting firm.  During the two most recent fiscal years and through April 16, 2009, Contax S.A. did not consult with Deloitte Touche Tohmatsu Auditores Independentes regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on Contax S.A.s financial statements, and neither a written report was provided to Contax S.A. nor was oral advice provided that Deloitte Touche Tohmatsu Auditores Independentes concluded was an important factor considered by Contax S.A. in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement, as that term is defined in Item 16F(a)(1)(iv) of Form 20-F and the related instructions to such Item, or a reportable event, as that term is defined in Item 16F(a)(1)(v) of Form 20-F. Item16G.   Corporate Governance Not applicable. PART III Item 17.       Financial Statements We have responded to Item 18 in lieu of responding to this item. Item 18.       Financial Statements See pages F-1 through F-60. Item 19.       Exhibits No.
     Description1.1
     By-laws of Contax Holding as amended as of November 13, 2009. (Filed herewith)2.1
     Deposit Agreement, dated as of August 12, 2005, among Contax Holding, The Bank of New York, as Depositary, and Owners and Beneficial Owners of American Depositary Receipts issued thereunder. (Incorporated by reference to Exhibit 2.1 to the Companys Annual Report on Form 20-F filed on June 29, 2006).4.1
     Services Agreement, dated November 30, 2004, among Telemar Norte Leste S.A., TNL PCS S.A. and TNL Contax S.A. (Incorporated by reference to Exhibit 4.1 to the Companys Registration Statement on Form 20-F filed on August 10, 2005).4.2
     First Amendment, dated December 29, 2004, to the Services Agreement among Telemar Norte Leste S.A., TNL PCS S.A. and TNL Contax S.A. dated November 30, 2004. (Incorporated by reference to Exhibit 4.6 to the Companys Annual Report on Form 20-F filed on June 29, 2006).4.3
     Second Amendment, dated October 18, 2005, to the Services Agreement among Telemar Norte Leste S.A., TNL PCS S.A. and TNL Contax S.A. dated November 30, 2004. (Incorporated by reference to Exhibit 4.7 to the Companys Annual Report on Form 20-F filed on June 29, 2006).4.4
     Third Amendment, dated May 1, 2007, to the Services Agreement among Telemar Norte Leste S.A., TNL PCS S.A., Telemar Internet Ltda. and TNL Contax S.A. dated November 30, 2004. (Incorporated by reference to Exhibit 4.4 to the Companys Annual Report on Form 20-F filed on June 29, 2007).4.5
     Fourth Amendment, dated April 28, 2008, to the Services Agreement among Telemar Norte Leste S.A., TNL PCS S.A., Telemar Internet Ltda. and TNL Contax S.A. dated November 30, 2004. (Incorporated by reference to Exhibit 4.5 to the Companys Annual Report on Form 20-F filed on June 30, 2009).4.6
     Fifth Amendment, dated September 4, 2008, to the Services Agreement among Telemar Norte Leste S.A., TNL PCS S.A., Telemar Internet Ltda. and TNL Contax S.A. dated November 30, 2004. (Incorporated by reference to Exhibit 4.6 to the Companys Annual Report on Form 20-F filed June 30, 2009).4.7
     Sixth Amendment, dated August 1, 2009, to the Services Agreement among Telemar Norte Leste S.A., TNL PCS S.A., Telemar Internet Ltda. and TNL Contax S.A. (Filed herewith)4.8
     Seventh Amendment, dated October 30, 2009, to the Services Agreement among Telemar Norte Leste S.A., TNL PCS S.A., Telemar Internet Ltda. and TNL Contax S.A. (Filed herewith)4.9
     Contact Center Services Agreement, dated April 1, 2004, between Orbitall Serviços e Processamento de Informações Comerciais LTDA. and Inovação Contact Center Serviços de Contatos Telefônicos Ltda.(Incorporated by reference to Exhibit 4.2 to the Companys Registration Statement on Form 20-F filed on August 10, 2005).4.10
     Amendment, dated May 28, 2004, to the Contact Center Services Agreement between Orbitall Serviços e Processamento de Informações Comerciais LTDA. and Inovação Contact Center Serviços de Contatos Telefônicos Ltda. (Incorporated by reference to Exhibit 4.3 to the Companys Registration Statement on Form 20-F filed on August 10, 2005).4.11
     Amendment, dated September 27, 2004, to the Contact Center Service Agreement between Orbitall Serviços e Processamento de Informações Comerciais LTDA. and TNL Contax S.A. (Incorporated by reference to Exhibit 4.4 to the Companys Registration Statement on Form 20-F filed on August 10, 2005).4.11
     Amendment, dated September 27, 2004, to Temporary Service Agreement and Other Matters between Orbitall Serviços e Processamento de Informações Comerciais LTDA. and TNL Contax S.A. (Incorporated by reference to Exhibit 4.5 to the Companys Registration Statement on Form 20-F filed on August 10, 2005).4.12
     Amendment, dated October 1, 2004, to the Contact Center Service Agreement between Orbitall Serviços e Processamento de Informações Comerciais LTDA. and TNL Contax S.A. (Incorporated by reference to Exhibit 4.9 to the Companys Annual Report on Form 20-F filed on June 29, 2007).4.13
     Amendment, dated April 1, 2005, to the Contact Center Service Agreement between Orbitall Serviços e Processamento de Informações Comerciais LTDA. and TNL Contax S.A. (Incorporated by reference to Exhibit 4.10 to the Companys Annual Report on Form 20-F filed on June 29, 2007).4.14
     Amendment, dated May 10, 2006, to the Contact Center Service Agreement between Orbitall Serviços e Processamento de Informações Comerciais S.A. and TNL Contax S.A. (Incorporated by reference to Exhibit 4.11 to the Companys Annual Report on Form 20-F filed on June 29, 2007).4.15
     Amendment, dated December 29, 2006, to the Contact Center Service Agreement between Orbitall Serviços e Processamento de Informações Comerciais S.A. and TNL Contax S.A. (Incorporated by reference to Exhibit 4.12 to the Companys Annual Report on Form 20-F filed on June 29, 2007).4.16
     Amendment, dated September 11, 2007, to the Contact Center Service Agreement between Orbitall Serviços e Processamento de Informações Comerciais S.A. and TNL Contax S.A. (Incorporated by reference to Exhibit 4.15 to the Companys Annual Report on Form 20-F filed on June 30, 2009).4.17
     Amendment, dated January 8, 2008, to the Contact Center Service Agreement between Orbitall Serviços e Processamento de Informações Comerciais S.A. and TNL Contax S.A. (Incorporated by reference to Exhibit 4.16 to the Companys Annual Report on Form 20-F filed on June 30, 2009).4.18
     Amendment, dated April 25, 2008, to the Contact Center Service Agreement between Orbitall Serviços e Processamento de Informações Comerciais S.A. and TNL Contax S.A. (Incorporated by reference to Exhibit 4.17 to the Companys Annual Report on Form 20-F filed on June 30, 2009).4.19
     Amendment, dated April 1, 2009, to the Contact Center Service Agreement between Orbitall Serviços e Processamento de Informações Comerciais S.A. and TNL Contax S.A. (Filed herewith)4.20
     Amendment, dated June 29, 2009, to the Contact Center Service Agreement between Orbitall Serviços e Processamento de Informações Comerciais S.A. and TNL Contax S.A. (Filed herewith)4.21
     Amendment, dated December 18, 2009, to the Contact Center Service Agreement between Orbitall Serviços e Processamento de Informações Comerciais Ltda. and TNL Contax S.A. (Filed herewith)8.1
     List of Subsidiaries. (Filed herewith)11.1
     Code of Ethics of Contax Holding. (Incorporated by reference to Exhibit 11.1 to the Companys Registration Statement on Form 20-F filed on August 10, 2005).12.1
     Certification of the Chief Executive Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith)12.2
     Certification of the Chief Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith)13.1
     Certifications of the Chief Executive Officer and the Chief Financial Officer of the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith)16.1
     Letter from PricewaterhouseCoopers Auditores Independentes with respect to change of auditors. (Filed herewith)
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SIGNATURES Contax Participações S.A. hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. CONTAX PARTICIPAÇÕES S.A. By:/s/ Francis James Leahy Meaney Name: Francis James Leahy Meaney Title:  Chief Executive Officer Dated: June 28, 2010  92


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Contax Participações S.A.Consolidated Financial Statements as of December 31, 2009, 2008 and 2007andReports of Independent Registered Public Accounting Firms Index to the Consolidated Financial Statements
     
     F-1Managements Report on Internal Control Over Financial Reporting
     
     F-2Report of Independent Registered Public Accounting Firm, on Internal Control Over Financial Reporting
     
     F-3Reports of Independent Registered Public Accounting Firms, on Consolidated Financial Statements
     
     F-5Consolidated Balance Sheets as of December 31, 2009 and 2008
     
     F-7Consolidated Statements of Comprehensive Income for the Years ended December 31, 2009, 2008 and 2007
     
     F-8Consolidated Statements of Changes in Shareholders Equity for the Years ended December 31, 2009, 2008 and 2007
     
     F-9Consolidated Statements of Cash Flows for the Years ended December 31, 2007, 2008 and 2009
     
     F-10Notes to the Consolidated Financial Statements for the Years Ended December 31, 2009, 2008 and 2007
     
     F-11
  F-1


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8
  MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING  The management ofContax Participações S.A.and its subsidiaries (the Company)is responsible for establishing and maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting as defined inRules 13a-15(f) under the Securities Exchange Act of 1934.  The Companys internal control over financial reporting is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements in accordance withInternational Financial Reporting Standards (IFRSs), as issued by the International Accounting Standards Board (IASB). Our internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance withInternational Financial Reporting Standards (IFRSs), and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial statements.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect material misstatements on a timely basis. Therefore even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.  Our management, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial and Investor Relations Officer, assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations  COSO  of the Treadway Commission.  Based on our assessment, we have concluded that our internal control over financial reporting was effective at December 31, 2009.  The Companys independent registered public accounting firm, Deloitte Touche Tohmatsu Auditores Independentes, has issuedits report on the effectiveness of the Companys internal control over financial reporting, included herein.   Rio de Janeiro, June 28, 2010  /s/ Francis James Leahy Meaney
     
     /s/ Michel Neves SarkisFrancis James Leahy Meaney
     
     Michel Neves SarkisChief Executive Officer
     
     Chief Financial and Investor Relations OfficerJune 28, 2010
     
     June 28, 2010
   F-2


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, ON INTERNAL CONTROL OVER FINANCIAL REPORTING  To the Board of Directors and Shareholders of
Contax Participações S.A.Rio de Janeiro - RJ  We have audited the internal control over financial reporting of Contax Participações S.A. and subsidiaries (the Company) as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.  We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on that risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.  A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards (IFRSs), as issued by the International Accounting Standards Board (IASB). A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with International Financial Reporting Standards (IFRSs), and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.  Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.     F-3


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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2009, of the Company and our report dated June 28, 2010 expressed an unqualified opinion on those consolidated financial statements.   /s/Deloitte Touche Tohmatsu Auditores Independentes Deloitte Touche Tohmatsu Auditores Independentes Rio de Janeiro, Brazil
June 28, 2010  F-4


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, ON CONSOLIDATED FINANCIAL STATEMENTS  To the Board of Directors and Stockholders of Contax Participações S.A. Rio de Janeiro - RJ   We have audited the accompanying consolidated balance sheets of Contax Participações S.A. and subsidiaries (the Company) as of December 31, 2009, and the related consolidated statements of comprehensive income, changes in shareholders equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.  In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Contax Participações S.A. and subsidiaries as of December 31, 2009, and the results of its operations and cash flows for the year then ended, in accordance with International Financial Reporting Standards (IFRSs), as issued by the International Accounting Standards Board (IASB).  We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Companys internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated June 28, 2010 expressed an unqualified opinion on the Companys internal control over financial reporting.   /s/Deloitte Touche Tohmatsu Auditores Independentes Deloitte Touche Tohmatsu Auditores Independentes Rio de Janeiro, Brazil June 28, 2010   F-5


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  Tothe Board of Directors and Shareholders Contax Participações S.A.  In our opinion, the consolidated balance sheet as of December 31, 2008and the relatedconsolidated income statements, consolidated statements of changes in equity and consolidated cash flow statementsfor each of two years in the period ended December 31, 2008present fairly, in all material respects, the financial position of Contax Participações S.A. and its subsidiaries at December 31, 2008, and the results of their operations and theircash flows for each of the two years in the period ended December 31, 2008, in conformity withInternational Financial Reporting Standardsas issued by the International Accounting Standards Board. These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.  We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.    /s/ PricewaterhouseCoopers Auditores Independentes Rio de Janeiro, Brazil June 30, 2009 (except with respect to our opinion on the consolidated financial statements insofar as they relate to the retrospective adjustment on the share amounts and earnings per share for the stock split approved on October 27, 2009, for which the date is June 28, 2010)  F-6


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 Contax Participações S.A.  Consolidated Balance Sheets as of December 31, 2009 and 2008 In thousand of Brazilian reais
 Assets
     
     Notes
     
     2009
     
     2008
     
     Equity and liabilities
     
     Notes
     
     2009
     
     2008Non-current assets
     
     
     
     
     
     
     
     Capital and reservesProperty, plant and equipment
     
     13
     
     352,473
     
     307,700
     
     Issued capital
     
     17
     
     223,873
     
     223,873Intangible assets
     
     14
     
     80,446
     
     84,467
     
     Reserves
     
     18
     
     129,470
     
     136,383Judicial deposits
     
     22
     
     53,382
     
     35,338
     
     Treasury shares
     
     19
     
     (10,686)
     
     (49,848)Recoverable taxes
     
     11.2
     
     8,578
     
     7,269
     
     Retained earnings
     
     20
     
     59,403
     
     8,569Deferred tax assets
     
     11.3
     
     28,773
     
     32,430Financial Investments
     
     28
     
     26,590
     
     
     
     Equity attributable to owners of the Company
     
     
     
     402,060
     
     318,977Other assets
     
     
     
     12,769
     
     18,652
     
     Non-controlling interests
     
     
     
     1,446
     
     2,079Total non-current assets
     
     
     
     563,011
     
     485,856
     
     Total equity
     
     
     
     403,506
     
     321,056Current assets
     
     
     
     
     
     
     
     Non-current liabilitiesTrade and other receivables
     
     16
     
     128,486
     
     102,134
     
     Borrowings
     
     21
     
     149,521
     
     203,750Recoverable taxes
     
     11.2
     
     3,673
     
     1,944
     
     Taxes payable
     
     11.2
     
     944
     
     1,787Other receivables
     
     
     
     18,650
     
     8,573
     
     Obligations under finance leases
     
     23
     
     3,899
     
     9,884Cash and cash equivalents
     
     28
     
     357,853
     
     355,928
     
     Provision for contingencies
     
     22
     
     59,921
     
     64,151Other liabilities
     
     
     
     
     
     94Total current assets
     
     
     
     508,662
     
     468,579Total non-current liabilities
     
     
     
     214,285
     
     279,666Current liabilitiesTrade and other payables
     
     
     
     77,033
     
     76,847Borrowings
     
     21
     
     55,070
     
     14,219Payroll and related charges
     
     24
     
     197,818
     
     181,924Obligations under finance leases
     
     23
     
     10,118
     
     16,086Taxes payable
     
     11.2
     
     33,477
     
     22,272Dividends and interest on capital payable
     
     20
     
     32,787
     
     23,311Amounts payable to shareholders for reversesplit of shares
     
     17(i)
     
     16,331
     
     16,850Other liabilities
     
     
     
     31,248
     
     2,204Total current liabilities
     
     
     
     453,882
     
     353,713Total liabilities
     
     
     
     668,167
     
     633,379Total assets
     
     
     
     1,071,673
     
     954,435
     
     Total equity and liabilities
     
     
     
     1,071,673
     
     954,435  F-7


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 Contax Participações S.A.  Consolidated Statements of Comprehensive Income For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais, except earnings per share
 Notes
     
     2009
     
     2008
     
     2007Revenue (*)
     
     5
     
     2,161,019
     
     1,774,728
     
     1,365,815Cost of services
     
     7
     
     (1,760,164)
     
     (1,507,603)
     
     (1,174,106)Gross profit
     
     
     
     400,855
     
     267,125
     
     191,709Finance Income
     
     9
     
     24,531
     
     32,547
     
     16,647Selling
     
     7
     
     (27,709)
     
     (28,488)
     
     (23,986)General and administrative expenses
     
     7
     
     (130,715)
     
     (84,967)
     
     (57,857)Management fees
     
     7 / 27.2
     
     (7,879)
     
     (6,317)
     
     (4,912)Finance costs
     
     10
     
     (39,922)
     
     (32,597)
     
     (20,193)Other operating income (expenses), net
     
     8
     
     (13,440)
     
     (18,626)
     
     (15,579)Profit before tax
     
     
     
     205,721
     
     128,677
     
     85,829Income tax and social contribution expenses
     
     11.1
     
     (74,664)
     
     (45,848)
     
     (28,087)Total comprehensive income for the year
     
     
     
     131,057
     
     82,829
     
     57,742Total comprehensive income for the year attributableto:Non-controlling interest
     
     
     
     (634)
     
     3
     
     -Owners of the Company
     
     
     
     131,691
     
     82,826
     
     57,742Earnings per shareBasicCommon shares (cents per share)
     
     12.1
     
     2.23
     
     1.39
     
     0.92Preferred shares (cents per share)
     
     12.1
     
     2.23
     
     1.31
     
     0.85DilutedCommon shares (cents per share)
     
     12.2
     
     2.19
     
     1.39
     
     0.88Preferred shares (cents per share)
     
     12.2
     
     2.23
     
     1.31
     
     0.85(*) Revenues are presented net of sales taxes, returns, allowances and discounts.  The accompanying notes are an integral part of these consolidated financial statements. F-8


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  Contax Participações S.A. Consolidated Statements of Changes in Shareholders Equity For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
 Profit reservesCapitalShare
     
     reserve on share
     
     
     
     
     
     Unrealized
     
     Treasury
     
     Retained
     
     
     
     Non-controllingNotes
     
     capital
     
     subscripiton
     
     Legal
     
     Statutory
     
     reserve
     
     shares
     
     earnings
     
     Total
     
     interests
     
     TotalBalance at January 1, 2007
     
     
     
     223,873
     
     9,386
     
     8,146
     
     110,711
     
     17,219
     
     (780)
     
     2,967
     
     371,522
     
     -
     
     371,522Profit for the year
     
     
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     57,742
     
     57,742
     
     -
     
     57,742Acquisition of own shares
     
     
     
     -
     
     -
     
     -
     
     -
     
     -
     
     (119,317)
     
     -
     
     (119,317)
     
     -
     
     (119,317)Cancelation of own shares
     
     
     
     -
     
     -
     
     -
     
     (108,580)
     
     -
     
     108,580
     
     -
     
     -
     
     -
     
     -Sale of treasury shares
     
     
     
     -
     
     (132)
     
     -
     
     -
     
     -
     
     604
     
     -
     
     472
     
     -
     
     472Allocation of the net income for the year:Legal reserve
     
     
     
     -
     
     -
     
     2,699
     
     -
     
     -
     
     -
     
     (2,699)
     
     -
     
     -
     
     -Statutory reserve
     
     
     
     -
     
     -
     
     -
     
     38,464
     
     -
     
     -
     
     (38,464)
     
     -
     
     -
     
     -Unrealized profit reserve
     
     
     
     -
     
     -
     
     -
     
     -
     
     12,044
     
     -
     
     (12,044)
     
     -
     
     -
     
     -Payment of dividends (R$0.85 per thousand shares)
     
     
     
     -
     
     -
     
     -
     
     -
     
     (12,637)
     
     -
     
     (777)
     
     (13,414)
     
     -
     
     (13,414)Balance at December 31, 2007
     
     
     
     223,873
     
     9,254
     
     10,845
     
     40,595
     
     16,626
     
     (10,913)
     
     6,725
     
     297,005
     
     -
     
     297,005Acquisition of own shares
     
     19
     
     -
     
     -
     
     -
     
     -
     
     -
     
     (38,935)
     
     -
     
     (38,935)
     
     -
     
     (38,935)Dividends lapsed
     
     18.1
     
     -
     
     28
     
     -
     
     -
     
     -
     
     -
     
     -
     
     28
     
     -
     
     28Profit for the year
     
     
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     82,826
     
     82,826
     
     3
     
     82,829Allocation of the net income for the year:Legal reserve
     
     18.2
     
     -
     
     -
     
     4,620
     
     -
     
     -
     
     -
     
     (4,620)
     
     -
     
     -
     
     -Statutory reserve
     
     18.3
     
     -
     
     -
     
     -
     
     54,415
     
     -
     
     -
     
     (54,415)
     
     -
     
     -
     
     -Dividends proposed (R$0.85 per thousand shares)
     
     20
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     (21,947)
     
     (21,947)
     
     -
     
     (21,947)Non-controlling interests
     
     
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     2,076
     
     2,076Balance at December 31, 2008
     
     
     
     223,873
     
     9,282
     
     15,465
     
     95,010
     
     16,626
     
     (49,848)
     
     8,569
     
     318,977
     
     2,079
     
     321,056Acquisition of own shares
     
     19
     
     -
     
     -
     
     -
     
     -
     
     -
     
     (314)
     
     -
     
     (314)
     
     -
     
     (314)Cancelation of own shares
     
     
     
     -
     
     -
     
     -
     
     (39,476)
     
     -
     
     39,476
     
     -
     
     -
     
     -
     
     -Dividends lapsed
     
     18.1
     
     -
     
     29
     
     -
     
     -
     
     -
     
     -
     
     -
     
     29
     
     -
     
     29Profit for the year
     
     
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     131,691
     
     131,691
     
     (634)
     
     131,057Stock option plan
     
     
     
     -
     
     10,328
     
     -
     
     -
     
     -
     
     -
     
     -
     
     10,328
     
     -
     
     10,328Allocation of the net income for the year:Legal reserve
     
     18.2
     
     -
     
     -
     
     6,442
     
     -
     
     -
     
     -
     
     (6,442)
     
     -
     
     -
     
     -Statutory reserve
     
     18.3
     
     -
     
     -
     
     -
     
     32,390
     
     -
     
     -
     
     (32,390)
     
     -
     
     -
     
     -Payment of dividends (R$0.85 per thousand shares)
     
     
     
     -
     
     -
     
     -
     
     -
     
     (16,626)
     
     -
     
     (11,428)
     
     (28,054)
     
     -
     
     (28,054)Dividends proposed (R$1.52 per thousand shares)
     
     20
     
     -
     
     -
     
     -
     
     -
     
     -
     
     -
     
     (30,597)
     
     (30,597)
     
     -
     
     (30,597)Balance at December 31, 2009
     
     
     
     223,873
     
     19,639
     
     21,907
     
     87,924
     
     -
     
     (10,686)
     
     59,403
     
     402,060
     
     1,445
     
     403,505  The accompanying notes are an integral part of these consolidated financial statements.  F-9


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  Contax Participações S.A. Consolidated Statement of Cash Flows For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
 Year ended
     
     Year ended
     
     Year ended12/31/2009
     
     12/31/2008
     
     12/31/2007CASH FLOWS FROM OPERATING ACTIVITIESProfit for the year
     
     131,691
     
     82,829
     
     57,742Adjustments to reconcile net income:Depreciation and amortization of non-current assets
     
     116,411
     
     118,043
     
     100,610Provision for doubtful accounts
     
     
     
     
     
     4,021Deferred income tax and social contribution
     
     3,666
     
     (5,002)
     
     3,637Impairment of goodwill
     
     
     
     1,788Contingencies and other provisions
     
     1,874
     
     16,401
     
     14,097Loss (gain) on disposal of permanent assets
     
     1,710
     
     123
     
     (67)Monetary variation gain
     
     (1,890)
     
     (277)
     
     (367)Cost of stock option plan
     
     9,995
     
     129
     
     204Interest expenses on financial debt
     
     31,015
     
     22,295
     
     7,568Non-controlling interest
     
     (634)
     
     3Changes in assets and liabilities:(Increase) decrease in accounts receivable
     
     (26,351)
     
     (17,271)
     
     (35,016)(Increase) decrease in recoverable taxes
     
     (2,720)
     
     (2,654)
     
     3,195(Increase) in other assets
     
     (10,076)
     
     (8,588)
     
     (1,115)Increase in payroll and related accruals
     
     15,894
     
     38,576
     
     30,967Increase in trade and other payables
     
     186
     
     4,381
     
     24,705Increase (decrease) in payable taxes
     
     10,362
     
     7,505
     
     (1,512)Increase in other liabilities
     
     28,783
     
     16,600
     
     1,273Interest paid
     
     (31,130)
     
     (20,105)
     
     (6,766)Net cash provided by operating activities
     
     278,786
     
     254,776
     
     203,176CASH FLOWS FROM INVESTING ACTIVITIESProceeds from disposal of property, plant and equipment
     
     27
     
     130
     
     99Payments for property, plant and equipment and intangible assets
     
     (158,901)
     
     (167,930)
     
     (133,418)Judicial deposits
     
     (16,487)
     
     (17,550)
     
     (9,502)Long-term financial investment
     
     (26,590)Net cash used in investing activities
     
     (201,951)
     
     (185,350)
     
     (142,821)CASH FLOWS FROM FINANCING ACTIVITIESPayment of capital lease
     
     (11,674)
     
     (18,218)
     
     (21,027)Receipts from short-term borrowings
     
     
     
     13,041
     
     -Receipts from long-term borrowings
     
     
     
     103,690
     
     100,060Payments of long-term borrowings
     
     (13,542)Payment of dividends
     
     (49,380)
     
     (13,386)
     
     (11,532)Payments for buyback of shares
     
     (314)
     
     (38,935)
     
     (119,317)Proceeds from sale of treasury stock
     
     
     
     
     
     472Net cash used in financing activities
     
     (74,910)
     
     46,192
     
     (51,344)NET INCREASE IN CASH AND CASH EQUIVALENTS
     
     1,925
     
     115,618
     
     9,011CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR
     
     355,928
     
     240,310
     
     231,299CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR
     
     357,853
     
     355,928
     
     240,3101,925
     
     115,618
     
     9,011ADDITIONAL INFORMATION:Income and social contribution paid
     
     66,194
     
     45,792
     
     25,784  The accompanying notes are an integral part of these consolidated financial statements.  F-10


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Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
 1          General information  Contax Participações S.A. (the Company), established on July 31, 2000, is a publicly-held company, listed in Brazil (São Paulo Stock Exchange - BOVESPA) whose registered corporate purpose of which is to hold interests in other commercial enterprises and civil entities as a partner, shareholder or quotaholder in Brazil or abroad. It is incorporated and domiciled in Rio de Janeiro, Brazil, and the address of its registered office is at Rua do Passeio, 48 to 56 (part).  The Company has (i) as wholly-owned subsidiaries, Contax S.A. (Contax), a contact center service provider and BRC  XVI Empreendimentos Imobiliários Ltda. (BRC), a signatory to and beneficiary of the Tax Benefit Concession TermNo. 10/2008, entered into with the Municipality of São Paulo and its Council for the Selective Incentives Program for the region next to the Luz Station, (ii) as indirect subsidiary, TODO BPO e Soluções em Tecnologia S.A. (TODO), an information technology company. The Company and its subsidiaries are together referred to herein as the Group or we.  1.1       Contax S.A.  Contax was established on December 11, 2002, after changing the corporate name of the extinguished TNext S.A. (TNext), a company established in August 1998.Contax, is a privately-held company, which corporate purpose is providing tele-assistance services in general, offering a variety of integrated customer interaction solutions between its customers and their consumers, including telemarketing operations, customer services, customer retention, technical support and bill collection through a variety of communication channels, including telephone contacts, internet access, e-mail, fax, development of technological solutions related to the tele-assistance services, among others.  At Contax's Extraordinary General Meeting held on October 27, 2009 it was approved to change its corporate name from TNL Contax S.A. to Contax S.A.. Due to this change, Contaxs Bylaws was amended.  1.2       TODO BPO e Soluções em Tecnologia S.A.  TODO was established in September 2008 to effect the acquisition of the total capital of Colabora BPO e Soluções em Tecnologia S.A., for a consideration of R$ 2,094thousand. In October 2008 the Company further increased its investment in TODO by R$ 8 million and merged the acquired company with TODO (Note 15). TODO is a privately-held company, whose corporate purpose is to provide information technology services, software development and integrated, full and customized solutions, including the management of full or partial value chain of outsourced processes of business in general; back office processing; customer relationship management, among others.  1.3       BRC  XVI Empreendimentos Imobiliários Ltda.  BRCs acquisition aimed at developing and implementing separately the real estate project included in the Selective Incentives Program for the region next to the Luz Station (Nova LuzProgram) in the center of the City of São Paulo. F-11


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Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  2          Revised or amended standards and interpretations not effective and not early adopted  At the date of authorization of these financial statements, other than the Standards and Interpretations adopted by the Group the following Interpretations were in issue but not yet effective:  Standards and Interpretations that may be relevant to the Groups operations:  IFRS 3 (revised), Business combination - (effective from July 1, 2009). The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair vale or at the non-controlling interests proportionate share of the acquirees net assets. All acquisition-related costs should be expensed. The Group will apply IFRS 3 (Revised) prospectively to all business combinations from January 1, 2010.  IAS 27 (revised), Consolidated and separate financial statements (effective from July 1, 2009). The revised standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value and a gain or loss is recognized in profit or loss. The Group will apply IAS 27 (Revised) prospectively to transactions with non-controlling interests from January 1, 2010.  IFRS 5 (Amendment), Non-current assets held-for-sale and discontinued operations (and consequential amendment to IFRS 1, First-time adoption) (effective from July 1, 2009). The amendment is part of the IASBs annual improvements project published in May 2008. The amendment clarifies that all of a subsidiarys assets and liabilities are classified as held for sale if a partial disposal sale plan results in loss of control. Relevant disclosure should be made for this subsidiary if the definition of a discontinued operation is met. A consequential amendment to IFRS 1 states that these amendments are applied prospectively from the date of transition to IFRSs. The Group will apply the IFRS 5 (Amendment) prospectively to all partial disposals of subsidiaries from January 1, 2010.      F-12


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Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  3          Significant accounting policies  3.1       Statement of compliance  The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB).  3.2       Basis of presentation  The consolidated financial statements of the Group are presented in thousands of Brazilian reais (R$) and have been prepared on the historical cost basis except for the revaluation of certain financial instruments. Historical cost is generally based on the fair value of the consideration given in exchange for assets.  The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.  3.3       Basis of consolidation  (a)       Subsidiaries  Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.  Inter-company transactions, balances and unrealized gains on transactions between Group companies are eliminated. Unrealized losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.  (b)       Non-controlling interests  The Group applies a policy of treating transactions with non-controlling interests as transactions with parties external to the Group. Disposals of non-controlling interests result in gains and losses for the Group and are recorded in the income statement.  F-13


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Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  3.4       Revenue recognition  Revenue comprises the fair value of the consideration received or receivable for services rendered in the normal course of the Groups activities. Revenue is presented net of sales taxes, returns, allowances, discounts and after eliminating sales within the group.  The Group recognizes revenue when (i) the amount of revenue can be reliably measured, (ii) it is probable that future economic benefits will flow to the entity and (iii) specific criteria have been met for each of the Groups activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.  The Group renders services of telemarketing, contact center and credit recovery services to other companies. These services are provided on a speaking time, workstation position or performance basis or as a fixed-price contract.  Revenue from speaking time service contracts is measured on the basis of hours delivered whereas workstation position service contracts revenue is measured based on the number of workstation positions that were used by the client.  Revenue from performance targets (i.e. credit recovery services) are recognized based on the fee percentage agreed with the client over the recovered credits and the clients confirmation of such recovered credits.  If circumstances arise that may change the original estimates of revenues, costs or extent of progress toward completion, estimates are revised. These revisions may result in increases or decreases in estimated revenues or costs and are reflected in income in the period in which the circumstances that give rise to the revision become known by management.  3.5       Leasing  Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.  Assets held under finance leases are initially recognized as assets of the Group at their fair value at the commencement of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.  Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit or loss. Contingent rentals are recognized as expenses in the periods in which they are incurred.  F-14


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Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  Operating lease payments are recognized as expenses on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.  In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.  3.6       Foreign currencies  The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each group entity are expressed in Brazilian reais (R$), which is the functional currency of the Group and the presentation currency for the consolidated financial statements.  3.7       Share-based payments  Share-based payments to employees are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of share-based transactions are set out in Note 26.  The fair value determined at the grant date of the share-based payments is expensed on a straight-line basis over the vesting period, based on the Groups estimate of the number of equity instruments that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss over the remaining vesting period.  3.8       Taxation  Income tax expense represents the sum of the tax currently payable and deferred tax.  Provisions for deferred and payable income tax and social contribution and tax credit on temporary differences are established at the composite base rate of 34%, comprised of a 25% federal income tax rate plus a 9% social contribution rate.  Prepaid income tax and social contribution are recorded as Recoverable taxes.  3.8.1    Current tax  The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.   The Groups liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. F-15


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Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  3.8.2    Deferred tax  Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and their corresponding tax bases used, and is computed using the balance sheet liability method.   However, deferred income tax is not accounted for if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.  The carrying amount of deferred tax assets is reviewed at each balance sheet date and is only recognized to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilized.  Deferred tax assets are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date.   The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.  Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.  3.9       Property, plant and equipment  Property and equipment held for use in the supply of services, or for administrative purposes, are stated in the balance sheet at original cost, less any subsequent accumulated depreciation and subsequent accumulated impairment losses, when applicable.  Property and equipment are depreciated using the straight-line method over the useful lives of the related assets. Given the complex nature of our telecommunications and IT systems, the estimates of useful lives require considerable judgment and are inherently uncertain, due to rapidly changing technology and practices in our business sector, which could cause early obsolescence of such systems. The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.  Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.  The gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.     F-16


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Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  3.10     Intangible assets  Intangible assets represent principally software, and are reported at cost less accumulated amortization and accumulated impairment losses. Amortization is charged on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.  3.11     Impairment of tangible and intangible assets (excluding goodwill)  Assets that have indefinite useful lives, such as goodwill, are not amortized but tested for impairment at least annually. In addition, at each balance sheet date, the Group reviews its long-lived non-financial assets (such as property and equipment and intangible assets), to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, in connection with events or changes in circumstances that indicate that the carrying amounts of those assets may not be recovered, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.  Recoverable amount is the higher of the asset or group of assets fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.  If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.  Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss. Impairment loss recognized on goodwill is never reversed in subsequent periods.       F-17


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Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  3.12     Provisions  Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made for the amount of the obligation. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation.  3.13     Financial assets  3.13.1  Classification  The Group classifies its financial assets in the loans and receivables category or as long-term investments depending on the maturity and nature. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. The Groups loans and receivables comprise trade and other receivables in the balance sheet.  3.13.2  Recognition and measurement  Loans and receivables are carried at amortized cost using the effective interest method. The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired.  3.14     Financial liabilities and equity instruments issued by the Group  3.14.1  Classification as debt or equity  Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.  3.14.2  Financial liabilities  Financial liabilities are classified as either financial liabilities at fair value through profit & loss or other financial liabilities recorded at amortized cost.  3.14.3  Derecognition of financial liabilities  The Group derecognizes financial liabilities when, and only when, the Groups obligations are discharged, cancelled or they expire.     F-18


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Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  3.15     Costs and expenses  The operating costs and expenses are recorded on an accrual basis and pertain mainly to personnel expenses.  3.16     Finance income and costs  Finance income and finance costs pertain mainly to interest and inflation adjustments resulting from financial investments loan contracts and leasing contracts, all recorded on an accrual basis.  3.17     Cash and cash equivalents  Comprised of cash balances, bank deposits in cash and financial investments, whose redemption term is up to 90 days from the investment date. These financial investments are stated at cost, plus profit earned up to the year end closing date and their maturity dates are less than 90 days, short term,which are subject to an insignificant risk of change in their value.  3.18     Trade receivables and allowance for doubtful accounts  Trade receivables are recognized initially at fair value which generally represents invoiced amounts and subsequently at outstanding amounts less provision for impairment. An allowance for doubtful accounts is established when there is objective evidence, in addition to whatever guarantees may have been provided by the client, that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the assets carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the income statement within Selling, general and administrative expenses. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against Selling, general and administrative expenses in the income statement.  3.19     Judicial deposits  The Group questions, in some situations, the legality and/or applicability of certain liabilities and/or lawsuits filed against the Group. Pursuant to these questionings, following the court orders or managements strategy, amounts may be deposited in specific bank accounts under the Groups name. Such deposits do not settle the disputed amounts, but entitle the Group to carry the questioning processess. In these situations, although the deposits are still assets of the Group which are inflation adjusted, the amounts are only released upon receipt of a favourable ultimate unappealeble court decision. Judicial deposits are considered to be investing activities for cash flow statement purposes.   F-19


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Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  3.20     Borrowings  Borrowings are recognized initially at fair value, net of transaction costs. Subsequently, borrowings are accounted for at amortized cost, with interest recognized in income over the borrowing period using the effective interest rate method (Note 21).  3.21     Payroll and related charges  The amounts relate to vacation payable to employees and are recognized on a monthly basis in proportion to the twelve month acquisition period thereof.  The subsidiary Contax has a profit sharing program, for all of its employees, pursuant to an agreement entered into with FITTEL - Interstate Federation of Employees of Telecommunications Companies.   This profit sharing program, in which all the employees take part, is based on increasing operating gains and individual performance and the amounts recognized are based on the achievement of such performance targets.  3.22     Trade payables  Trade payables are initially recognized at fair value which generally represents invoiced amounts.  3.23     Dividends distribution  Dividends distribution to the Companys shareholders is recognized as a liability in the period in which the dividends are approved by the Companys shareholders.  3.24     Share buy-back  When the Company buys back its own shares, the amount of the consideration paid, including directly attributable costs, is recognized as a deduction from equity under treasury shares.  F-20


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Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  4          Critical Accounting Policies and Estimates  In preparing the Groups financial statements, the Group has relied on estimates and assumptions derived from historical experience and various other factors that we deemed reasonable and relevant. "Critical accounting policies" are those that are important to the portrayal of our financial condition and results and require management's most difficult, subjective or complex judgments, estimates and assumptions.  The application of these critical accounting policies often requires judgments made by management regarding the effects of matters that are inherently uncertain. These estimates, including but not limited to the provisions for accounts receivable and contingent liabilities, may differ from the actual value of such assets or liabilities. The following is a discussion of our critical accounting policies, including some of the variables, assumptions and sensitivities underlying the estimates relating to:  ·revenue recognition; ·depreciation of property and equipment; ·payroll and related accruals; ·provision for contingencies; ·deferred and recoverable income tax and social contribution; and ·share-based payments.  4.1       Revenue Recognition  The Group recognizes revenues on an accrual basis at the time services are rendered, except with respect to certain performance-based services, for which revenues are recognized upon their measurement and acceptance by our client. Most service contract revenues are calculated based on indicators such as quantity of workstations and speaking time and on performance targets. Revenues are calculated based on information available in our IT systems that relate to the volume of data services rendered to each client. Revenues related to performance-based services are calculated based on data available in Groups clients IT systems. In addition, the Group usually allocates operation managers to review, reconcile and discuss such indicators with clients.  Some revenue adjustments are recorded after discussions with such clients.  4.2       Depreciation of Property and Equipment  The Group depreciates property and equipment using the straight-line method at rates compatible with the useful lives of the underlying assets. In 2007, the useful lives of IT equipment and Furniture and fixtures were reviewed due to the reduction of the estimated economic useful life of assets acquired before December 31, 2006.  The evaluation and determination of the new economic useful life of these assets was performed in accordance with the rules of A.B.N.T  Brazilian Association of Technical Rules by a specialized consultant qualified for this activity.  Given the complex nature of the Groups telecommunications and IT systems, the estimates of useful lives require considerable judgment and are inherently uncertain, due to rapidly changing technology and practices in the Groups business sector, which could cause early obsolescence of such systems. F-21


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Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  4.3       Payroll and Related Accruals  Payroll and related accruals are the most significant costs of the Groups operations and are calculated and recorded on an accrual basis by the payroll system. Payroll and related accruals include wages and salaries, paid vacation, Christmas bonus (décimo terceiro salário, or thirteenth salary), social security charges, executive profit sharing plan and employees payroll tax withholdings, most of which are defined by Brazilian labor law.  For paid vacation provisions, each employee is entitled to a 30-day calendar paid annual vacation, corresponding to 133.3% of a monthly salary. The Group records a monthly provision for paid vacations, until such benefit is paid (when employees effectively take their vacations).  For the thirteenth salary payment provision, we record a monthly provision equal to 1/12 of each employees monthly salary until such benefit is paid.  Fringe benefits, such as paid transportation and meal vouchers, are recognized as expenses on a monthly basis when provided to employees.  Managements executive profit sharing plan is performance-based, based on the achievement of several of our financial and quality targets, as well as individual employees targets, determined on an annual basis.  This provision is recorded on a monthly basis and is recalculated at year-end based on our best estimate of targets attained, as set in the annual budget process, but the actual total amount is only final after being reviewed and approved by the Board of Directors.  4.4Provision for contingencies  The preparation of the consolidated financial statements requires management to make estimates and assumptions regarding contingencies that affect our overall financial condition or relate to the changes in the actual value of liabilities at the date of the consolidated financial statements and accounting for the expenses arising during the reported period. Such contingencies include those related to the legal proceedings discussed in Note 22 to our consolidated financial statements.  Provisions for contingencies are recognized for the amounts of probable losses determined by management based on legal advice from in-house and external legal counsel regarding the outstanding contingent matters. Management continuously evaluates the provisions for contingencies based on changes in relevant facts, circumstances and events, such as judicial decisions, that may impact our estimates, which in turn could have a material impact on our results of operations and shareholders equity. While management believes that the current provisions for contingencies are adequate, there can be no assurance that these factors will not change in the future.         F-22


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Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  4.5       Deferred and recoverable income tax and social contribution  The Group records deferred tax assets arising from temporary differences between the accounting bases of assets and liabilities and their tax bases. Deferred tax assets are recognized to the extent the Group expects to generate sufficient future taxable profit based on projections and forecasts prepared by the Groups management. These projections and forecasts include several assumptions related to the performance of the Group, exchange rates, service volumes, tax rates and other factors that could differ from current estimates.  There is no time limit for the use of tax losses carryforwards according to current Brazilian tax regulations. However, accumulated tax losses may be offset up to 30.0% of the annual taxable profit.  4.6       Share-based payments  The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 26.  F-23


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Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  5          Revenue  5.1       Information about major customers  Included in revenues are R$ 1,086,517thousand(2008 - R$ 906,917thousand and 2007 -R$ 692,074 thousand) relating to the Groups largest customer, representing approximately 50% of total revenue (2008  51% and 2007  51%).   6          Segment information  The Group has determined that its operations have only one operating segment: providing tele-assistance services in general. The Group operates in one geographical area.   7          Cost of services rendered and operating expenses  2009Cost of services
     
     
     
     General andrendered
     
     Selling
     
     administrative
     
     TotalPersonnel (i)
     
     1,315,520
     
     11,161
     
     63,693
     
     1,390,374Share-based payment (ii)
     
     
     
     
     
     9,995
     
     9,995Third-party services (iii)
     
     241,304
     
     5,824
     
     40,076
     
     287,204Depreciation (iv)
     
     98,786
     
     9
     
     17,616
     
     116,411Rental and insurance (v)
     
     91,981
     
     3
     
     5,915
     
     97,899Marketing, sponsorship and donation
     
     
     
     10,669
     
     832
     
     11,501Other inputs
     
     12,573
     
     43
     
     467
     
     13,0831,760,164
     
     27,709
     
     138,594
     
     1,926,4672008Cost of services
     
     
     
     General andrendered
     
     Selling
     
     administrative
     
     TotalPersonnel (i)
     
     1,110,073
     
     9,121
     
     46,669
     
     1,165,863Share-based payment (ii)
     
     
     
     
     
     129
     
     129Third-party services (iii)
     
     207,667
     
     3,245
     
     28,750
     
     239,662Depreciation (iv)
     
     105,302
     
     9
     
     12,731
     
     118,042Rental and insurance (v)
     
     72,820
     
     3
     
     1,912
     
     74,735Marketing, sponsorship and donation
     
     
     
     16,027
     
     720
     
     16,747Other inputs
     
     11,741
     
     83
     
     373
     
     12,1971,507,603
     
     28,488
     
     91,284
     
     1,627,375
 F-24


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Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
 2007Cost of services
     
     
     
     General andrendered
     
     Selling
     
     administrative
     
     TotalPersonnel (i)
     
     863,257
     
     11,148
     
     31,470
     
     905,875Share-based payment (ii)
     
     
     
     
     
     204
     
     204Third-party services (iii)
     
     158,276
     
     2,036
     
     21,920
     
     182,232Provision for impairment of trade accounts
     
     
     
     4,033
     
     
     
     4,033receivableDepreciation (iv)
     
     93,630
     
     38
     
     6,972
     
     100,640Rental and insurance (v)
     
     49,423
     
     5
     
     1,431
     
     50,859Marketing, sponsorship and donation
     
     
     
     6,618
     
     553
     
     7,171Other inputs
     
     9,520
     
     107
     
     220
     
     9,8471,174,106
     
     23,985
     
     62,770
     
     1,260,861  (i)Cost with personnel has increased due to the growth of the business volume and to salary increases provided for in Collective Bargaining Agreements and to benefits contractual adjustments. The Company provisioned for its 2009 profit sharing program, the amount of R$ 25,946 thousand  (R$22,544 thousand in 2008 and R$ 15,483 thousand in 2007), of which R$ 6,506 thousand was paid in advance, due to the fact that negotiations about said program have not been concluded with the Trade Union. The management carried out the provision taking into account its best estimate to conclude the negotiations, verifying the background of previous negotiations, technical analysis and the current status of this negotiation.  (ii)Cost of share-based payment grew mainly due to booking of certain changes as discussed in Note 26.  (iii)   The third-party services considered as Cost of Services Rendered refer mainly to expenses with workstation maintenance, data processing, while the third-party services considered as selling, general and administrative expenses refer to expenses with consulting services, traveling, and legal advice, among others.  (iv)    Refers to depreciation and amortization expenses of property, plant and equipment and intangible assets acquired through financial leasing agreements which were classified as fixed assets pursuant to IAS 17 Leases - and have been depreciated on a straight-line basis based on the assets expected useful life (Notes 13 and 23).  (v)     Represents principally expenses with property rental and contact center operating infrastructure.  8          Other Operating Income (Expenses), Net   2009
     
     2008
     
     2007Other Operating IncomeReversals of provision for contingencies (Note 22)
     
     15,123
     
     4,186
     
     14,675Penalty over overdue accounts
     
     40
     
     537
     
     -Recovered expenses
     
     169
     
     814
     
     31815,332
     
     5,537
     
     14,993Other Operating ExpensesProvision for contingencies (Note 22)
     
     (21,035)
     
     (17,425)
     
     (24,783)Municipal Real Estate Tax - IPTU
     
     (3,375)
     
     (2,402)
     
     (2,108)Other
     
     (4,362)
     
     (4,336)
     
     (3,681)(28,772)
     
     (24,163)
     
     (30,572)(13,440)
     
     (18,626)
     
     (15,579)   F-25


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
 9          Finance Income 2009
     
     2008
     
     2007Interest revenue:Bank deposits (i)
     
     22,330
     
     30,345
     
     15,681Interest and inflation restatement on escrow deposits
     
     2,096
     
     1,599
     
     492Other
     
     105
     
     603
     
     47424,531
     
     32,547
     
     16,647  (i)    Finance income with bank deposits was up due to dividends received from the subsidiary Contax in April 2009.    10        Finance Costs   2009
     
     2008
     
     2007Interest and inflation restatement on other liabilities
     
     (288)
     
     (92)
     
     (87)Temporary contribution on financial transactions - CPMF
     
     -
     
     -
     
     (6,903)Interest and inflation restatement of contingencies
     
     (5,890)
     
     (7,274)
     
     (4,683)Interest on BNDES financing (Note 21)
     
     (17,234)
     
     (14,738)
     
     (1,932)Interest on obligations under finance leases
     
     (13,780)
     
     (7,123)
     
     (5,194)Letter of guarantee commission (i)
     
     (1,378)
     
     (1,782)
     
     (317)Other financial expenses (ii)
     
     (1,352)
     
     (1,588)
     
     (1,077)(39,922)
     
     (32,597)
     
     (20,193) **** (i)Cost mainly related to letters of guarantee from first-tier financial institutions given as collateral of Brazilian Development Bank - BNDES loans (Note 21).  (ii)Basically refer to financial discounts granted to customers and taxes on foreign operations.   11Income taxes  Income taxes in Brazil comprise federal income tax and social contribution (which is an additional federal income tax). The deferred tax balances at each period end are computed at the rates to be in force in the subsequent years and the current tax balances at each period end include taxes to be paid currently. The statutory enacted rates applicable for federal income tax and social contribution were 25% and 9%, respectively, which represented a composite statutory rate of 34%, for 2007, 2008 and 2009.  F-26


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
 11.1     Income tax recognized in profit or loss  2009
     
     2008
     
     2007Current:Income tax
     
     (51,430)
     
     (37,221)
     
     (17,613)Social Contribution
     
     (19,568)
     
     (14,149)
     
     (6,837)(70,998)
     
     (51,370)
     
     (24,450)Deferred:Income tax on temporary additions
     
     (2,611)
     
     11,121
     
     5,315Social contribution on temporary additions
     
     (940)
     
     4,004
     
     1,914Income tax on tax losses
     
     (85)
     
     (7,053)
     
     (7,989)Social contribution on negative base (tax loss)
     
     (30)
     
     (2,550)
     
     (2,877)Total tax expense
     
     (3,666)
     
     5,522
     
     (3,637)(74,664)
     
     (45,848)
     
     (28,087)
  The expense for the year can be reconciled to the accounting profit as follows:  2009
     
     2008
     
     2007Profit before tax
     
     205,721
     
     128,677
     
     85,829Income tax expense calculated at 34%
     
     (69,945)
     
     (43,750)
     
     (29,182)Tax effects on permanent income (losses) (i)
     
     (5,492)
     
     (4,143)
     
     (956)Others
     
     773
     
     2,045
     
     2,051Income tax expense recognized in profit or loss
     
     (74,664)
     
     (45,848)
     
     (28,087)Effective income tax and social contribution rate
     
     36.29%
     
     35.63%
     
     32.72%  (i)      This refers basically to expenses with fines, donations, free products and sponsorships deemed non deductible, among others.  The tax rate used for the 2009, 2008 and 2007 reconciliations above is the corporate tax rate of 34% payable by corporate entities in Brazil on taxable profits under tax law in that jurisdiction. F-27




Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
 11.2     Tax assets and liabilities  Current
     
     Non-current2009
     
     2008
     
     2009
     
     2008Tax assets:Withholding income tax (i)
     
     2,416
     
     
     
     5,091
     
     4,737Withholding PIS/COFINS/CSLL
     
     868
     
     743Recoverable INSS
     
     389
     
     1,201Recoverable ISS (ii)
     
     
     
     
     
     3,487
     
     2,5323,673
     
     1,944
     
     8,578
     
     7,269Tax liabilities:Income Tax and Social Contribution, netof recoverable income tax and socialcontribution
     
     11,786
     
     4,858ISS
     
     12,637
     
     9,816PIS and COFINS
     
     8,273
     
     6,816Social Security paid by installments (iii)
     
     768
     
     768
     
     944
     
     1,787Other recoverable taxes
     
     13
     
     1433,477
     
     22,272
     
     944
     
     1,787  (i)      Withholding income tax on financial investment redemptions, due to the share buyback program, classified in the long term, since short-term recovery is not expected.  (ii)     Recoverable ISS is classified in the long term by virtue of the repayment terms with Municipal bodies.  (iii)    It refers to the payment by installments related to INSS (National Institute of Social Security) delinquency notice of joint liability, which has been fully transferred to third parties, not affecting Contaxs results, recorded in the item Other Assets in the current assets.  11.3     Deferred tax balances   2009
     
     2008Income tax on temporary differences (i)
     
     20,538
     
     23,146Social contribution on temporary differences (i)
     
     7,389
     
     8,332Income tax on tax losses
     
     620
     
     700Social contribution on negative base
     
     226
     
     25228,773
     
     32,430  (i)Deferred income tax and social contribution are recorded on December 31, 2009 by its net value and result from tax losses, negative base of social contribution and temporary differences related F-28


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
 (i) to undeductible provisions until these are effectively realized  and (ii) provisions, positive and negative, except for provision for contingent liability of Oi Fixa (Note 22.4 (iv)).  Deferred tax assets (liabilities) arise from the following:   2009Opening
     
     Charged
     
     Closingbalance
     
     to income
     
     balanceTemporary differences:Depreciation
     
     5,325
     
     (1,508)
     
     3,817Contingent liabilities
     
     17,125
     
     376
     
     17,501Profit sharing program
     
     7,665
     
     (1,056)
     
     6,609Provision for impairment of trade receivables
     
     1,363
     
     (1,363)
     
     -   2008Opening
     
     Charged
     
     Closingbalance
     
     to income
     
     balanceTemporary differences:Depreciation
     
     (2,284)
     
     7,609
     
     5,325Contingent liabilities
     
     12,006
     
     5,119
     
     17,125Profit sharing program
     
     5,264
     
     2,401
     
     7,665Provision for impairment of trade receivables
     
     1,367
     
     (4)
     
     1,363   12Earnings per share  On October 17, 2007, we effected a reverse stock split at a ratio of one share for every 20 shares of the same type, thereby decreasing the number of common shares from 116,495,445 to 5,824,772 and the number of preferred shares from 200,638,288 to 10,031,914.  On January 15, 2010, we effected a reverse stock split at a ratio of one share for 50 shares of the same type, thereby decreasing the number of common shares from 5,772,435 to 115,448 and the number of preferred shares from 9,170,250 to 183,405.  Simultaneously with the January 2010 reverse stock split, we effected a stock split at a ratio of 200 shares for one share of the same type, thereby increasing the number of common shares to 23,089,600 and the number of preferred shares to 36,681,000.  Consequently, in accordancewith IAS 33  paragraph 64, information relating to the number of shares and earnings per share amounts has been adjusted retroactively to reflect the foregoing stock splits. F-29


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
   Cents per share2009
     
     2008
     
     2007(retrospectively
     
     (retrospectivelyadjusted)
     
     adjusted)Basic earnings per shareCommon shares
     
     2.23
     
     1.39
     
     0.92Preferred shares
     
     2.23
     
     1.31
     
     0.85Diluted earnings per shareCommon shares
     
     2.19
     
     1.39
     
     0.88Preferred shares
     
     2.23
     
     1.31
     
     0.85  12.1     Basic earnings per share  The earnings and weighted average number of shares used in the calculation of basic earnings per share are as follows:   2009
     
     2008
     
     2007Profit for the year attributable to equity holders of the parentCommon shares
     
     49,947
     
     31,425
     
     21,211Preferred shares
     
     81,744
     
     51,401
     
     36,531Weighted average number of shares for the purposes of basic earnings per share (all measures):Common shares
     
     22,424,793
     
     22,569,675
     
     22,989,259Preferred shares
     
     36,681,000
     
     39,114,166
     
     42,817,74459,105,793
     
     61,683,841
     
     65,807,003  12.2     Diluted earnings per share  The earnings used in the calculation of all diluted earnings per share measures are the same as those for the equivalent basic earnings per share measures, as outlined above.  The following table shows the weighted average number of shares for the purposes of diluted earnings per share and the weighted average number of shares used in the calculation of basic earnings per share as follows:  F-30


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Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  2009
     
     2008
     
     2007Weighted average number of shares used in the calculation of basic earnings per share:Common shares
     
     22,424,793
     
     22,569,675
     
     22,989,259Preferred shares
     
     36,681,000
     
     39,114,166
     
     42,817,74459,105,793
     
     61,683,841
     
     65,807,003Weighted average number of shares used in the calculation of diluted earnings per share (all measures):Common shares (i)
     
     22,762,305
     
     22,569,675
     
     24,021,293Preferred shares
     
     36,681,000
     
     39,114,166
     
     42,817,74459,443,305
     
     61,683,841
     
     66,839,037  (i)      The effects of the stock-option plans issued by the Company were not taken into consideration in the calculation of earnings per share for the years ended December 31, 2008 and 2007 as it would generate an anti-dilutive effect.   F-31


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Table of Contents


Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
 13        Property, plant and equipment   Improvements onTelecom and IT
     
     Furniture and
     
     third party assets
     
     Construction insystems
     
     fixtures
     
     (i)
     
     progress (ii)
     
     Building (iii)
     
     Land
     
     Other
     
     TotalCostAt 1 January 2008
     
     256,123
     
     52,460
     
     155,080
     
     1,530
     
     2,628
     
     831
     
     22,683
     
     491,335Additions
     
     71,400
     
     16,537
     
     31,328
     
     2,447
     
     81
     
     
     
     6,997
     
     128,790Disposals
     
     (1,975)
     
     (102)
     
     (68)
     
     
     
     
     
     
     
     (1)
     
     (2,146)At 31 December 2008
     
     325,548
     
     68,895
     
     186,340
     
     3,977
     
     2,709
     
     831
     
     29,679
     
     617,979Additions
     
     45,287
     
     11,958
     
     60,407
     
     1,496
     
     
     
     
     
     16,203
     
     135,351Disposals
     
     (9,701)
     
     (1,367)
     
     (3,163)
     
     
     
     
     
     
     
     (39)
     
     (14,270)At 31 December 2009
     
     361,134
     
     79,486
     
     243,584
     
     5,473
     
     2,709
     
     831
     
     45,843
     
     739,060Accumulated depreciationAt 1 January 2008
     
     (159,112)
     
     (15,742)
     
     (36,771)
     
     
     
     
     
     
     
     (5,151)
     
     (216,776)Charge for the year
     
     (67,565)
     
     (8,172)
     
     (16,679)
     
     
     
     (105)
     
     
     
     (2,873)
     
     (95,394)Disposals
     
     1,813
     
     57
     
     21
     
     
     
     
     
     
     
     
     
     1,891At 31 December 2008
     
     (224,864)
     
     (23,857)
     
     (53,429)
     
     
     
     (105)
     
     
     
     (8,024)
     
     (310,279)Charge for the year
     
     (51,456)
     
     (10,545)
     
     (21,164)
     
     
     
     (105)
     
     
     
     (5,570)
     
     (88,840)Disposals
     
     9,509
     
     1,296
     
     1,701
     
     
     
     
     
     
     
     26
     
     12,532At 31 December 2009
     
     (266,811)
     
     (33,106)
     
     (72,892)
     
     -
     
     (210)
     
     -
     
     (13,568)
     
     (386,587)Carrying amount31 December 2009
     
     94,323
     
     46,380
     
     170,692
     
     5,473
     
     2,499
     
     831
     
     32,275
     
     352,47331 December 2008
     
     100,684
     
     45,038
     
     132,911
     
     3,977
     
     2,604
     
     831
     
     21,655
     
     307,700 F-32


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Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  The following useful lives are used in the calculation of depreciation:  Telecom and IT systems
     
     3 yearsImprovements on third party assets
     
     10 yearsFurniture and fixtures
     
     8 yearsBuilding
     
     25 yearsOther
     
     10 years
  (i)The real estate rental agreements effectiveness varies from 5 up to 8 years. The Company may renew it for the same period.  (ii)Property, plant and equipment in progress mainly include expenses with new constructions and equipment installations until beginning of operations, when it is reclassified to Assets in operation. Additions taken place in the period are stated by the transfers net value.  (iii)The property recorded under Building was acquired on December 21, 2007. Depreciation started in 2008.  14        Intangible assets   SoftwareCostAt 1 January 2008
     
     112,081Additions
     
     39,140Disposals
     
     (267)At 31 December 2008
     
     150,954Additions
     
     23,549At 31 December 2009
     
     174,503Accumulated amortizationAt 1 January 2008
     
     (44,105)Amortization expense
     
     (22,649)Disposals
     
     267At 31 December 2008
     
     (66,487)Amortization expense
     
     (27,570)At 31 December 2008
     
     (94,057)Carrying amount31 December 2009
     
     80,44631 December 2008
     
     84,467  Management has estimated a useful life of 5 years for software. F-33


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Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  15        Subsidiaries and Business Combinations  In September 2008, the Groups acquired 100% of the share capital ofColabora BPO e Soluções em Tecnologia S.A. (Colabora)through its newly formed subsidiary TODO in a exchange of shares where 100% of the shares of Colabora were exchanges for 20% of the shares in TODO. The acquired business was subsequently merged into TODO and the Company further increased its capital investment in TODO by R$ 8 million in November 2008.   The acquired business was in pre-operating stage as of December 31, 2008 and recognized no revenues for the year ended December 31, 2008.  Details of purchase consideration and net assets acquired are as follows:  SoftwareShares exchanged
     
     2,000Direct costs relating to the acquisition
     
     94Total purchase consideration
     
     2,094
  The assets and liabilities as of September 30, 2008 arising from the acquisition are as follows:  AcquireescarryingFair value
     
     amountIntangible assets - software (Note 14)
     
     306
     
     306Fair value of net assets
     
     306
     
     306Goodwill
     
     1,788Total purchase consideration
     
     2,094Purchase consideration settled in cash
     
     942,000
     
     306
  Goodwill was initially attributed to the expected future profitability of the acquired business and synergies expected from the combined operations of the Group and TODO.   The goodwill amount has been fully impaired (recognized in Other operating expenses, net) by management as of December 31, 2008, based on impairment analysis performed on detailed forecasts prepared post acquisition.     F-34


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
 Details of the Companys subsidiaries at December 31, 2009 are as follows:  Place ofincorporation
     
     Proportion
     
     ProportionName of
     
     (or registration)
     
     of ownership
     
     of votingsubsidiary
     
     and operation
     
     interest - %
     
     power held
     
     Principal activityContax
     
     Brazil
     
     100%
     
     100%
     
     Telephonic customer assistance servicesTODO
     
     Brazil
     
     80%
     
     80%
     
     Technology services
  Investment in BRC  XVI Empreendimentos Imobiliários Ltda.  In November 2009, Contax took over, for the amount of R$ 61, BRC  XVI Empreendimentos Imobiliários Ltda. (BRC), which had at that date net assets in the amount of R$ 1. This acquisition aimed at developing and implementing separately the real estate project included in the Selective Incentives Program for the region next to the Luz Station (Nova LuzProgram) in the center of the City of São Paulo.  TheNova LuzProgram, created pursuant to Law 14,096, of December 8, 2005, seeks to promote and boost development of the central area of the City of São Paulo.  BRC is a signatory to and beneficiary of the Tax Benefit Concession Term no. 10/2008, entered into with the Municipality of São Paulo and its Council for the Selective Incentives Program for the region next to the Luz Station.   16        Trade receivables   2009
     
     2008ClientsRelated Parties
     
     15,969
     
     12,101Other clients (third parties)
     
     112,517
     
     93,498Allowance for doubtful accounts
     
     
     
     (3,465)128,486
     
     102,134  Total trade receivables (net of allowances) held by the Group at December 31, 2008 amounted to R$ 128,486 thousand (2007 - R$ 102,134 thousand). The average credit period on sales is 20 days. Interest is charged at 1% per month on the outstanding balance.  Allowance for doubtful accounts is recorded to recognize incurred losses in relation to accounts receivable, whose calculation is based on estimates considering the situation of each customer and the guarantees provided by them. The basis for measurement of the allowance for doubtful accounts considers the position of each overdue client individually. Significant financial difficulties of the debtor, identification that the debtor has entered into bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. At F-35


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  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
 December 31, 2009, R$ 15,281 thousand of the trade receivables balance was due from Abn Amro Real Bank (2008  R$ 8,365 thousand from Itaucard Bank). There were no other customers who represented more than that in the total balance of trade receivables.  Transactions with related parties account for 55% of the revenues from services rendered in 2009 (2008 - 57% and 2007 - 55%).  Ageing of receivables overdue but not impaired:  2009
     
     2008Due
     
     122,518
     
     95,361until 30 days overdue
     
     4,949
     
     4,58530-60 days overdue
     
     127
     
     53760-90 days overdue
     
     
     
     63990-180 days overdue
     
     
     
     60more than 180 days overdue
     
     892
     
     4,417128,486
     
     105,599  Movement in the allowance for doubtful accounts:  2009
     
     
     
     2008Balance at beginning of the year
     
     3,465
     
     
     
     4,021Write-off during the year
     
     (3,465)
     
     (i)
     
     (556)Balance at end of the year
     
     -
     
     
     
     3,465  (i)      In view of the unsuccessful credit recovery, through administrative and legal collection, the Company wrote off the related accounts receivable. The provision was recorded at the end of 2007, and, since then, all collection efforts have been duly employed, there being no other means to claim the amounts.  In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date.   The concentration of credit risk is limited due to the customer base being large and unrelated.   Accordingly, the directors believe that there is no further credit provision required in excess of the allowance for doubtful debts.   17        Issued Capital  Share capital2009
     
     20085,772,435 fully paid ordinary shares (2008 - 5,824,772)
     
     86,483
     
     82,2379,170,250 fully paid preferred shares (2008 - 10,031,914)
     
     137,390
     
     141,636223,873
     
     223,873  17.1     Fully paid ordinary shares  Number
     
     Shareof shares
     
     capitalBalance at January 1, 2007
     
     6,074,361
     
     82,237Share cancellation on July 31, 2007
     
     (177,415)Share cancellation on October 1, 2007
     
     (72,174)Balance as of December 31, 2007 and 2008
     
     5,824,772
     
     82,237Share Cancellation on January 15, 2009
     
     (52,337)
     
     4,246Balance as of December 31, 2009
     
     5,772,435
     
     86,483  Each common share is entitled to one voting right in the resolutions of the General Meeting. F-36


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  17.2     Non-participating preference shares  Number
     
     Shareof shares
     
     capitalBalance at January 1, 2007
     
     12,148,695
     
     141,636Share cancellation on July 31, 2007
     
     (1,202,910)Share cancellation on October 1, 2007
     
     (913,871)Balance as of December 31, 2007 and 2008
     
     10,031,914
     
     141,636Share Cancellation on January 15, 2009
     
     (861,664)
     
     (4,246)Balance as of December 31, 2009
     
     9,170,250
     
     137,390  The preferred shares issued by the Company shall not have voting rights, but shall have priority of refund in the event the Company is liquidated, without premium, and in the payment of non-cumulative minimum dividends of (a) 6% per year, on the amount resulting from the division of the subscribed capital by the number of shares of the Company or (b) 3% of net equity value of shares, prevailing the highest amount between (a) and (b). The payment of such minimum statutory dividends is subject to the existence of distributable profits or realized profit reserves.  (i)      Reverse split of shares  First reverse split of shares  At the Extraordinary General Meeting held on October 17, 2007, the reverse split of all shares representing the Companys capital stock was approved, at the ratio of 20 shares for 1 share of the same type. As per a communication made to the shareholders, a term of until November 16, 2007 was granted to carry out the adjustments to share positions.  Share fractions resulting from reverse split were divided, grouped into whole numbers and sold at Bovespa auction on August 13, 2008, as per Notice to the Market dated August 12, 2008. The amounts resulting from this auction totaled R$ 22,106 thousand, out of which R$ 5,775 thousand were transferred to shareholders of fractioned shares. The R$ 16,331 thousand non-transferred amount corresponds to shareholders whose shares are either blocked or their records are not updated and will be exclusively paid upon the presentation of the supporting documentation evidencing the unblocked shares and/or shareholders identification, whichever is the case.  Second reverse split of shares  The following was approved at the Extraordinary General Meeting held on October 27, 2009, (i) the share reverse split, at the 50:1 share ratio, according to the corresponding types and (ii) the concurrent splitting of all shares existing after the reverse split, at the 1:200 share ratio of the same type, pursuant to Article 12 of Law 6,404/76.  The concurrently share reverse split and split aim at: (a) adjusting the shareholder base and decrease the administrative and operating costs for the Company and shareholders; (b) improving the efficiency of records, controls and reporting systems; (c) diminishing the possibilities of errors of information and communication, improving services to the Companys shareholders; and (d) maintaining the quoted value of Companys shares in the market at an attractive trading level, providing better liquidity to the Company's shares in the market.  As per the notice to shareholders, a term until January 15, 2010 was granted to carry out the adjustments to share positions.  F-37


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
 Once elapsed the terms for shareholding adjustments by shareholders, eventual fractions of shares resulting from the reverse split, except for those which are manifestly expressed by the holders non-participation in the auction, will be reversely split into whole figures and sold in an auction to be held at BM&FBOVESPA S.A., and the amounts resulting from such sale to be available on behalf of respective shareholder, pursuant to the procedures to be disclosed.       F-38


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  18        Reserves  2009
     
     2008
     
     2007Capital Reserve in Share Subscripition
     
     19,639
     
     9,282
     
     9,254Legal Reserve
     
     21,907
     
     15,465
     
     10,845Statutory Reserve
     
     87,924
     
     95,010
     
     40,595Unrealized Profit Reserve
     
     
     
     16,626
     
     16,626129,470
     
     136,383
     
     77,320  18.1     Capital reserve in share subscription  2009
     
     2008
     
     2007Balance at beginning of year
     
     9,282
     
     9,254
     
     9,386Stock Options Plan
     
     10,328
     
     
     
     (132)Dividends lapsed
     
     29
     
     28Balance at end of year
     
     19,639
     
     9,282
     
     9,254  18.2     Legal reserve  2009
     
     2008
     
     2007Balance at beginning of year
     
     15,465
     
     10,845
     
     8,146Allocation of profit for the year
     
     6,442
     
     4,620
     
     2,699Balance at end of year
     
     21,907
     
     15,465
     
     10,845  Pursuant to Article 193 of Brazilian Corporate Law, Contax Participações S.A. is obliged to allocate 5% of its annual net income determined under the accounting practices adopted in Brazil to a legal reserve, up to 20% of the Companys capital stock.   This allocation is optional when the legal reserve added to capital reserves exceed 30% of the capital stock. This reserve may be used to increase capital or offset losses, and may not be distributed as dividends.  18.3     Statutory reserve  2009
     
     2008
     
     2007Balance at beginning of year
     
     95,010
     
     40,595
     
     110,711Cancelation of own shares
     
     (39,476)
     
     
     
     (108,580)Appropriation from retained earnings
     
     32,390
     
     54,415
     
     38,464Balance at end of year
     
     87,924
     
     95,010
     
     40,595  Pursuant to Article 194 of Brazilian Corporate Law and to Article 29 of the Companys Bylaws, the Company created a Statutory Reserve to ensure the realization of investments by the Company, as well as to preserve its working capital. The Statutory Reserve is limited, together with all other profit reserves, to the amount of the capital stock.  As per resolutions of the Board of Directors, the Statutory Reserve was used in share buyback programs (Note 19).   F-39


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  18.4     Unrealized profit reserve
 2009
     
     2008
     
     2007Balance at beginning of year
     
     16,626
     
     16,626
     
     17,219Minimum statutory dividends
     
     (16,626)
     
     
     
     (12,637)Appropriation from retained earnings
     
     
     
     
     
     12,044Balance at end of year
     
     -
     
     16,626
     
     16,626  The unrealized profit reserve, as provided for in the Companys Bylaws, aims at not distributing the portion of unrealized profit as dividends.                        F-40


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  19        Treasury Shares  19.1     First share buyback program  At the Extraordinary Meeting of the Board of Directors held on June 29, 2006, the share buyback proposal was approved, with funds registered in the Capital Reserve and Statutory Reserve accounts, totaling the buyback of 5,886,972 common shares and 11,773,944 preferred shares, fully cancelled as per resolution of the Extraordinary General Meeting held on November 28, 2006.  19.2     Second share buyback program  At the Extraordinary Meeting held on November 30, 2006, the Board of Directors approved the launch proposal of the share buyback program, with funds registered in the Capital Reserve and Statutory Reserve accounts, which amounted to the buyback of 264,915 common shares of which 177,415 common shares were cancelled, and 1,209,210 preferred shares which were cancelled, on July 31, 2007.   As a result, 87,500 common shares purchased remained in treasury, as per resolution at the Extraordinary General Meeting held on July 27, 2007.  19.3     Third share buyback program  At the Extraordinary Meeting, held on July 26, 2007, the Board of Directors approved the new share buyback program with funds registered in the Capital Reserve and Statutory Reserve accounts, totaling the buyback of 913,871 preferred shares cancelled, and 159,674 common shares, of which 72,174 common shares were cancelled on October 17, 2007.   As a result, 87,500 common shares remained in treasury, pursuant to the resolutions of the General Extraordinary Meeting, totaling 175,000 common shares in treasury.  19.4     Fourth share buyback program  At the Extraordinary Meeting held on September 5, 2008, the Board of Directors approved a new share buyback program, with funds from Capital Reserve and Statutory Reserve accounts, totaling the buyback of 861,664 preferred shares and 52,337 common shares, which remained in treasury. The Extraordinary General Meeting held on December 17, 2008 approved the cancellation of 52,337 common shares and 861,664 preferred shares held in treasury, without decreasing the Companys capital stock, and 166,018 common shares remaining in treasury. All of these shares were canceled in January 2009.          F-41


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  19.5     Fifth share buyback program  The Extraordinary General Meeting held on October 27, 2009 approved the Companys Share Buyback Program pursuant to CVM Rule 10/80 and subsequent amendments, without reducing the Capital Stock. Funds from the capital and statutory reserves will be used for the acquisition of shares, excluding the amount of treasury shares. The maximum number of shares to be acquired is 174,999 common shares and 486,250 preferred shares, which represent less than 10% of outstanding common and preferred shares, respectively. Said Program may be implemented up to October 28, 2010.  Thousand
     
     Buyback
     
     Average
     
     Maximum
     
     MinimumShares
     
     Price
     
     Price
     
     Price
     
     PricePreferred Shares1st Buyback Program
     
     11,774
     
     21,517
     
     1.83
     
     1.95
     
     1.61Share Cancellation
     
     (11,774)
     
     (21,517)
     
     1.832nd Buyback Program
     
     24,058
     
     46,242
     
     1.92
     
     2.00
     
     1.84Share Cancellation
     
     (24,058)
     
     (46,242)
     
     1.923rd Buyback Program
     
     18,277
     
     46,424
     
     2.54
     
     2.65
     
     2.46Share Cancellation
     
     (18,277)
     
     (46,424)
     
     2.544th Buyback Program
     
     862
     
     36,206
     
     42.00
     
     42.81
     
     41.59Share Cancellation
     
     (862)
     
     (36,206)
     
     42.00-
     
     -Common Shares1st Buyback Program
     
     5,887
     
     19,097
     
     3.24
     
     3.41
     
     3.12Share Cancellation
     
     (5,887)
     
     (19,097)
     
     3.242nd Buyback Program
     
     5,298
     
     16,144
     
     3.05
     
     3.29
     
     2.97Share Cancellation
     
     (3,548)
     
     (10,812)
     
     3.053rd Buyback Program
     
     3,193
     
     11,287
     
     3.53
     
     3.62
     
     3.52Share Cancellation
     
     (1,443)
     
     (5,102)
     
     3.54Sale of Shares
     
     (180)
     
     (604)
     
     3.363,320
     
     10,913
     
     3.29Reverse Split of Shares (1/20)
     
     166
     
     10,913
     
     65.744th Buyback Program
     
     52
     
     2,729
     
     52.50
     
     52.94
     
     51.73Share Cancellation
     
     (52)
     
     (3,270)
     
     62.884th Buyback Program
     
     3
     
     314
     
     97.97
     
     98.83
     
     85.00169
     
     10,686169
     
     10,686   F-42


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  20        Retained earnings and dividends  2009
     
     2008
     
     2007Balance at beginning of year
     
     8,569
     
     6,725
     
     2,967Net income for the year - equity holders of theCompany
     
     131,691
     
     82,826
     
     57,742Minimum statutory dividends
     
     (30,597)
     
     (21,947)
     
     (777)Dividends paid
     
     (11,428)Appropriation to reserves
     
     (38,832)
     
     (59,035)
     
     (53,207)Balance at end of year
     
     59,403
     
     8,569
     
     6,725  According to the Companys by-laws, Contax Holding is obligated to distribute dividends for each fiscal year in the amount of not less than 25% of the net profit, determined under the accounting practices adopted in Brazil,adjusted in accordance with clause 202 of Law No. 6404/76. The Company may also distribute quarterly dividends, as long as the total amount of dividends paid does not exceed the capital reserve. In accordance with Brazilian Corporate Law, on December 31, 2009, management proposed the payment of R$ 30,597 thousand as the minimum mandatory dividends, prescribed by Law No. 6404/76.  On April 7, 2009, the distribution of R$ 50,000 thousand as dividends was deliberated and approved by the Annual General Meeting. On April 27, 2009 the dividends were paid to the Companys shareholders owning shares, inflation adjustment based on the Referential Rate - TR, since January 1, 2009.  The annual dividend distributed to holders of preferred shares (the Preferred Dividend) has priority in the allocation of Adjusted Net Income when determining the Preferred Dividend in relation to the general dividend.   Remaining amounts to be distributed, if any, are allocated first to the payment of a dividend to holders of common shares in an amount equal to the Preferred Dividend and the remainder, if any, is distributed equally among holders of preferred shares and common shares.  The Preferred Dividends corresponds to a non-cumulative preferred dividend equal to 6% of share capital determined in according to accounting practices adopted in Brazil, in proportion of preferred shares to total capital, or 3% of shareholders equity book value per share, whichever is greater. The payment of such minimum statutory dividends is subject to the existence of distributable profits or realized profit reserves.    F-43


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Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  21        Borrowings  FinancialPurpose
     
     Openning
     
     Maturity
     
     Guarantees
     
     charges
     
     2009
     
     2008BNDES(operation expansion and upgrade)
     
     10/2007
     
     09/2013
     
     bank guarantee
     
     TJLP(i)+ 2% p.a
     
     204,591
     
     217,969Current
     
     
     
     
     
     
     
     
     
     55,070
     
     14,219Non-current
     
     
     
     
     
     
     
     
     
     149,521
     
     203,750  (i)      The Brazilian long-term annual interest rate (TJLP), was 6.00% in 2009.  21.1     Summary of borrowing arrangements  On August 23, 2007, the subsidiary Contax entered into a loan agreement with BNDES in the amount of R$ 216,514 thousand with the purpose of financing the expansion of its installed capacity, improving current facilities, qualifying human resources, improving the quality of services and productivity, and investing in marketing actions.  The loan was obtained within the scope of the Program for the Development of the Software Industry and Correlated Services - PROSOFT-Company.  On October 5, 2007, the subsidiary received the first tranche, in the amount of R$ 100,002 thousand. In the first half of 2008, the second, third and fourth tranches were disbursed on January 28 and 30 and June 12, 2008, in the amounts of R$ 40,001 thousand and R$ 10,001 thousand and R$ 61,822 thousand, respectively. On November 18, 2008, the last tranche was disbursed in the amount of R$ 4,904 thousand. The loan tranches totaled R$ 216,730 thousand, as a result of the TJLP (long-term interest rate) adjustment.  Interest is payable on a quarterly basis up until September 15, 2009, becoming monthly for the period between October 15, 2009 until the maturity date or settlement of contract the principal shall be settled monthly as from October 15, 2009.  Contax contractually opted for tendering guarantees through sureties from financial institutions, in this case, receivables and restrictive (financial covenants) structures are not applicable. Costs related to these sureties totaled R$1,234 thousand in the fiscal year ended December 31, 2009 (R$1,658 thousand in 2008) and are recognized in the income statement over the borrowing term within Finance costs (Note 10).  Movement in balance for the year ended on December 31, 2008 and 2009:  Interest
     
     FinancialPurpose
     
     2007
     
     Funding
     
     Payment
     
     charges
     
     2008BNDES
     
     100,360
     
     116,731
     
     (13,860)
     
     14,738
     
     217,969Interest
     
     FinancialPurpose
     
     2008
     
     Funding
     
     Payment
     
     charges
     
     2009BNDES
     
     217,969
     
     (13,542)
     
     (17,070)
     
     17,234
     
     204,591  F-44


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
 Schedule of annual repayments until the maturity of the agreement:  Principal2011
     
     54,1822012
     
     54,1822013
     
     40,638149,002  Interest payment amounts will be determined based on future TJLP rates (long-term interest rate).  21.2     Covenants In the agreement the Company entered into with BNDES, it has some obligations that are not subject to the fulfillment of certain financial indexes. On December 31, 2009, there was no event of default related to these covenants.  22        Provision for contingencies and judicial deposits  22.1     Contingent assets  The Company has no contingent asset registered.  22.2     Contingent Liabilities  The Company and its (direct and indirect) subsidiaries are parties to tax, civil and labor lawsuits filed in the normal course of business and have been discussing these issues in the administrative and judicial levels, and where applicable, they are supported by court deposits. The Management, based on its legal advisors opinion, understands that the applicable legal measures and procedures that have already been taken in each situation are sufficient to cover probable losses and preserve the Companys and its subsidiaries shareholders equity, and these are assessed periodically.  Among these lawsuits are included the legalization of certain properties (own or third-party) which the Company deems will not have unfavorable outcomes during the Companys normal operations.  22.3     Breakdown of contingent liabilities The Company currently has been analyzing and refining the amounts deposited in court, in order to present them deducting the provision for contingencies to which they are pegged (when applicable). On December 31, 2009 and 2008, court deposits are recorded under non-current assets. On December 31, 2009 and 2008, Contax showed the following balances of provisions for contingencies and court deposits: Judicial deposits
     
     Provision for contingencies2009
     
     2008
     
     2009
     
     2008ContingenciesTax
     
     1,566
     
     1,469
     
     10,944
     
     11,927Labor
     
     51,807
     
     33,869
     
     48,362
     
     51,651Civil
     
     9
     
     
     
     615
     
     57353,382
     
     35,338
     
     59,921
     
     64,151  22.4     Breakdown of provisions for contingencies The breakdown of provisions for contingencies in the fiscal years ended December 31, 2009 and 2008 is shown below: TaxTax onservices -
     
     
     
     PIS/CSLL (iii)
     
     ISS
     
     INSS (i)
     
     COFINS (ii)
     
     Labor (iv)
     
     Civil
     
     TotalBalance at 1 January 2008
     
     
     
     1.098
     
     5.196
     
     1.482
     
     38.955
     
     129
     
     46.860Additions
     
     
     
     
     
     
     
     2.707
     
     14.277
     
     441
     
     17.425Uses
     
     
     
     
     
     
     
     
     
     (3.222)
     
     
     
     (3.222)Reversals
     
     
     
     
     
     
     
     
     
     (4.186)
     
     
     
     (4.186)Indexation
     
     
     
     836
     
     608
     
     
     
     5.827
     
     3
     
     7.274Balance at 1 January 2009
     
     
     
     1.934
     
     5.805
     
     4.188
     
     51.651
     
     573
     
     64.151Additions
     
     119
     
     
     
     2.206
     
     3.231
     
     15.315
     
     108
     
     20.979Uses
     
     
     
     
     
     
     
     
     
     (5.247)
     
     
     
     (5.247)Reversals
     
     
     
     
     
     (8.267)
     
     
     
     (19.334)
     
     (133)
     
     (27.734)Indexation
     
     
     
     314
     
     376
     
     1.038
     
     5.977
     
     67
     
     7.772Balance at 31 December 2009
     
     119
     
     2.248
     
     120
     
     8.457
     
     48.362
     
     615
     
     59.921  F-45


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
 (i)Contaxs tax delinquency notice related to INSS contributions amounted to R$ 20,566 thousand, adjusted until December 31, 2009, of which only R$ 6,809 thousand was accrued (updated up to the settlement date, as this represent a provision in accordance with IAS 37, paragraph 14). For the remaining R$ 13,757 thousand, not covered by provision, Contax filed a defense as it disagrees with tax authoritys understanding. According to the Companys external legal advisors, chances of winning the cause are possible, there being no need therefore for the provision of this amount as it represents a contingent liability.  In November 2009, Contax opted for paying in cash the amount of R$ 4,593 thousand related to the debts that were provisioned in view of the contributions to SENAC and SEBRAE, and in payments made to INSS (National Institute of Social Security), according to the FPAS (Pension and Social Welfare Fund) codes of payment table and social security charges related to day-care assistance.  (ii)        Related to the deduction of the ISS cost on the calculation basis for determination of PIS/COFINS.  (iii)      It refers to the 2004 negative base of social contribution used to offset the payment of subsequent years estimate and not formalizing in PER/Dcomp.  (iv)On September 30, 2009, Contax reviewed analytically all the labor claims that resulted in a reversal of liabilities provision, in the amount of R$ 11,799 thousand, R$ 7,558 thousand expensed against Credits Receivable with Telemar Norte Leste S/A (Oi Fixa) and R$ 4,241 thousand expensed against income.  The labor claims filed against Contax by employees and former employees hired by it during its operations amounted to R$ 40,407 thousand.  According to the services agreement executed between Oi Fixa and Contax, labor claims arising from the migration of employment contracts shall be incumbent upon that company, whose amount was recorded as corresponding entry to Credits receivable. The amount of labor claims under Oi Fixas responsibility represents R$ 7,955 thousand.  22.5     Contingent liabilities classified as possible losses  On December 31, 2009, the Company has contingent tax and civil liabilities in the amounts of R$37,704 thousand and R$ 5,007 thousand, respectively (2008  R$ 36,681 thousand and R$ 581 thousand, respectively). These amounts are not provisioned due to the fact that Contax filed a defense and based on the opinion of its external legal advisors who attribute to said lawsuits the probability of loss as possible or remote.    F-46


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
 On January 22, 2010, Contax was assessed by the Regional Labor and Employment Superintendence (SRTE) of Rio de Janeiro, in the amount of R$ 29,136 thousand. In the assessment notice, which concerns the period from January 2001 to February 2009, the demanded amounts relate to the FGTS (Employee Severance Indemnity Fund) (Law 8,036/90) and the Social Contribution (Supplementary Law no 110/01) levied on the cash payments made to Contaxs employees corresponding to the transport voucher fringe benefit. Contax challenged the assessment notice in the administrative level and currently awaits judgment.  The Management, based on the opinion of its external legal counsel, considers the likelihood of loss as possible and did not record any provision for eventual unfavorable outcomes.  23        Obligations under finance and operating leases  23.1     Leasing arrangements  Finance leases relate to IT equipment and furniture for the maintenance of the Groups operations with lease terms of 3, 4 and 5 years. The Group has contractual rights to purchase the equipment for a nominal amount (significantly below fair value) at the conclusion of the lease agreements. The Groups obligations under finance leases are secured by the lessors title to the leased assets.  23.1.1  Finance lease liabilities  Balance PayableNumber ofLessor
     
     installments
     
     2009
     
     2008CIT
     
     48
     
     1,455
     
     4,143Unibanco
     
     48
     
     237
     
     3,121HP Financial
     
     48
     
     727
     
     4,88160
     
     7,777
     
     9,140IBM Leasing
     
     48
     
     
     
     18960
     
     3,821
     
     4,49614,017
     
     25,970Included in the financial statements as:Current obligations under finance leases
     
     
     
     10,118
     
     16,086Non-current obligations under finance leases
     
     
     
     3,899
     
     9,884  23.1.2  Operating leasing arrangements  Operating leases relate to warehouse facilities with lease terms of between 5 to 8 years, with an option to extend for the same period. All operating lease contracts contain market review clauses in the event that the Group exercises its renewal rights. The Group does not have any contractual rights to purchase the leased asset at the expiry of the lease period.  The Companys operational facilities are located in properties rented from related parties. Most of the lease agreements were entered into with Telemar Norte Leste S.A.  23.1.3  Payments recognized as an expense  2009
     
     2008
     
     2007Operating lease payments
     
     96,896
     
     73,565
     
     50,194    F-47


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
 23.2     Contractualobligations  The Groups operational facilities are located in properties rented from related parties. Most of the lease agreements were entered into with Telemar Norte Leste S.A.. Lease expenses from all the agreements corresponded to R$61,274 thousand in 2009 (2008  R$40,576 thousand and 2007  29,639 thousand).  Payments due by periodLess than
     
     
     
     
     
     More thanContractual obligations
     
     Total
     
     1 year
     
     1-3 years
     
     1-3 years
     
     5 yearsCapital (finance) lease
     
     14,017
     
     10,118
     
     3,899Operating lease (i)
     
     36,994
     
     7,333
     
     13,040
     
     9,749
     
     6,872Financing (BNDES) (ii)
     
     204,591
     
     55,070
     
     149,521255,602
     
     72,521
     
     166,460
     
     9,749
     
     6,872  (i)Most facility lease agreements may be terminated before the termination date upon a 1 to 6-month prior notice, subject to fine equivalent to three times the monthly lease fee.  (ii)Includes payment of estimated interest rates.  On December 31, 2009, the Group had no other contractual obligations.  24        Payroll and Related Charges  2009
     
     2008Payroll
     
     47,664
     
     49,212Vacation accrual
     
     71,939
     
     57,867Related charges
     
     56,682
     
     50,919Others
     
     21,533
     
     23,926197,818
     
     181,924  Related charges are mainly comprised of social obligations.  25        Financial instruments and risk assessment  25.1     Purposes and strategies of risk management  The Companys policy for financial asset management is to constantly pursue the optimization of its profitability in line with risks by establishing criteria and indicators for adjustments of liquidity, market and credit risk.  25.2     Capital risk management  The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximizing the return to stakeholders through the optimization of the debt and equity balance. The capital structure of the Group consists of debt, which includes the borrowing disclosed in Note 21, cash and cash equivalents and equity attributable to equity holders of the parent comprising issued capital, reserves and retained earning as disclosed in Notes 17, 18 and 20, respectively.  The Groups policy is to maintain a strong capital base so as to maintain growth, and an optimal capital structure to reduce the cost of capital and to provide returns for its shareholders.  F-48


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
 Management believes that the resources available to the Company are sufficient for its present requirements and will be sufficient to meet its anticipated requirements for capital expenditures and other cash requirements for the 2010 fiscal year.  The gearing ratio at the year end was as follows:  2009
     
     2008Debt (i)
     
     218,608
     
     243,939Cash and cash equivalents
     
     (357,853)
     
     (355,928)Net debt
     
     (139,245)
     
     (111,989)Equity (ii)
     
     403,506
     
     321,056Net debt to equity ratio
     
     (35%)
     
     (35%)  (i)      Debt is defined as long- and short-term borrowings and finance leases, as detailed in Notes 21 and 23.  (ii)     Equity includes all capital and reserves of the Group.  25.3     Significant accounting policies  Details of the significant accounting policies and methods adopted (including the criteria for recognition, the bases of measurement, and the bases for recognition of income and expenses), for each class of financial asset, financial liability and equity instrument are disclosed in Note 3 to the consolidated financial statements.  25.4     Categories of financial instruments  The fair value of publicly-quoted investments is based on current purchase prices. For financial instruments without active market or public quote, the Company establishes the fair value through valuation techniques. These techniques include the use of recent operations contracted with third parties, reference to other instruments which are substantially similar, the analysis of discounted cash flows and the option pricing models making use of as much information generated by the market as possible and relying very little on information generated by the entitys Management.  F-49


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
 On the balance sheet date, the Company evaluates if there is any objective evidence that a financial asset or a group of financial assets is recorded at a value higher than its recoverable value. If there is any evidence concerning the available-for-sale financial assets, the cumulative loss  measured as the difference between the acquisition cost and the current fair value, less any loss for realization of this financial asset previously recognized in income  is excluded from equity and recognized in the statement of income.  On December 31, 2009 and December 31, 2008, the book and fair values of the financial instruments are as follows:  Fair value
     
     
     
     Book value2009
     
     2008
     
     2009
     
     2008Financial assets:Cash and cash equivalents
     
     357,853
     
     355,928
     
     357,853
     
     355,928Long-term financial investments
     
     26,590
     
     
     
     26,590Loans and ReceivablesTrade and other receivables
     
     128,486
     
     102,134
     
     128,486
     
     102,134Other receivables
     
     11,425
     
     17,530
     
     11,425
     
     17,530524,354
     
     475,592
     
     524,354
     
     475,592Financial liabilities:Trade and other payables (i)
     
     77,033
     
     76,847
     
     77,033
     
     76,847Borrowings (ii)
     
     204,591
     
     217,969
     
     204,591
     
     217,969Obligations under finance leases
     
     11,882
     
     22,015
     
     14,017
     
     25,970293,506
     
     316,831
     
     295,641
     
     320,786  (i)As accounts receivable and payable on average are settled within a 30-day term, the book values substantially represent the fair values on the balance sheet dates.  (ii)This type of financing does not have fair calculation in Brazil, as it relates to BNDES.  25.5     Interest rate risk management  The associated risk arises from the possibility of the Group incurring in losses derived from interest rate variations that increase the financial expenses related to financings raised in the market.   The Group continuously monitors the market interest rates with the purpose of evaluating the possible need of hiring operations to protect itself against the volatility risk of these rates.  BNDES charges fixed interest rates over the TJLP (long-term interest rate) on loans with the purpose of financing the expansion of its installed capacity, improving current facilities, qualifying human resources, improving the quality of services and productivity, and investing in marketing actions.   Since these rates are considerably low, the Group understands that there is low volatility risk for this part of the debt.  25.6     Credit risk  Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.  The credit risk associated with trade accounts receivable is not relevant, due to the financial size of the companies to which the Group provides services.  The provision for doubtful accounts is recorded to recognize probable losses in relation to accounts receivable, whose calculation is based on estimates considering the situation of each customer and the guarantees provided by them.   The basis for measurement of the provision considers the position of each overdue client individually.  The concentration of credit risk associated from customers is not material since in December 31, 2009, important financial conglomerates were responsible for approximately 54% (2008 - 58%) of accounts receivables outstanding balance.  F-50


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Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
 25.7     Concentration of credit risks  Financial instruments which expose the Group to concentration of credit risk consist primarily of cash equivalents and accounts receivable.   All cash equivalents are maintained in Brazil. Management believes its credit policies are prudent and reflect normal business terms and risk. The Group does not anticipate nonperformance by the counterparties and, accordingly, does not require collateral.  25.8     Market risk  Service revenues and costs have basically no exposure to foreign exchange variations, since they are not directly or indirectly pegged to the U.S. dollar.  However, risks related to foreign exchange do exist, since a significant portion of the Companys capital expenditures consists of investments in IT equipment which, despite not being expressed in foreign currency, are indirectly impacted by  variations in foreign exchange rates because they contain imported parts.  Risks related to foreign exchange rates are the possibilities the Company has of incurring losses due to interest rate variations that  increase  financial expenses from financing obtained in the market. The Company is constantly monitoring the market interest rates with the purpose of watching the eventual need of contracting operations to protect against the risks related to these volatile rates.  25.9     Sensitivity analysis  The interest rates risk arises from the possibility of the Group incurring in losses derived from interest rate variations that increase the financial expenses related to financings raised in the market. The Group continuously monitors the market interest rates with the purpose of evaluating the possible need of hiring operations to protect itself against the volatility risk of these rates. If interest rates increased by 1 percentage point the additional amount of annual interest expense arising from the Companys outstanding debt would be R$ 2,051 thousand.  25.10   Liquidity risks  Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions.   Management monitors rolling forecasts of the Groups liquidity reserve on the basis of expected cash flow.    The table below analyses the Groups financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date.   The amounts disclosed in the table are the contractual undiscounted cash flows of the outstanding amounts.   Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.  2009Between
     
     BetweenLess than
     
     1 and 2
     
     2 and 5
     
     Over 51 year
     
     years
     
     years
     
     yearsBorrowings (excluding financelease liabilities)
     
     54,182
     
     108,365
     
     40,638Finance lease liabilities
     
     10,118
     
     3,899Trade and other payables
     
     77,0332008Between
     
     BetweenLess than
     
     1 and 2
     
     2 and 5
     
     Over 51 year
     
     years
     
     years
     
     yearsBorrowings (excluding financelease liabilities)
     
     13,546
     
     54,182
     
     149,002Finance lease liabilities
     
     16,086
     
     7,119
     
     2,765Trade and other payables
     
     76,847 F-51


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  26        Share-based Payment  The Extraordinary General Meeting held on April 16, 2007, approved a stock option plan, whose management is incumbent upon the Management Committee established by the Board of Directors and composed of its members.  The Stock Option Plan initiated in 2007 (2007 Program) grants to its beneficiaries, a total corresponding up to 1.9% of the subscribed and paid-up capital stock, representing 350,000 thousand common shares granted within the scope of the 2007 Program. Options may be exercised as of October 1, 2007, in four equal annual tranches.  On September 4, 2009, the Management Committee approved the following changes in the format of 2007 Program, maintaining the conditions already ruled: (a) to adjust the number of options granted to the beneficiaries of the 2007 Program due to the Company share reverse split at the 20:1 ratio, approved by the Extraordinary General Meeting held on October 17, 2007; (b) to adjust the options strike price from R$ 51.20 to R$ 45.00; (c) to change the index that adjusts for inflation the options strike price from IGP-M to IPCA to be applied over the strike price of the next annual tranches related to the 2007 Program; (d) to determine the discontinuance of the obligation to allocate a minimum amount of the annual bonus to acquire shares deriving from options whose initial grace period has already elapsed.  The changes outlined above are applicable as from the second tranche, whether or not the initial grace periods of the corresponding annual tranches have elapsed or not.  In September 2009, R$ 5,370 thousand was recorded due to the effects of changes made to the 2007 Program. Expenses referring to the fair value of options granted and recorded in income for 2009, according to the term elapsed for the vesting right to exercise the options stood at R$ 9,995 thousand (R$128 thousand in 2008).  The stock options of the Company are qualified to be treated as equity instruments, in accordance with IFRS 2 - Share-based Payments.    F-52


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Table of Contents


Contax Participações S.A.  Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  Fair value of options was recalculated on September 4, 2009, date of the abovementioned changes, using the Black & Scholes option pricing model, pursuant to IFRS 2  Share-based Payment, and considered the following weighted average assumptions:  Blocks 2nd, 3rd and1st block
     
     4th weightedStrike price (R$) (*):
     
     51.20
     
     45.00Market price (R$) (*):
     
     64.00
     
     79.00Options fair value
     
     14.13
     
     37.31Share price volatility
     
     19.64%
     
     17.59%Risk-free rate of return:
     
     11.08%
     
     11.07%Dividend yield:
     
     1.40%
     
     1.50%  (*)     On the plan granting date, in relation to the first lot and on the date the plan is changed to others lots.  On December 31, 2009, the vesting period was still open only for the options referring to the 4th tranche.  The remunerations costs of the 2007 Program to be recognized by the 1-year remaining weighted average term amounted to approximately R$ 816 thousand.  Share market value quoted on the last business day of December 2009 was R$107.48 per share.  Out of the 319,142 outstanding options on December 31, 2009, 166,017 options are exercisable. In the year no options were exercised.  TODO BPOs Extraordinary General Meeting held on October 29, 2008 approved the stock option plan to the management, issuing 800 of TODOs new registered common shares, with no par value. Up to date, no options have been granted to managers.               F-53


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
 27        Related party transactions  27.1     Balances and transactions  31/12/2009Brasil
     
     Brasil
     
     PaggoAdministradorade Cartões
     
     PaggoAdministradorade CréditoOi
     
     Oi
     
     Oi
     
     Amazônia
     
     Telecom
     
     Telecom
     
     
     
     PaggoFixa
     
     Móvel
     
     Internet
     
     Celular
     
     Fixa
     
     Móvel
     
     
     
     Acquirer
     
     Way TV
     
     BNDES
     
     TotalAssetsAccounts receivable
     
     2,720
     
     1,382
     
     59
     
     
     
     3,608
     
     8,200
     
     
     
     
     
     
     
     
     
     
     
     15,969Accounts receivable - contingencies
     
     7,955
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     7,95510,675
     
     1,382
     
     59
     
     
     
     3,608
     
     8,200
     
     
     
     
     
     
     
     
     
     
     
     23,924LiabilitiesSuppliers
     
     3,194
     
     605
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     3,799Loans and financing (Note 21)
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     204,591
     
     204,5913,194
     
     605
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     204,591
     
     208,390RevenuesRevenues from services rendered
     
     750,394
     
     362,846
     
     4,893
     
     1,361
     
     19,393
     
     33,432
     
     749
     
     15,671
     
     793
     
     6,436
     
     
     
     1,195,968Costs and expensesCost of services rendered
     
     (28,429)
     
     (8,245)
     
     
     
     
     
     2
     
     
     
     
     
     
     
     
     
     
     
     
     
     (36,672)Financial expenses (Note 10)
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     (17,234)
     
     (17,234)(28,429)
     
     (8,245)
     
     
     
     
     
     2
     
     
     
     
     
     
     
     
     
     
     
     (17,234)
     
     (53,906)  F-54


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  31/12/2008Paggo
     
     PaggoOi
     
     Oi
     
     Brasil
     
     Brasil
     
     Oi
     
     Telemar
     
     Amazônia
     
     Administradora
     
     Administradora
     
     PaggoFixa
     
     Móvel
     
     CAP
     
     Veículos
     
     Internet
     
     Participações
     
     Celular
     
     de Cartões
     
     de Crédito
     
     Acquirer
     
     Way TV
     
     BNDES
     
     TotalAssetsAccounts receivable
     
     8,183
     
     1,421
     
     470
     
     768
     
     200
     
     
     
     
     
     377
     
     
     
     
     
     682
     
     
     
     12,101Accounts receivable - contingencies
     
     13,782
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     13,78221,965
     
     1,421
     
     470
     
     768
     
     200
     
     
     
     
     
     377
     
     
     
     
     
     682
     
     
     
     25,883LiabilitiesSuppliers
     
     1,625
     
     35
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     1,660Loans and financing (Note 21)
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     217,969
     
     217,9691,625
     
     35
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     217,969
     
     219,629RevenuesRevenues from services rendered
     
     724,012
     
     237,179
     
     4,861
     
     7,727
     
     5,424
     
     (17)
     
     4,913
     
     12,210
     
     1,508
     
     2,385
     
     5,929
     
     
     
     1,006,131Costs and expensesCost of services rendered
     
     (26,930)
     
     (6,872)
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     (33,802)Financial expenses (Note 10)
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     (14,305)
     
     (14,305)(26,930)
     
     (6,872)
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     (14,305)
     
     (48,107)
  F-55


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  27.2     Compensation of key management personnel  Short-term benefits  Short-term benefits include fixed compensation (salaries and fees, paid vacations, thirteenth salary and private pension plan), social charges (contributions to social security - INSS, FGTS, among others) and variable compensation (profit sharing).  Share-based Compensation  The members of the Company's Management (Chief Executive Officer, Executive Officers and Vice-Chief Executive Officers) participate in the Stock Option Plan (Note 26).  Others  The Company does not have additional post-employment obligations, and it does not offer other long-term benefits, such as length of service leave and other length of service benefits. The Company also does not offer other benefits upon the termination of the top managements labor agreements, besides those agreements envisaged by the Brazilian labor legislation in force.  Pursuant to the Brazilian Corporation Law and the Companys Bylaws, it shall be incumbent upon shareholders at the General Meeting to establish the Managements annual overall compensation. The Board of Directors shall distribute the amount among the Management members. At the (i) Parent Companys Extraordinary General Meeting held on April 7, 2009, and (ii) the Extraordinary General Meeting of direct subsidiary Contax held on April 24, 2009,  the managements annual overall compensations for fiscal year 2009 was set at the maximum of R$ 2,390 thousand and R$ 3,500 thousand, respectively (2008  R$ 2,090 thousand and R$ 2,000 thousand).  During the years ended December 31, 2009 and 2008, the compensation of key management personnel (i.e. board members and statutory officers), paid or payable, is outlined below:  2009
     
     2008
     
     2007Payroll and related charges
     
     2,894
     
     2,735
     
     2,164Fees
     
     1,555
     
     1,222
     
     1,023Profit sharing
     
     3,430
     
     2,360
     
     1,725Stock Options
     
     9,995
     
     129
     
     20417,874
     
     6,446
     
     5,116   F-56


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
 28        Cash and cash equivalents and long-term investments  2009
     
     2008Cash and banks (i)
     
     14,446
     
     6,336Financial investments (ii)
     
     343,407
     
     349,592357,853
     
     355,928Long-term financial investments (iii)
     
     26,590
     
     -26,590
     
     -Total cash and cash equivalents and long-term financial investments
     
     384,443
     
     355,928  (i)The amounts are kept in a current account, as the Group has accounts payable due on the first days of each month, relating to the payment of suppliers, taxes and payroll.  (ii)The financial investments are promptly convertible into a known cash amount and are subject to an insignificant risk of change in said amount. These financial investments refer to Bank Deposit Certificates  CDB and committed operations, which are characterized by the sale of security with commitment, by the selling part (the Financial Institution) to repurchase it and from the buyer, to resell it in the future. Both investment were remunerated based on the variation in Interbank Deposit Certificate - CDI  (iii)  On December 31, 2009, long-term investments comprised investments in Bank Deposit Certificates  CBD whose original maturity date is in 2014 and were acquired with the intention and financial capacity to hold them in the portfolio up to maturity date. They are evaluated by cost of acquisition, plus the income earned against the income for the year.   29        Insurance coverage  The Company and its subsidiary have a risk management program aiming at minimizing risks, obtaining in the market coverages compatible with its size and operations.   Coverage was contracted by amounts deemed as sufficient by Management to cover any eventual losses and casualties, taking into account the nature of its operations, the risks involved in its operations and the guidance of its insurance brokers, ensuring the integrity of assets and the continuity of its operations.  On December 31, 2009, the Company had the following main insurance policies contracted with third-parties:  SecuredBranches
     
     amounts
     
     MaturityManagement and officers civil liability (i)
     
     174,040
     
     01.13.2010Fire of property, plant and equipment
     
     96,378
     
     05.16.2010Loss of profits
     
     43,282
     
     05.16.2010General civil liability
     
     10,000
     
     05.16.2010  (i)Maximum limit of guarantee set at US$100 million.  30        Securities and guarantees  On December 31, 2009, sureties and guarantees were granted to other subsidiaries, regarding loans to third parties and legal claims, as follows:  GuaranteesBank guarantee (BNDES)
     
     206,697Bank guarantee (Contigencies)
     
     21,602228,299  31        Events after the reporting period  (a)Reverse split of shares F-57


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  On January 18, 2010, the Company carried out the simultaneous split of its shares, aiming at: i) reducing administrative and operational costs; ii) improving the efficiency of records, controls and information disclosure systems; iii) reducing the possibility of information and communication errors, improving services to shareholders; iv) keeping its share quotation in the market in a level attractive for trading, providing better liquidity to its shares.  As of January 18, 2010, the Companys shares began to be traded exclusively at the ratio resulting from the reverse split and simultaneous split of shares, carried out on said date. Said transaction resulted in 59,770,600 shares, 23,089,600 of which are common shares and 36,681,000 are preferred shares.  (b)New agreement with BNDES  In March 2010, Contax entered into a new loan agreement with BNDES in the amount of R$ 323,552 thousand, divided into two sub-loans:  Sub-loan A in the amount of R$ 281,455 thousand destined to investments to increase the installed capacity and improve facilities, implement quality programs, train human resources and invest in Research and Development, within the scope of BNDES Program for the Development of the National Industry of Software and Information Technology Services  BNDES PROSOFT; and    Sub-loan B in the amount of R$ 42,097 thousand destined to investments to acquire domestic machinery and equipment, classified into the criteria of the Special Agency of Industrial Financing - FINAME, required by the project.  Annual interest rate of 1.73% shall incur over the principal amount of sub-loan A plus the TJLP (long-term interest rate) variation accrued of 1% p.a., while an annual interest rate of 4.5% shall incur over the sub-loan B.  The principal of debt will be settled in 60 monthly and consecutive installments, the first installment maturing on October 15, 2011 and the last installment maturing on September 15, 2016. Financial charges will mature on a quarterly basis between March 2010 and September 2011, and on a monthly basis from October 2011.  The Company will tender as guarantee the receivables deriving from the Services Agreement executed with Telemar Norte Leste S/A (Oi Fixa), TNL PCS S/A (Oi Móvel) and Telemar Internet Ltda. In addition, during the effectiveness of this Agreement, it shall maintain the Debt Service Coverage Ratio equal or higher than 1.65, of which:  a)Debt Service Coverage Ratio calculated by dividing the Earnings Before Interest, Tax, Depreciation and AmortizationEBITDA by Debt Service on a half-yearly basis;  b)  Earnings Before Interest, Tax, Depreciation and Amortization or EBITDA corresponds to the operating income before the financial result, income tax and social contribution and depreciation and amortization expenses in the half year;  c)  The Debt Service corresponds to the amount of debt effectively paid to creditors as amortization of principal and interest rates in the half year. F-58


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  Up to date, BNDES has not authorized any tranche referring to this new agreement.  (b)Agreement with Banco do Nordeste  In March 2010, Contax executed a loan agreement with Banco do Nordeste (BNB) in the amount of R$ 51,000 thousand, aiming at financing the implementation of a new operating unit in the city of Recife. The outstanding balance will be adjusted by a fixed rate of 10% p.a., including full performance bonus of 15%. The maturity of financial charges shall occur quarterly until March 2012, and then monthly between April 2012 and March 2015. The principal shall be paid in 36 monthly installments, from April 2012 to March 2015.  Up to date, BNB has not authorized any tranche referring to this agreement.  (c)Stock Option Plan  In March 2010, the beneficiaries of the program purchased 892,700 common shares at their average unit fair value of R$12.06.  F-59


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Table of Contents
  Contax Participações S.A. Notes to the Consolidated Financial Statements For the Years Ended December 31, 2009, 2008 and 2007 In thousands of Brazilian reais
  32        Approval of consolidated financial statements  The consolidated financial statements were approved by the board of directors and authorized for issue on June 28, 2010.   
 F-60


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